The U.S. government cannot borrow beyond a statutory limit (the “debt limit”), and when borrowing needs exceed the debt limit either Congress must raise (or suspend) it, or the U.S. will not be able to meet all its obligations on a timely basis. Such a failure to make timely payments would trigger worldwide economic catastrophe, putting at risk the “full faith and credit” of the U.S., economists say. The U.S. is currently at the statutory debt limit and is using certain accounting measures to avoid breaching the cap. Those accounting measures will be exhausted in the coming weeks, setting up a key legislative priority for Congress.
President Trump supports raising the debt limit. Currently, Congressional Republicans plan to address the issue with a provision in the reconciliation bill. The budget resolution agreed to last week would raise the limit to $4 trillion in the House and up to $5 trillion in the Senate. This is designed to keep the debt limit issue from arising again until after the 2026 mid-term elections.
A firm date (the X Date) for reaching the statutory cap on borrowing is not yet known—to an extent it will depend on the level of taxes collected by the April 15 tax filing deadline for individuals, and again in June (when a raft of corporate income tax payments is due). Current projections (which are not official—only the Treasury can determine the official X Date), including from the Congressional Budget Office (CBO), put the X Date in August, although some say it could come by late May or June if tax collections drop below projected levels. Treasury has told Congress that it will reach “the warning track” on running out of ways to avoid reaching the debt limit by May or June.
Prospects: One way or another, Congress is almost certain to raise or suspend the debt limit prior to the X Date. But including it in the reconciliation bill is a gamble given that Congress is facing a daunting challenge in writing/enacting a reconciliation bill in time to avoid reaching the debt limit X Date. This puts yet more pressure on the reconciliation bill process.
An alternative that some lawmakers are floating is to pull the debt limit provision from reconciliation and instead package it in a bill that would move under regular order (thus requiring Democratic votes, particularly in the Senate). One such bill could combine disaster relief (needed in California and North Carolina due to destructive wildfires). A decision on this is unlikely prior to official determination of an X Date and progress made (or not made) in the reconciliation bill process.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.