The First of Several 2025 Fiscal Milestones for Congress: The X Date

Washington, DC - The federal debt limit will be reinstated on January 2, 2025, at a level covering all borrowing since its suspension on June 2, 2023. Immediately upon reinstatement, the Treasury Secretary will begin deploying extraordinary measures and relying on existing cash on hand to continue paying the federal government's bills. Based on the latest information available, BPC projects that these resources will likely be sufficient to finance the government's obligations beyond tax season and, therefore, that the X Date-when the Treasury Department's resources are exhausted and the government would default on its obligations-is likely to arrive sometime later in 2025.

"It's still far too early to have a more detailed sense of timing, but it's never too soon for policymakers to focus on the looming risks posed by the debt limit or the options to address it well in advance of the next deadline," said Shai Akabas, BPC's executive director of economic policy. "A further risk is that we may not even have a confirmed Treasury Secretary early next year, meaning that the Department would need to navigate an extremely precarious situation without a Senate-approved leader at the helm."

Beyond usual fluctuations in the federal government's cash flows, the X Date's timing will depend heavily on 2025 tax collections and the Treasury Department's cash on hand. Uncertainty over these two factors is nothing new. Regarding the latter, however, a newly released 2021 Department of Justice legal opinion suggests that Treasury does not plan to deplete its cash reserves in advance of the debt limit's reinstatement. The Department of Justice finds that Treasury is permitted to maintain a "standard one-week cash balance, adjusted for uncertainty and risk." (For additional context, when the debt limit was reinstated in August 2021 after a two-year suspension, Treasury had $459 billion in cash on hand.)

BPC's projection comes 50 years after the Congressional Budget and Impoundment Control Act was signed into law, and at a time when policymakers are exploring budget process reforms and preparing for next year's many fiscal deadlines. In addition to addressing the debt limit, Congress will be faced with negotiating annual appropriations, the expiration of enhanced Affordable Care Act subsidies included in the Inflation Reduction Act of 2022, and the expiration of several tax provisions included in the Tax Cuts and Jobs Act of 2017.

"The debt limit is the metaphorical cherry on top of this economic uncertainty driven by fiscal policy, which is why we need the statute to be reformed," said Akabas.

Although Congress has, to date, managed to avert the most severe risks associated with the debt limit by raising or suspending it ahead of the X Date, previous debt limit episodes have imposed real costs on everyday Americans. Taxpayers are on the hook for servicing additional interest owed on the national debt, and investors have cast doubt on the creditworthiness of the U.S. government. If not resolved in a timely manner, next year's debt limit showdown could risk further downgrades and economic disruptions-especially given the significant fiscal cliffs that await.

BPC will update its projections as additional data becomes available.