Debt Limit Agreement Sets Up Potential Showdown For 2025

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the Oval Office of the White House on May 22, 2023 in Washington, DC. Biden and McCarthy were meeting to discuss raising the debt limit in an effort to avoid a default by the federal government. The text of the latest debt limit deal has potentially set up the next installment of the drama for early 2025. Though the nature of that debate will depend on the outcome of the 2024 election.

The text of 2023’s debt limit agreement sets up the next deadline. The current deal suspends the debt limit until January 2025, allowing the U.S. government to keep borrowing to pay the bills until then. Therefore, assuming no agreement beforehand, the next debt limit debate will take place soon after the 2024 election, possibly with new political leadership in place.Once again, it’s likely that the U.S. Treasury will invoke extraordinary measures to push out the risk of default in 2025.

However, in 2025 the timeline will depend on the precise timing and amounts of government expenditures and tax receipts as well as the actions that the Treasury chooses to take under extraordinary measures. For example if the U.S. economy were in recession in 2025, it’s likely the X-date could come sooner with lower tax revenues and larger government expenditures on benefits.

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