What Is the US Debt Limit?
2021-10-07
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1American President Joe Biden again asked Congress to lift the United States debt limit after a meeting Wednesday with the nation's business leaders.
2The White House Council of Economic Advisors warned before the meeting that the United States government will default on its obligations if Congress does not raise the debt limit by October 18.
3A default is a failure to meet the legal obligations of a loan.
4The council said millions of Americans might not receive their payments from Social Security and government healthcare.
5A default could also affect national defense and pandemic services.
6Since many countries depend on the U.S. monetary policy, it said a default "would likely cause credit markets worldwide to freeze up and stock markets to plunge.
7Employers around the world would likely have to begin laying off workers."
8Like some of us, governments sometimes spend more money than they receive from taxes.
9So, they have to borrow money by issuing bonds, or debts, to be repaid later.
10In the U.S., Congress has the power to set a debt limit.
11It is "the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agencies."
12Since 1960, Congress has changed the debt limit 78 times under both Republican and Democratic administrations to pay for government operations.
13Raising the debt limit does not mean that Treasury has more money to spend.
14It only permits the U.S. government to "finance existing legal obligations."
15When the limit is reached, the Treasury cannot issue more debt or borrow more money.
16In August 2019, the U.S. Congress passed a budget deal, with support from both Republican and Democratic lawmakers, that raised spending and suspended the debt limit for two years.
17Under the agreement, the money borrowed during the suspension of the debt limit will be added to the previous limit of $22 trillion.
18An additional $6.5 trillion had been borrowed since the 2019 tax cuts and pandemic spending, raising the nation's debt limit to $28.5 trillion.
19The Congressional Budget Office estimated that the federal government has a deficit of $2.7 trillion for the budget year ending in September 2021.
20The government also ran up deficits each year from 2016 to 2020.
21Technically, the U.S. has already reached its debt limit at the end of July as agreed to in the 2019 budget deal.
22Once the debt limit is reached, the U.S. cannot borrow more money to pay its bills.
23But Treasury could and has used "extraordinary measures" like delaying some payments to employees' retirement funds to avoid a default.
24Unless Congress acts to raise the debt limit, the Bipartisan Policy Center projects that the U.S. will most likely reach the limit between October 15 and November 4.
25The center added that a default would likely raise borrowing costs as investors will demand a higher rate of return on U.S. debts.
26Even a short-term default, it said, could also threaten the country's current economic recovery.
27Before World War I, the U.S. Congress permitted borrowing only for special reasons, such as the building of the Panama Canal.
28In 1917, Congress passed a law that set a debt limit.
29It gave Treasury some flexibility in dealing with the national debt to pay for the war.
30The U.S. is one of few countries around the world with a debt limit.
31Denmark is often noted as another developed country with a debt limit.
32But Denmark often sets its borrowing limit so high that a default is not really possible.
33For many years in the U.S., raising the debt limit was not an issue.
34The Republican Party has since only supported increase while it has controlled the White House.
35It has argued against raising the limit under Democratic administrations.
36Earlier this year, Democratic Congressman Bill Foster of Illinois introduced a bill to end the debt limit.
37The bill, however, is not guaranteed to pass with the currently divided legislature.
38Late on Wednesday, Senate Republican leader Mitch McConnell told Democrats he would permit an emergency debt limit extension into December to avoid a default.
39If the offer is accepted, the U.S. will have to deal with the debt limit again by the end of the year.
40I'm Jill Robbins.
1American President Joe Biden again asked Congress to lift the United States debt limit after a meeting Wednesday with the nation's business leaders. 2The White House Council of Economic Advisors warned before the meeting that the United States government will default on its obligations if Congress does not raise the debt limit by October 18. 3A default is a failure to meet the legal obligations of a loan. 4The council said millions of Americans might not receive their payments from Social Security and government healthcare. A default could also affect national defense and pandemic services. 5Since many countries depend on the U.S. monetary policy, it said a default "would likely cause credit markets worldwide to freeze up and stock markets to plunge. Employers around the world would likely have to begin laying off workers." 6What is the debt limit? 7Like some of us, governments sometimes spend more money than they receive from taxes. So, they have to borrow money by issuing bonds, or debts, to be repaid later. 8In the U.S., Congress has the power to set a debt limit. It is "the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agencies." 9Since 1960, Congress has changed the debt limit 78 times under both Republican and Democratic administrations to pay for government operations. 10Raising the debt limit does not mean that Treasury has more money to spend. It only permits the U.S. government to "finance existing legal obligations." When the limit is reached, the Treasury cannot issue more debt or borrow more money. 11What is the current situation? 12In August 2019, the U.S. Congress passed a budget deal, with support from both Republican and Democratic lawmakers, that raised spending and suspended the debt limit for two years. 13Under the agreement, the money borrowed during the suspension of the debt limit will be added to the previous limit of $22 trillion. An additional $6.5 trillion had been borrowed since the 2019 tax cuts and pandemic spending, raising the nation's debt limit to $28.5 trillion. 14The Congressional Budget Office estimated that the federal government has a deficit of $2.7 trillion for the budget year ending in September 2021. The government also ran up deficits each year from 2016 to 2020. 15Technically, the U.S. has already reached its debt limit at the end of July as agreed to in the 2019 budget deal. Once the debt limit is reached, the U.S. cannot borrow more money to pay its bills. But Treasury could and has used "extraordinary measures" like delaying some payments to employees' retirement funds to avoid a default. 16Unless Congress acts to raise the debt limit, the Bipartisan Policy Center projects that the U.S. will most likely reach the limit between October 15 and November 4. The center added that a default would likely raise borrowing costs as investors will demand a higher rate of return on U.S. debts. Even a short-term default, it said, could also threaten the country's current economic recovery. 17Why does the U.S. have a debt limit? 18Before World War I, the U.S. Congress permitted borrowing only for special reasons, such as the building of the Panama Canal. In 1917, Congress passed a law that set a debt limit. It gave Treasury some flexibility in dealing with the national debt to pay for the war. 19The U.S. is one of few countries around the world with a debt limit. Denmark is often noted as another developed country with a debt limit. But Denmark often sets its borrowing limit so high that a default is not really possible. 20For many years in the U.S., raising the debt limit was not an issue. The Republican Party has since only supported increase while it has controlled the White House. It has argued against raising the limit under Democratic administrations. 21Earlier this year, Democratic Congressman Bill Foster of Illinois introduced a bill to end the debt limit. The bill, however, is not guaranteed to pass with the currently divided legislature. 22Late on Wednesday, Senate Republican leader Mitch McConnell told Democrats he would permit an emergency debt limit extension into December to avoid a default. If the offer is accepted, the U.S. will have to deal with the debt limit again by the end of the year. 23I'm Jill Robbins. 24Hai Do wrote this story for VOA Learning English. Susan Shand was the editor. 25__________________________________________________ 26Words in This Story 27obligation - n. something that you must do 28plunge - v. drop suddenly 29maximum - n. the highest number that is permitted 30flexibility - n. ability to change things easily