Debt-Ceiling 101: The Federal Debt Limit and How it Impacts Your Job

(National Federation of Federal Employees)

In the past several weeks, there has been a great deal of chatter and speculation regarding the government hitting the federal debt limit. More recently, the focus has turned to the U.S. defaulting on its debt, as members of Congress refuse to come to a common sense agreement to raise the debt-ceiling and avoid a catastrophic default. This article is intended to answer some basic questions about what the debt-limit is, and how a potential default could impact your job and your family.

What is the federal debt limit?

The federal debt limit is a legal ceiling on the amount that the federal government can borrow to pay for expenses such as Social Security, Medicare, federal pensions and salaries, operations in Iraq and Afghanistan, and the remainder of Uncle Sam’s bills.

What happens when the debt limit is raised?

Despite what certain members of Congress may lead you to believe, raising the federal debt limit is a very common occurrence. In fact, Congress has raised the debt ceiling more than 70 times in the past 50 years. Each time, it was signed into law by the president – Republicans and Democrats. In doing so, the government is given the ability to borrow the money it needs to pay the bills it has already agreed to pay.

What happens when the debt limit is not raised?

If the limit is not raised by the time the government runs out of funds, a two-step process occurs.

During phase one, the suspension phase, the Treasury Secretary will use funds from the Civil Service Retirement and Disability Fund (CSRDF) and the Government Securities Investment Fund (G Fund) to pay the government’s bills until Congress raises the debt ceiling. All funds borrowed from the retirement funds must by law be returned once the ceiling is raised. Treasury has already begun borrowing from the retirement funds, and will continue to do so until August 2nd, when those funds are exhausted.

During phase two, the default phase – which is where the government will be if the ceiling is not raised by August 2 – the government will have exhausted its ability to borrow money. This will leave the government unable to pay its bills in full and will result in default.

What happens when the government defaults on its debt?

The truth is, no one knows. In its 223-year history, the U.S. government has never defaulted on its debt. What we do know is that once a default occurs, the government can only pay its bills by using income tax revenue. Unfortunately, current tax revenues cover less than 60% of the federal budget.

Without the ability to borrow and inadequate tax revenue, the government will be forced to pick and choose which bills it wishes to pay first. According to a Congressional Research Service report, the Treasury can either pay bills in the order they are due or prioritize some for payment and other for delinquency.

What impact would a default have on federal employees?

Despite numerous attempts, NFFE and other federal unions have received no information from Congress or the Administration regarding the consequences of a potential default. This makes it hard to judge the impact because a default has never occurred before. However, most agree that nearly all federal employees would be impacted in some way as their agencies will not have the requisite funds to pay their bills.

This means that everything from pay and benefits to retirement checks could be delayed, diminished, or done away with for the duration of the default. Even after a default is brought to an end, there are still questions of whether federal employees will be made whole. Widespread furloughs – possibly numbering in the hundreds of thousands – are another distinct possibility as agencies look to stay afloat.

Depending on how the government decides to spend the 60% of the budget it takes in through revenue, some agencies and employees could feel less of an impact than others.

What can I do to stop the government from defaulting?

Washington politicians are playing a dangerous game of political brinksmanship with the debt ceiling. The time for games is over. There is too much at stake for federal employees, their families, and the American public who rely on their services.

Call your member of Congress using the phone number below, and tell them to come to a reasonable agreement to raise the debt ceiling and protect the pay and benefits that federal employees have earned. Remember to call on your own time, using your own phone, and not in your capacity as an agency representative.

Capitol Switchboard:

 (202) 224-3121