Source: US Congressional Budget Office
The 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 over the years to finance the government’s operations. On October 14, 2021, lawmakers raised the debt limit by $480 billion to a total of $28.9 trillion. On October 18, the Treasury announced a continuation of the “debt issuance suspension period” during which, under current law, it could take “extraordinary measures” to borrow additional funds without breaching the debt ceiling. (The debt issuance suspension period began on August 1, 2021.)
The Treasury has already reached the new debt limit of $28.9 trillion, so it currently has no room to borrow under its standard operating procedures, other than to replace maturing debt. To avoid breaching the limit, the Treasury is using the extraordinary measures that allow it to continue to borrow additional amounts for a limited time.
How long those extraordinary measures last will be heavily influenced by transactions scheduled over the coming weeks. For example, the Treasury has announced that it will implement a provision of the Infrastructure Investment and Jobs Act (Public Law 117-58) by transferring $118 billion to the Highway Trust Fund on December 15.
The Congressional Budget Office projects that, if the debt limit remained unchanged and if the Treasury made that transfer in full, the government’s ability to borrow using extraordinary measures would be exhausted soon after it made the transfer. In that case, the Treasury would most likely run out of cash before the end of December. If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for some activities, default on its debt obligations, or both.
The Secretary of the Treasury may have the authority to defer all or part of the transfer to the Highway Trust Fund. If payments were made to the Highway Trust Fund only in the amounts needed for immediate use, the government would be able to pay its obligations for a few weeks longer than it would if the payments were made in full—until sometime in January.
The timing and amount of revenue collections and outlays over the next few weeks are especially uncertain, given the magnitude of outlays related to the 2020–2021 coronavirus pandemic, and could differ from CBO’s projections. Therefore, the extraordinary measures could be exhausted, and the Treasury could run out of cash, earlier or later than CBO projects.