The congressionally set limit on the amount of money the federal government can borrow.
Push it to the Limit
Among Congress's extensive spending powers is its authority over the amount of money the federal government can borrow. Federal debt is not a new phenomenon. The United States has been in debt since 1790, and Congress has not balanced its budget for over 20 years. For much of our history, Congress routinely and quietly raised the debt ceiling, or the limit on the amount of money the government can borrow. The Gephardt Rule aimed to streamline this process by tying automatic debt limit increases to the passage of a budget. However, debt limit increases have become increasingly politicized in recent years.
Raise the Roof
Perhaps the most memorable debt ceiling crisis was in 2011, when Republicans refused to raise the debt limit until the last minute after demanding deficit reduction measures. This led to a lowering of the U.S. credit rating and an estimated $1.3 billion increase in borrowing costs for that year (and more economic consequences in the following years). Despite those economic and political costs, Republicans employed similar tactics in 2013 when they initially conditioned their support for raising the debt ceiling on cutting parts of the Affordable Care Act. The debt limit was reached, and the Treasury Department had to take extraordinary measures to meet federal financial obligations until the debt ceiling was later raised.
The Bipartisan Budget Act of 2019 suspended the debt limit until July 31, 2021. Once this suspension lapses, Treasury can again employ extraordinary measures, although Treasury Secretary Yellen has cautioned that these measures will not keep the government operating for long. She recently warned of "catastrophic" consequences if Congress does not increase or waive the debt limit, in part due to the financial uncertainty caused by the COVID-19 pandemic.
Dancing on the Ceiling
Discussions about raising the ceiling are already echoing the partisan tones of 2011 and 2013. Some Republicans have said they will not support an increase without spending cuts and other reforms. Democrats will need 60 Senate votes to pass a debt ceiling increase unless they try to include it in a budget reconciliation measure, but a reconciliation package may not even be ready before Treasury's extraordinary measures are exhausted.
As Congress's August recess looms, the stakes are getting higher by the day. The cornerstones of the Democrats' agenda, including the American Jobs Plan and the American Families Plan, all depend on raising the debt limit, as does regular FY2022 appropriations. This coming month will be crucial in negotiating a path forward, and if you haven't heard the term "debt ceiling" recently, you will be hearing more about it very soon.