October 28, 2021

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White House warns that debt limit showdown could hurt states

2 min read

The White House is warning state and local governments about severe cuts to disaster relief, Medicaid, infrastructure grants

The White House is warning state and local governments about severe cuts to disaster relief, Medicaid, infrastructure grants. school money and other programs if Congress fails to raise the U.S. debt limit.

The Treasury Department has engaged in extraordinary measures to keep the government running after the suspended debt limit was reinstated in August at a level of $22 trillion, about $6 trillion less than current total debt load. Treasury’s extraordinary measures will be exhausted by October, creating the potential for default.

The debt limit is the amount of money Congress allows the Treasury to borrow to keep the government running.

It was suspended three times during the Trump administration and has been lifted dozens of times since 1960. Created at the start of World War I so Congress would no longer need to approve each bond issuance, the debt limit has evolved into a political weapon as borrowing has sharply escalated over the past two decades.

With the total debt standing at $28.4 trillion, the government would be forced to cut deeply into programs unless the restrictions on borrowing are lifted or suspended. The risk of a recession and turmoil in the financial market would make it harder for states and cities to borrow, while also playing havoc with public pension investments.

Roughly $100 billion in infrastructure grants for highways, airports and public transit would be jeopardized. The more than $50 billion for special education, school districts serving poorer students and other programs would also be threatened, as would $30 billion in food assistance and $10 billion for public health.

2021-09-17 07:20:52

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