The amount of debt that the Treasury can issue is set by law; that limit was reached at the beginning of the year, but the Treasury has taken certain measures to temporarily continue to fund government activities. However, those measures will soon be exhausted, so the deadline to address the debt ceiling is rapidly approaching. Instead of creating economic uncertainty and risking damage to the creditworthiness of the United States, lawmakers should focus on the underlying issue: rapid growth in the national debt. Here is a look at the state of play in the coming months and examples of previous fiscal reform measures that occurred during similar junctions.

The X Date Approaches

The debt ceiling is currently capped at $36.1 trillion and the Treasury Department is using “extraordinary measures” to manage cash flows. Those accounting maneuvers include actions such as suspending reinvestment of Treasury securities held by the Thrift Savings Plan (a retirement plan for federal employees).

Extraordinary measures are a temporary solution, and there is no way to know exactly how long they will last before the United States reaches the “X date” — the time when the federal government can no longer fully meet its obligations and no extraordinary measures remain available. However, there is general agreement on a rough timeframe, creating a sense of urgency for lawmakers to act on the debt ceiling. The Congressional Budget Office estimates that the X date is likely to fall between mid-August and the end of September this year.

The Underlying Issue: The National Debt Itself

Lawmakers should raise the debt ceiling well before extraordinary measures are exhausted in order to avoid defaulting on the debt. Failing to do so would be a serious self-inflicted wound that risks the full faith and credit of the United States, with potentially severe consequences for the economy and fiscal outlook.

At the same time, it is also important to focus on the underlying reason why the United States keeps hitting the ceiling in such quick succession. By any definition, the nation is on an unsustainable fiscal path. In just the next decade, the national debt will reach its highest point in history relative to gross domestic product, the annual deficit will exceed $2.5 trillion, and interest costs on the debt will total $13.8 trillion.

Lawmakers have both an opportunity and a mandate to work together on the country’s toughest challenges and essential fiscal responsibilities. As noted by the Committee for a Responsible Federal Budget, recent history provides a number of examples where lawmakers have paired an increase in the debt ceiling with fiscal reforms aimed at improving the debt outlook. Such reforms have included significant deficit reduction, key fiscal discipline rules like PAYGO, and budget process reforms.

Examples of legislation to raise or suspend the debt ceiling paired with fiscal reforms include:

• Balanced Budget and Emergency Deficit Control Act of 1985, which set targets for a balanced budget by 1991.
• Omnibus Reconciliation Act of 1990, which included nearly $500 billion in deficit reduction over five years, established pay-as-you-go rules, and put caps in place on discretionary spending.
• Statutory Pay-As-You-Go Act of 2010, which established procedures to control the effects of newly enacted legislation on the deficit by constraining increases in spending and reductions in revenues.
• Budget Control Act of 2011, which included $917 billion in deficit reduction over 10 years and established the “super committee,” although not all of those savings were realized.
• Fiscal Responsibility Act of 2023, which included approximately $1.5 trillion in deficit reduction over 10 years — mostly achieved through discretionary spending reductions.

Conclusion

The urgency to deal with the debt ceiling is high, but so is the need to address the nation’s fiscal outlook. As the debt ceiling deadline approaches, lawmakers have plenty of options available to avoid the damage that would occur if the country collided with the X date. Navigating through the X date can be an opportunity to help build a stronger, more sustainable fiscal foundation for the future by addressing the underlying issue of the rapid growth in debt.

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