The US Treasury Department has warned that it will exhaust its borrowing authority and run out of cash by June 5 unless Congress raises the debt ceiling. The debt limit, which is the legal cap on how much the federal government can borrow, has been suspended since 2019 but will be reinstated on August 1 at around $28.5 trillion.
The Treasury has been using extraordinary measures to keep paying the government’s bills since then, but those measures will run out soon. In a letter to congressional leaders on Wednesday, Treasury Secretary Janet Yellen said that if Congress does not act by June 5, the Treasury will have to start delaying or missing payments on obligations such as interest on the debt, Social Security benefits, Medicare payments, military salaries and tax refunds.
Yellen urged Congress to act as soon as possible to avoid a default on the nation’s debt, which could have catastrophic consequences for the economy and financial markets. She said that raising or suspending the debt limit does not increase government spending, but simply allows the Treasury to pay for what Congress has already approved.
“Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans,” Yellen wrote. “Even the threat of failing to meet those obligations has caused detrimental impacts in the past, including the sole credit rating downgrade in the history of the nation in 2011.”
Congress has always raised or suspended the debt limit in time to avoid a default, but the process has often been fraught with political brinkmanship and partisan disputes. The last time Congress faced this issue in 2019, it took months of negotiations before lawmakers agreed to suspend the debt limit for two years.
This time, however, the situation is complicated by the fact that Democrats control both chambers of Congress and the White House, and Republicans have signaled that they will not cooperate on raising the debt limit.
Senate Minority Leader Mitch McConnell said last week that he does not expect any Republican support for increasing the debt ceiling, and that Democrats will have to do it on their own through a budget reconciliation process that requires only a simple majority.
Democrats have not yet decided how they will address the debt limit issue, but they have several options. They could try to pass a standalone bill to raise or suspend the debt limit with 60 votes in the Senate, which would require at least 10 Republicans to join them.
They could also attach a debt limit provision to another must-pass legislation, such as a government funding bill or an infrastructure package. Or they could use the reconciliation process to raise the debt limit along with their other spending priorities, such as President Joe Biden’s $1.9 trillion American Rescue Plan or his $2.3 trillion American Jobs Plan.
Whatever option they choose, Democrats will have to act quickly and decisively to avoid a fiscal crisis that could undermine their agenda and hurt their political prospects. They will also have to contend with the possibility of legal challenges or political backlash from Republicans and conservative groups who oppose increasing the nation’s debt.
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