For about 48 hours last week, it looked like the 2025 debt ceiling battle could be avoided, as there were proposals to push the issue to 2027 or 2029 (or even forever).
But that’s not the case.
Democrats and about three dozen of the most conservative Republicans share reasons for rejecting a plan that would include extending the debt ceiling. That led to the passage of a bill late Friday that averted a government shutdown while keeping the debt ceiling issue alive.
Now, with defaults still on the horizon in 2025, the next step in the process comes Jan. 1 — a temporary suspension of the debt ceiling under a 2023 deal between President Joe Biden and then-House Speaker Kevin McCarthy Will end caps on U.S. government borrowing authority and will be reinstated.
The debt ceiling will be reached by then, but the Treasury Department has the means to delay a default for several months through a process called “extraordinary measures.”
Basically, they can move money between various government accounts to delay an actual default on the U.S. debt. But it only works for a short time.
“There is substantial uncertainty about how long extraordinary measures may last due to a number of factors,” Treasury Secretary Janet Yellen wrote during the last standoff in 2023.
The U.S. Capitol Building is seen through steam vents on March 6, 2024 in Washington, DC. (Photo by Kevin Dickey/Getty Images) ·Kevin Dietsch via Getty Images
All things considered, concerns about government default could again weigh on the economy in the early months of 2025.
What happens after January 1st will essentially be an educated guessing game as to when these extraordinary measures will expire and a real default may be imminent.
Traditionally, Treasury has provided very limited estimates of possible “X dates,” leaving others to weigh in.
A recent analysis by the Center for Economic Policy Innovation, written by two former Republican Capitol Hill staffers, points to mid-June as the best time to look.
But the newspaper quickly added, “It is entirely possible that the debt ceiling will be reached before June 16, and Congress will need to act sooner than many expect.”
The Bipartisan Policy Center (BPC) has also done a lot of work predicting a possible X date range. While the BPC has yet to release a formal analysis for 2025, Rachel Snyderman, the group’s managing director of economic policy, reminded us on Yahoo Finance’s Capitol Gains podcast that workarounds will only delay a default for an unknown amount of time.
Extraordinary measures “could extend them into 2025″ [but] However, the timing of that is unclear for a number of reasons,” Snyderman explained, citing next year’s tax season and the unpredictability of government spending.
Regardless, House Speaker Mike Johnson said next year’s deal would include a $1.5 trillion increase in the debt ceiling through the reconciliation process, subject to a simultaneous reduction in “net debt” of $2.5 trillion, which could allow next year’s The impasse has become more politically complex.
As this fiscal guessing game unfolds — with X-date predictions likely to circulate and make traders nervous — Republican lawmakers and the new Trump administration will be looking for solutions.
To be clear: This is not a situation Trump wants. Last week, he called the debt ceiling “a nasty trap set by radical left-wing Democrats,” adding that when it comes to a vote, “they want to embarrass us.”
In 2025, the fate of the debt ceiling is almost entirely in the hands of Republicans who control the White House, Senate and House of Representatives.
That’s especially true because House Speaker Johnson has now pledged to use the reconciliation process, which has become deeply partisan in recent years, to pass the rate hike, as it allows the Senate to pass the bill with 51 votes and excludes the minority party entirely.
On December 20, House Speaker Mike Johnson attended the Republican Party meeting, which was during the government shutdown and debt ceiling debate. (Alison Robert for The Washington Post via Getty Images) ·Washington Post via Getty Images
The problem Trump faces in the House is that a large group of hardline Republicans have never voted for any kind of debt ceiling increase and have shown no inclination to do so.
As Rep. Eric Burlison, a self-proclaimed fiscal conservative from Missouri, said in a recent video: “I will not participate in continuing to raise the debt limit until this town gets serious about cutting spending. scam.
At least two dozen House Republicans have done the same. Given the slim Republican majority, that would be enough to derail the settlement.
Johnson’s plan to combine the debt ceiling with cuts to so-called “mandatory spending” could create another political landmine if an already controversial debt ceiling increase is combined with changes to programs like Medicaid, Medicare or Social Security.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance Rachel Akufo, Rick Newmanand Ben Weschkuhl Gives you a unique look at how U.S. policy and government impact your congressional bottom line. Watch or listen to Capitol Gains Apple Podcasts, Spotifyor wherever you find your favorite podcasts.
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