What is the debt ceiling? Here's what's at stake as deadline looms.

USA Today

04-06-2025

What is the debt ceiling? Here's what's at stake as deadline looms.
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Bessent says US will 'never default' and will raise debt ceiling
Treasury Secretary Scott Bessent said they are unclear still of the looming X date, when the U.S. would breach the debt ceiling.
In 2023, a stalemate between then-President Joe Biden and congressional Republicans over the debt ceiling prompted panic among financial analysts and everyday Americans alike. The deal they struck, called the "Fiscal Responsibility Act," capped annual discretionary spending for two years. It also pushed the next action on the federal debt ceiling until after the 2024 presidential election.
Now, that deal has expired. Treasury Secretary Scott Bessent warns that the federal government will hit the debt ceiling sometime in August, unless Congress acts to raise it. President Trump favors lifting the cap.
Here's what to know about the debt ceiling, why it gets raised, and what happens if we default:
What is the debt ceiling?
The debt ceiling is the limit placed by Congress on the amount of debt the government can accrue. In order to pay its bills to those it borrowed from and dole out money for everything from Medicare benefits to military salaries, the government needs more money, so the debt ceiling has to be raised.
Created in 1917, the legislative cap has to be raised by a majority vote in both the Senate and the House of Representatives. That vote does not pledge any additional spending. It merely raises the limit on the amount of money the government can borrow to pay back commitments already agreed upon by Congress.
However, over the years both parties have tied it to government spending and used the debt ceiling as a cudgel to force the hand of the president.
Republicans, who have a majority in the House, wanted to cut government spending and refused at first to raise the debt ceiling until Biden and Democrats agreed to spending reductions. Biden and Senate Democrats, however, argued that any debate about government spending should be separate from a vote on raising the debt ceiling.
When is the debt ceiling deadline?
The last debt limit suspension ended on Jan. 1, 2025. The agreement allowed a few extra months for the Treasury Department to use 'extraordinary measures' to pay the bills, NBC reported.
What happens if the debt ceiling is reached?
The U.S. did reach the debt ceiling, in late January of 2023. Following that, then-Treasury Secretary Janet Yellen said 'extraordinary measures' were taken so the country could pay its bills and avoid default as the two parties battled it out. A default would occur if the U.S. failed to pay bondholders who have lent money to the government.
What happens if the government defaults on the debt?
The United States has never defaulted on its debts. That's part of why U.S. Treasury bonds are viewed as a safe investment and used by some banks as a backstop to counteract risky investments. A default would throw both the domestic and global economies into chaos.
The U.S. Treasury website warns that a default on the debt 'would precipitate another financial crisis and threaten the jobs and savings of everyday Americans.'
In 2013, when the government careened toward default before raising the debt limit at the last minute, the economy lost 1% of GDP.
When was the last time the debt ceiling was raised?
The ceiling is routinely raised to accommodate repayment of the country's debt. The last time it was raised was in 2021. The debt ceiling was suspended in June 2023 and reinstated in January 2025. Where raising the debt limit sets a specific cap, a suspension declines to set a dollar amount.
Days before a looming debt ceiling default in 2023, Biden and then-House Speaker Kevin McCarthy struck a deal to suspend the debt ceiling limit in exchange for caps on future spending and other demands from the GOP.
While it has become increasingly politicized, for years it was viewed more as a bureaucratic government business than a mechanism for policy change.
In 2011, then-President Barack Obama and Republicans in Congress reached a stalemate, but they agreed on a deal to raise the ceiling just two days before the Treasury would have run out of money.
What does the 14th Amendment have to do with the debt ceiling?
As fear grew in 2023 over the failure to reach a deal on raising the debt ceiling, the White House was said to be considering an option of last resort: an untested legal theory that involves invoking the 14th Amendment.
After a meeting with congressional leaders on May 9, 2023, then-President Biden told reporters he had not ruled it out as an option.
The 14th Amendment deals mainly with equal protections granted to citizens under the law. However, the fourth section reads: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
Some legal scholars believed Biden could draw upon this clause to claim that he had the power to authorize the Treasury to repay U.S. debts even if Congress does not raise the ceiling. The move, considered but ruled out by the Obama administration, would likely have gotten caught up in the courts.
How many countries have a debt ceiling?
Denmark also has a debt ceiling. However, it does not share in the same debate or political brinkmanship.
For one, parliament has more principal power in the Danish government, preventing the kind of legislative-executive branch showdown seen in the U.S. Additionally, CNN reports, Denmark is more fiscally conservative than the U.S., so it has less debt and set its original ceiling much higher than its actual debt levels.
What does it mean to raise the debt ceiling?
Raising the debt ceiling means increasing the amount of debt the country can accrue in order to pay its bills.
It is unrelated to future spending and is instead a limit on the amount of money the government can borrow to meet its existing legal obligations like payments to Social Security and Medicare.
U.S. government bonds have long been viewed as a safe investment because debts are always paid back on time. However, if the US were to default and for the first time in history fail to pay back those debts the value of government bonds would depreciate and the global market would enter a tailspin. Treasury bonds are used as collateral for loans internationally as well as to cushion bank losses, among other things.
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Contributing: Clare Mulroy, Paul Davidson, Daniel de Visé