Treasury Secretary Steven Mnuchin on Thursday began taking “extraordinary measures” to delay the U.S. government from defaulting on its obligations, as he called on House Speaker Paul D. Ryan (R-Wis.) to lift the debt ceiling “at its first opportunity.”
Mnuchin, in a letter to Ryan, said Treasury was now suspending the sale of certain state and local securities, a practice the federal government normally performs to assist with tax policies. Treasury will soon likely suspend payments to certain pension funds as it tries to delay, as long as possible, falling behind on other payments. Eventually, though, it will run out of options and not have enough money to pay its bills.
“As I said in my confirmation hearing, honoring the full faith and credit of our outstanding debt is a critical commitment,” Mnuchin wrote to Ryan. “I encourage Congress to raise the debt limit at the first opportunity so we can proceed with our joint priorities.”
The U.S. government makes millions of payments each year in the form of Social Security checks, paying Medicare bills, funding the military, research, veterans' care, and numerous other initiatives. Those funds typically flow out of the Treasury Department, in a complicated burst of cash that disburses trillions of dollars each year.
Budget experts believe that if the debt ceiling isn’t raised by August or September, Treasury will run out of steps to delay default and the government could fall behind on its obligations.
The White House and Congress now face several difficult choices.
They could try a straight vote to raise or suspend the debt ceiling, but that would be difficult because many lawmakers find it politically poisonous to approve more debt without changing spending or tax practices.
Policymakers could also try to attach a debt-limit increase to another bill that is likely to pass, such as a bill to fund the government beyond the end of April.
They could also decide not to raise or suspend the debt limit, which has never happened before. If that happens, officials at Treasury could be forced to decide whether to prioritize payments and stop paying certain bills.
The federal government spends more money than it brings in through tax revenue, and Treasury fills this gap by issuing more debt. But there is a federal limit on how much debt can be issued, and the limit can only be raised by Congress.
In 2015, Congress and the White House agreed to suspend the federal debt limit until March 15, 2017. After that point, the government cannot continue to borrow money to pay. Past treasury chiefs have also pushed Congress to raise or suspend the debt ceiling, but it can be a very difficult vote for lawmakers, many of whom campaign on cutting the deficit either through tax increases or spending cuts.
White House officials are expected to propose steep budget cuts to certain federal programs next week as a way to offset increased spending on the military, the creation of a border wall, and more education programs that would expand access to charter schools, among other things. Those budget cuts, though, aren’t expected to reduce the deficit. And the White House has said it does not plan to propose cuts to Social Security and Medicare this year, two of the government’s biggest budget items.
President Trump is also pushing Congress to enact sweeping tax changes that would lower rates, which he says will lead to more economic growth and job creation. But budget experts have warned this could lead to a huge drop in revenue, widening the deficit and growing the federal debt.
The deficit is the annual gap between taxes and spending, and the debt is the outstanding money the government has borrowed to cover past deficits.
The federal government is projected to spend $3.963 trillion in the fiscal year that ends Sept. 30, the Congressional Budget Office has predicted. It is expected to bring in $3.404 trillion in revenue during that time, leaving a deficit of $559 billion. CBO said publicly held debt is expected to hit $14.8 trillion at the end of 2017, but other ways of calculating the debt estimate that it is now closer to $20 trillion.