What You Need to Know About the Debt Ceiling

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After several days of high-wire negotiations in May, Congress and President Joe Biden reached a last-minute agreement on the debt ceiling. Biden's signing of the Fiscal Responsibility Act

June 3 allows the U.S. government to continue paying its obligations, including Social Security and Medicare.

The measure couples spending cuts demanded by House Republicans with a suspension of the debt limit until Jan. 2, 2025 — which means the debate has been temporarily shelved but could flare

up again next year. Here’s a brief explainer of what the debt ceiling is, and why it’s important.

The debt ceiling, by law, limits the amount the government can borrow for what Congress has already authorized. It doesn’t limit future spending. The U.S. officially went past the debt

ceiling — $31.381 trillion — on Jan. 19. For the next several months, the Treasury Department used what it called “extraordinary measures” to pay current bills. Treasury Secretary Janet

Yellen estimated that the U.S. would become unable to pay its debts June 5, an outcome the deal between Biden and House GOP leaders narrowly averted.

Defaulting on the debt is different from a government shutdown, which occurs when Congress can’t agree on a budget before the end of a fiscal year (or extensions of the fiscal year). In a

default, federal agencies would stay open, but workers might have to wait to be paid, and the government wouldn’t have enough money to pay for obligations that Congress has already voted on

and agreed to spend.

Prior to the debt ceiling, Congress had to approve each time it went into debt in a separate piece of legislation. The debt ceiling bill, passed in 1917, was part of the Second Liberty Bond

Act, and was meant to simplify the borrowing process. The debt ceiling was expanded to include most government spending in 1939 and was then set at $45 billion, about 10 percent more than

the nation’s total debt at the time. Today, the debt ceiling affects nearly all legal obligations of the United States, including Social Security and Medicare benefits, military salaries,

interest on Treasury bonds, and other payments.