Treasury Secretary Janet Yellen said last week that the debt limit must be raised by Dec. 15 to ensure the government can pay all its bills on time. While the debt ceiling increase passed in October was designed to last until Dec. 3, many believed incoming payments from taxes and other accounting tools could buy additional time, perhaps postponing the next debt ceiling deadline to later in December or early January 2022. However, the enactment of the bipartisan infrastructure package (see related article for more on this) requires the Treasury to transfer $118 billion from general revenues into the Highway Trust Fund; this money counts as borrowing and therefore accelerated the timeline by which another debt ceiling increase is needed. A new estimate released Nov. 22 from Wrightson ICAP, a money market research firm which tracks the debt limit, says it believes the Treasury Department has until the middle of January before the nation hits the borrowing cap.

It remains unclear how another debt ceiling increase will happen. After cooperating to get the temporary increase in the debt limit in October, Senate Minority Leader Mitch McConnell had announced his caucus will not do so again in December. Democrats have been adamant that the bills the Treasury Department needs to pay aren’t solely from Democratic debts – they come from the 2017 multi-trillion-dollar Republican tax cuts, the bipartisan American Rescue Plan, and other legislation passed under President Trump and Republican congressional leadership – and that dealing with the debt limit therefore needs to be bipartisan. The Senate Parliamentarian previously notified Senate leadership that Congress can amend its budget resolution to allow a separate new reconciliation bill dealing with the debt limit without any effect on the Build Back Better Act. Minority Leader McConnell has pushed for that approach, to force Democrats to raise the limit on their own. Democrats have opposed using reconciliation for this purpose, in part because they would prefer to suspend the debt ceiling rather than raise it by a specific number. Although this has not been formally determined, a common interpretation is that using reconciliation to raise the debt limit would require an increased debt amount rather than a suspension. Another possibility is that a debt ceiling increase could be attached to the must-pass National Defense Authorization Act currently being taken up in the Senate. Recent press accounts suggest that Leaders Schumer and McConnell have started to talk about ways to accommodate a debt ceiling increase before December 15.

Economists and business leaders overwhelmingly agree that failure to raise the debt ceiling would do catastrophic damage to the U.S. and to economies and markets worldwide. Mark Zandi, Chief Economist at Moody’s Analytics, warned that a prolonged impasse over the debt ceiling would cost the economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate roughly to 9 percent, from around 5 percent right now.

Subscribe: