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Congress and President Joe Biden are locking horns on the debt ceiling — which, if not extended, could lead to the first U.S. default on its debts in the nation’s history. That could mean suspended or partial payments for federal government obligations, including Social Security and Medicare. Here’s a brief explainer of what the debt ceiling is, and why it’s important.
What is the debt ceiling?
The debt ceiling, by law, limits the amount the government can borrow for what Congress has already authorized. It doesn’t limit future spending. The U.S. officially went past the debt ceiling — $31.381 trillion — on Jan. 19. Since then, the Treasury Department has been using what it calls “extraordinary measures” to pay current bills. Treasury Secretary Janet Yellen estimates that the U.S. will be unable to pay all its debts as early as June 1.
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Defaulting on the debt is different from a government shutdown, which occurs when Congress can’t agree on a budget before the end of a fiscal year (or extensions of the fiscal year). In a default, federal agencies would stay open, but workers might have to wait to be paid, and the government wouldn’t have enough money to pay for obligations that Congress has already voted on and agreed to spend.
Why is there a debt ceiling?
Prior to the debt ceiling, Congress had to approve each time it went into debt in a separate piece of legislation. The debt ceiling bill, passed in 1917, was part of the Second Liberty Bond Act, and was meant to simplify the borrowing process. The debt ceiling was expanded to include most government spending in 1939 and was then set at $45 billion, about 10 percent more than the nation’s total debt at the time. Today, the debt ceiling affects nearly all legal obligations of the United States, including Social Security and Medicare benefits, military salaries, interest on Treasury bonds, and other payments.
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