The Debt Limit and Real Estate
Debt limit negotiations between the Biden Administration, the Democrat-controlled Senate and the Republican-led House of Representatives continue to go nowhere. The day of reckoning is almost upon us, as the United States government is quickly approaching the much discussed “X date.”
The debt limit, also known as the “debt ceiling,” is a statutory cap on the amount of federal debt that is outstanding. The debt limit also addresses the government’s ability to issue securities in order to cover future obligations. The Congressional Budget Office projected in February that, if the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted somewhere between July and September, or the fourth quarter of the current fiscal year.
The risk of government default would threaten U.S. Treasuries, the backbone of the financial system, and undermine the dollar, the world’s reserve currency. Housing and real estate markets are particularly susceptible to the debt limit crisis due to the $10 trillion of mortgages backed by Fannie Mae, Freddie Mac and Ginnie Mae.
Congress has faced the statutory limit on the national debt almost 80 times since the early 20th century, but has always acted to increase the debt ceiling. Recent history has shown that prolonged debates over the debt limit have caused increases in private interest rates and have created liquidity pressures. And let’s not even start to think about the potential impact to our country’s credit rating!
So this stinks, but what can you do? Join us in our call to action. We highly encourage all real estate industry professionals to connect with policymakers in Congress and the White House, and implore them to raise the debt ceiling sooner rather than later.
Source: Real Estate Roundtable, Congressional Budget Office
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
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