Debt Limit Impasse Costs: $107M – $161M in Increased Borrowing Costs (2011-2023) | GAO

The U.S. Government’s repeated standoffs over the debt limit have imposed measurable costs on the Treasury, adding between $107 million and $161 million to immediate borrowing costs between 2011 and 2023, according to a new report from the Government Accountability Office (GAO). The analysis, released Wednesday, underscores the financial strain created by congressional brinkmanship over the nation’s ability to pay its existing obligations.

The GAO report examined periods when the U.S. Approached its debt ceiling, forcing negotiations to raise or suspend the limit. During these “impasse” periods, investors demanded higher yields on Treasury securities maturing near the projected “X-date”—the point at which the government would be unable to meet all its financial obligations—to compensate for the increased risk of default. This increased the government’s cost of borrowing.

The report details how debt limit impasses also reduced the market value of outstanding Treasury securities. Investors shied away from securities maturing near the projected X-date, anticipating potential default if a resolution wasn’t reached. This created a disparity in value compared to similar securities maturing shortly before the critical date.

Disruptions weren’t limited to the Treasury market. The GAO found that impasses in 2011 and 2013 spilled over into short-term funding markets and funds heavily invested in Treasury securities, leading to higher borrowing rates and outflows from money market funds. While market participants adapted by taking steps to limit risk, the report notes that volatility can persist even after impasses are resolved due to fluctuations in the Treasury’s cash balance.

The GAO’s analysis utilized financial market data and econometric models to estimate the increased borrowing costs. Agency officials and 17 financial market participants, representing a range of institution types and sizes, were also interviewed for the study. The report highlights the inherent risk in the current debt limit process, where Congress can approve spending and tax changes without simultaneously ensuring the Treasury has the authority to finance them.

The report builds on previous GAO work identifying longstanding concerns about the debt limit. The current process, the GAO argues, creates an unnecessary risk of U.S. Default, potentially triggering severe consequences for individuals, financial institutions and the overall economy. The findings reinforce calls for debt limit reform to mitigate these risks and costs.

The Department of the Treasury, in coordination with the Office of Management and Budget, prepares the Financial Report of the United States Government, which is subject to audit by the GAO. The GAO, often referred to as the “congressional watchdog,” provides fact-based, nonpartisan information to Congress and investigates federal spending and performance.