Debt Ceiling Process Needlessly Exposes United States to Substantial Default Risk, Warns GAO

Debt Ceiling Process Needlessly Exposes United States to Substantial Default Risk, Warns GAO

"The debt ceiling is like a bear trap in the bedroom-there is no good rationale for it being there, and one day you very well may step in it," said Senate Budget Chairman Whitehouse

Washington, D.C. - The current debt ceiling process "exposes the country to an unnecessary risk of default," concluded a new report published today by the Government Accountability Office (GAO). Because spending and revenue decisions are separated from Treasury's borrowing authority, and because Republicans frequently play political games with the debt ceiling, the United States faces substantial risk of catastrophic economic consequences from default. The report, prepared for Senator Sheldon Whitehouse (D-RI), Chairman of the Senate Budget Committee, and Representative Brendan F. Boyle (D-PA-02), Ranking Member of the House Budget Committee, comes as Congress gears up to address the January 1 expiration of the debt ceiling suspension. Experts warn that swift action will be necessary to prevent a catastrophic default by mid-2025.

When federal debt reaches its statutory ceiling, the Treasury Department conducts a series of accounting maneuvers known as "extraordinary measures" to delay a possible default. The so-called "X-date" is the day that Treasury projects its extraordinary measures would expire, and the government would be unable to meet its obligations. However, as GAO makes clear, the X-date is nearly impossible to predict, and brinkmanship exacerbates the risk of even an accidental default.

"The debt ceiling is like a bear trap in the bedroom-there is no good rationale for it being there, and one day you very well may step in it," said Chairman Whitehouse, an original co-sponsor of the End the Threat of Default Act. "Breaching the debt ceiling would be an own goal of catastrophic proportions, triggering widespread economic instability, the loss of hundreds of thousands of jobs, and higher costs for families. Today's report shows the dangers of coming anywhere close to the X-date, yet Republicans brought us to the brink last year, all to demand cuts to the funding that helps the IRS go after wealthy tax cheats. Congress must end the danger of accidental default, and that means repealing the debt ceiling."

"This report confirms what we already know: defaulting on our nation's bills would devastate financial markets, harm families and businesses, and inflict lasting damage on the U.S. and global economies," said Ranking Member Boyle. "Without meaningful reform, the debt ceiling will remain a political weapon, used by Republicans to hold our economy hostage whenever it suits their agenda. I'm encouraged that this report's recommendations align with the commonsense reforms in my Debt Ceiling Reform Act, which would grant the Treasury Secretary the authority to prevent a default while maintaining Congressional oversight. My bill's reforms are essential for eliminating the threat of default and ensuring the economic stability the American people deserve."

The GAO report also debunks any notion that the government could safely manage a default. The two contingency plans Republicans often cite-extending the operation maturity of Treasury securities and prioritizing some payments over others-are "risky and operationally complex." Finally, the report notes that a default would lead to severe short- and long-term economic disruptions, including bank runs, a severe reduction in lending to households and businesses, a national and global recession, and, ultimately, a move away from the U.S. dollar as the world's reserve currency.

This report builds on earlier GAO reports that argue that Congress should find an alternative to the debt ceiling to mitigate financial risk.

Read the full report here.