Sen. Ron Johnson, R-Wis., discusses the looming government shutdown as Congress struggles to pass spending legislation.
The US is in danger of reaching a dead end debt limit with Republicans in Congress facing a scrappy majority in the House of Representatives, Fitch Ratings warned in a report on Tuesday.
“The US faces significant policy challenges in 2025 related to debt limitation, appropriations and tax cuts in the context of already large deficits and increasing debt,” wrote Fitch. “We think it is unlikely that the debate over raising or suspending the debt limit will be resolved in early 2025 given the significant disagreements over spending policy in Congress.
“A pre-Christmas government shutdown was avoided only at the last minute, after a contentious debate over President-elect Donald Trump’s insistence that funding be tied to a new suspension/increase in the debt limit and disagreements over certain spending items,” Fitch explained.
Congress last raised the debt limit in 2023, when Law on Fiscal Responsibility suspended the debt limit until January 1, 2025 and imposed spending limits on discretionary spending. They will likely have to act on another increase or suspension of the debt limit this spring or summer to prevent the federal government from defaulting on its debt.
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Fitch predicted that Congress would have to act on the debt limit by July or August to prevent the federal government from defaulting on its debt. (MANDEL NGAN/AFP via Getty Images/Getty Images)
Earlier this month, Ministry of Finance The new debt limit is estimated to become binding between Jan. 14 and Jan. 23 — prompting the agency to use accounting maneuvers known as “emergency measures” to avoid default and fund federal obligations for several months until those tools are in place. exhaust .
It is unclear exactly how long this lasts extraordinary measures will last, but Fitch analysts wrote that they believe the “x-date” could fall as early as July or August, giving lawmakers several months to address the debt limit.
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In addition to the debt limit, Congress will have to pass a law on state financing until March 14 to prevent a partial shutdown by passing either a short-term continuing resolution or an appropriations bill.
That discussion may include a discussion of the expansion of discretion spending limits that expire in September, and could occur in the context of negotiations to extend the 2017 tax cuts and related reforms that Republicans plan to push through the budget reconciliation process.
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The reconciliation process allows tax-and-spend legislation to bypass the Senate’s 60-vote legislative process and pass with a simple majority as long as the bill complies with special budget rules. Even with that option available, it will be a challenge for GOP leadership to guide legislation through that process with a slim majority in the House of Representatives.
House Republicans they won 220 seats in the November election, giving them a five-seat majority over the Democrats. However, those ranks have been thinned after the resignation of former Rep. Matt Gaetz, while two other GOP lawmakers have accepted roles in the incoming Trump White House.
The departure of those lawmakers will leave their seats temporarily vacant until special elections are held for their successors — leaving Republicans with a two-seat majority in the transition period.
House Speaker Mike Johnson, R-La., will have to deal with a thin Republican majority as Congress grapples with a variety of fiscal policy issues. (Eva Marie Uzcategui/Bloomberg via Getty Images/Getty Images)
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Fitch wrote that the dynamics could lead to “a hectic period over the summer as policymakers try to finalize appropriations bills, raise or suspend the debt limit before the xi date to reach a deal on extending the 2017 tax cuts.”
“Our basic assumptions are that these issues will be resolved. But the absence of a unifying budget process and the looming political debate over additional tax cuts and spending adjustments amid a still challenging political backdrop means that important decisions are likely to be made on an ad hoc, issue-by-issue basis , highlighting the deterioration of US fiscal management over recent years,” Fitch explained.
