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Federal Debt and the Statutory Limit, March 2017 1 (March 7, 2017)

handle is hein.congrec/cbo3328 and id is 1 raw text is: Federal Debt and the Statutory Limit, March 2017 The debt limit-commonly referred to as the debt ceiling-is the maximum amount of debt that the Department of the Treasury can issue to the public and to other federal agencies. That amount is set by law and has been increased over the years in order to finance the government's operations. Currently, there is no statu- tory limit on the issuance of new federal debt because the Bipartisan Budget Act of 2015 (Public Law 114-74), enacted in November 2015, suspended the debt ceiling through March 15, 2017. On March 16, the limit will be reset to reflect cumulative borrowing through the period of suspension. Absent additional legislation that further suspended or increased the debt limit, existing statutes allow the Trea- sury to declare a debt issuance suspension period on March 16, 2017, and take a number of extraordinary measures to borrow additional funds without breaching the new debt ceiling. The Congressional Budget Office projects that if the debt limit remains unchanged, those measures will probably be exhausted and the Treasury will probably run out of cash sometime in the fall of 2017. (The timing and magnitude of revenues and outlays over the next several months could vary noticeably from CBO's projections, so those measures could be exhausted and the Treasury could run out of cash earlier or later.) At such time, the government would be unable to fully pay its obligations, a development that would lead to delays of payments for government activities, a default on the government's debt obligations, or both. What Is the Current Situation? The Bipartisan Budget Act of 2015 specifies that the amount of borrowing that occurs while the limit is sus- pended be added to the previous debt limit of $18.1 tril- lion. As of February 28, an additional $1.8 trillion had been borrowed, bringing the amount of outstanding debt subject to limit up to $19.9 trillion. On March 16, a new limit will be established, reflecting the additional borrow- ing through March 15. If the current suspension is not extended or a higher debt limit is not legislated before March 16, the Treasury will, from that date forward, have no room to borrow under standard operating procedures. Therefore, to avoid breaching the ceiling, the Treasury would begin taking the extraordinary measures that would allow it to con- tinue to borrow for a limited time. Continued use of those measures, along with regular cash inflows, should allow the Treasury to finance the government's activities for the next several months without an increase in the debt ceiling. What Makes Up the Debt Subject to Limit? Debt subject to the statutory limit comprises two main components: debt held by the public and debt held by government accounts.' Debt held by the public consists mainly of securities that the Treasury issues to raise cash to fund the federal government's operations that revenues are insufficient to cover. Such debt is held by outside investors, including the Federal Reserve System. Debt held by government accounts is debt issued to the federal government's trust funds and other federal accounts for internal transactions of the government; it is not traded in capital markets. Trust funds for Social Security, Medicare, military retirement, and civil service retirement and disability hold most of that debt. Of the $19.9 trillion in outstanding debt subject to limit, $14.4 trillion is held by the public and $5.5 trillion is held by government accounts. 1. For more information on federal debt, see Congressional Budget Office, Federal Debt and Interest Costs (December 2010), www.cbo.gov/publication/21960.

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