In July 2025, Congress passed legislation raising the debt ceiling by $5 trillion to $41.1 trillion as part of the "One Big Beautiful Bill." This decision followed months of extraordinary measures that began in January 2025, when the debt limit was reinstated at $36.1 trillion after a suspension period ended.
Essentially, the ceiling limits how much debt can be incurred by the government to sustain its operations. When a suspension occurs, the capping of debt is essentially "turned off" for one year, and the government can spend as needed until the period of suspension expires.
The amount borrowed during the suspension gets added to the legal debt limit.
If the debt ceiling is reached and not raised, the U.S. Treasury is unable to issue or auction any more Treasury bills, bonds or notes. Routine and ongoing government expenses can only be paid as incoming tax revenues are received.
Without the ability to expand beyond tax revenues, the Treasury Department must decide which debts to pay and postpone. This creates a ripple effect because if there isn't enough cash to go around:
Essentially, a government shutdown occurs. If various segments of the national debt cannot be paid, the government must make some choices. Since the law prevents any borrowing from Social Security and Medicare, it turns to retirement funds.
Or, the government can withdraw money it keeps on hand, up to $800 billion, from the Federal Reserve Bank.
Congress must raise the ceiling so the U.S. government doesn't default on its debt. If a default does occur, three things may happen:
Ultimately, there are consequences either way. While debts need to be paid and raising the ceiling avoids nonpayment, fixing short-term financial conundrums, continuously increasing the cap leads to long-term fiscal problems, such as the United States's current whopping $37 trillion debt.
The ceiling caps the amount of money the government can spend, reducing the risks of incurring higher debt. The Treasury Department indicates if the limit is not raised, the money runs out, creating "catastrophic economic consequences."
Essentially, taxpayers don't know how much borrowing Congress approves during the time of suspension. As we know, government spending easily gets out of control.
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