November 20, 2014

Delay on Debt Limit Could Be Costly

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

The Government Accountability Office (GAO) warns in a new report that delay in raising the debt limit could negatively impact markets and borrowing costs.

The debt limit does not constrain the ability of the government to run deficits, but its ability to pay the bills. If a delay requires the Treasury to take extraordinary steps such as postponing auctions, GAO says, it will divert resources from other priorities, add uncertainty to the market, and could increase borrowing costs.

GAO recommends that Congress consider ways to more directly link the debt limit to spending and revenue decisions.

Raising the debt limit is necessary to maintain the full faith and credit of the United States, and Congress should not delay action on an increase.  However, policymakers should use the need for such action as an opportunity to develop a plan to put the country on a sustainable fiscal path.