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Limit on U.S. Debt, Untouched in Democrats’ Covid Aid Bill, Looms Later in the Year

Limit on U.S. Debt, Untouched in Democrats’ Covid Aid Bill, Looms Later in the Year

WASHINGTON—Democrats chose not to include an increase in the federal debt ceiling in President Biden’s $1.9 trillion coronavirus relief package, leavi

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WASHINGTON—Democrats chose not to include an increase in the federal debt ceiling in President Biden’s $1.9 trillion coronavirus relief package, leaving the often-contentious issue to be addressed later this year.

The decision means Democrats will either have to include a debt-limit increase in a second tax-and-spending package that is likely to pass along party lines or negotiate with Republicans to have it added to another bill.

If Congress doesn’t act by late summer or early fall, the U.S. will run out of legal borrowing capacity, according to an estimate from the Bipartisan Policy Center. Such a full breach, which has never occurred, could have significant but unpredictable effects on financial markets.

In 2011, when Republicans demanded policy changes in exchange for a higher debt limit, stock prices fell amid the uncertainty and a downgrade of the U.S. debt rating by Standard & Poor’s.

Democrats are advancing President Biden’s coronavirus relief bill using a process known as budget reconciliation, which would let them increase the federal debt ceiling without any Republican support.

This post first appeared on wsj.com

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