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Avi Lerner, et al., Federal Debt and the Statutory Limit, May 2023 1 (May 12, 2023)

handle is hein.congrec/fldtadtesy0001 and id is 1 raw text is: T he debt limit-commonly called the debt ceiling-is the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agencies. The amount is set by law and has been increased or suspended over the years to allow for the additional borrowing needed to finance the government's operations. On December 16, 2021, lawmakers raised the debt limit by $2.5 trillion to a total of $31.4 trillion.1 On January 19, 2023, that limit was reached, and the Treasury announced a debt issu- ance suspension period and began using well-established extraordinary measures to borrow additional funds without breaching the debt ceiling. The Congressional Budget Office projects that if the debt limit remains unchanged, there is a significant risk that at some point in the first two weeks of June, the govern- ment will no longer be able to pay all of its obligations. The extent to which the Treasury will be able to fund the government's ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June. That uncertainty exists because the timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO's projections. If the debt limit is not raised or suspended before the Treasury's cash and extraordinary measures are exhausted, the government will have to delay making payments for some activities, default on its debt obligations, or both.2 If the Treasury's cash and extraordinary measures are suf- ficient to finance the government until June 15, expected quarterly tax receipts and additional extraordinary 1. That increase in the debt limit was enacted in a joint resolution, Public Law 117-73. 2. In recent years, the Congress has addressed the debt limit by either raising the maximum amount of debt the Treasury may issue or suspending the debt limit for a defined period of time. measures will probably allow the government to continue financing operations through at least the end of July. What Constitutes Debt Subject to the Statutory Limit? Debt subject to the statutory limit (commonly referred to as debt subject to limit) consists of debt held by the public and debt held by government accounts.3 Debt held by the public is mostly in the form of securities that the Treasury issues to raise cash to fund operations that cannot be fully paid for with federal revenues. Such debt is held by individual investors, the Federal Reserve System, mutual funds, financial institutions, and foreign governments. Debt held by government accounts is issued to the federal government's trust funds and other federal accounts for internal transactions. Trust funds for Social Security, military retirement, civil service retirement and disability, and Medicare account for most of that debt. Of the total amount of outstanding debt subject to the statutory limit, about three-quarters is debt held by the public; the remaining one-quarter is debt held by govern- ment accounts. What Resources Are Available to the Treasury? Until lawmakers enact legislation to raise or suspend the debt limit, the Treasury must use its cash balance and the available extraordinary measures to fund ongoing gov- ernment activities. The Treasury can draw down its cash balance to extend the time that it can continue financ- ing government operations without issuing debt. On April 30, 2023, the Treasury had $316 billion in cash. 3. For more information about the various measures of federal debt, see Congressional Budget Office, Federal Debt: A Primer (March 2020), www.cbo.gov/publication/56165.

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