Updated February 5September 20, 2019
The Debt Limit
Overview
The debt limit places a statutory constraint on the amount of
money that Treasury may borrow to fund federal
operations. The debt limit is currently suspended, and
scheduled to be reinstated on March 1, 2019for reinstatement on August 1, 2021, at a level
precisely accommodating federal borrowing at that point.
Congress may debate the merits of various debt limit
modifications in advance of that date or later if
Treasury
implements “extraordinary measures” are implemented to prevent a
binding debt limit binding
debt limit after reinstatement. This In Focus provides background
background information and discusses recent legislative activity.
activity.
(2) increase the debt limit to allow for further federal
borrowing; (3) maintain the current debt limit and require
the implementation of “extraordinary measures” that will
postpone (but not prevent) a binding debt limit; or
(4) temporarily suspend or abolish the debt limit. Some
have suggested that the Fourteenth Amendment may grant
the President authority to ignore the statutory debt limit.
Previous Administrations and many representatives of the
legal community have rejected that argument as an
alternative to debt limit legislation.
Inaction or Delayed Action: Potential
Consequences
More information on the debt limit can be found in CRS
Report R41633, Reaching the Debt Limit: Background and
Potential Effects on Government Operations, by D. Andrew
Austin et al.; CRS Report RL31967R43389, The Debt Limit:
History and Recent Increases Since
2011, by D. Andrew Austin; and
CRS Report R44383, Deficits and Debt: Economic Effects
and Other Issues, by Grant A. Driessen.
Rationale and Role of the Debt Limit
The Constitution allows Congress to restrict the amount of
federal debt that may be incurred as part of its “power of
the purse.” Under current law Congress exercises this
power
Deficits, Debt, and the Economy: An Introduction, by Grant
A. Driessen.
The combination of a binding debt limit and continued
budget deficits would leave Treasury with conflicting
directives. As with any borrower, the government is obliged
to pay its bills, and yet a binding debt limit would prevent
Treasury from doing so in a timely fashion. Possible
consequences of a binding debt limit include, but are not
limited to, the following:
Rationale and Role of the Debt Limit
reduced ability of Treasury to borrow funds on
The Constitution grants Congress the “power of the purse,”
which allows Congress to restrict the amount of federal
debt. Under current law Congress exercises this power
through the federal debt limit, which is codified at 31
U.S.C. §3101. Debt subject to limit is more than 99% of
total federal debt, and includes debt held by the public
(which is used to finance budget deficits) and debt issued to
federal government accounts (which is used to meet federal
obligations).
Federal debt increases when total expenditures exceed total
receipts (producing a budget deficit). Expansion of the
federal lending portfolio, through programs like college
student loans, also increases federal debt levels. Periods of
sustained debt increases bring debt levels near the debt
limit. CBO’s JanuaryAugust 2019 baseline projected that the debt
subject to limit will be $28.05 trillion at the end of FY2024
and $33.734.4 trillion by the end of FY2029; debt held by the
public is forecasted to equal $22.15 trillion and $28.729.3 trillion
in those respective years.
The federal debt limit acts as a check to ensure that recent
revenue and expenditure trends meet the approval of
Congress. However, the federal collection and spending
decisions affecting debt levels may have been agreed to by
Congress and the Administration well in advance of debt
limit deliberations. Some past debt limit legislation has
linked debt limit increases with fiscal policy proposals such
as budget enforcement measures.
Options for Congress
borrowing; (3) maintain the current debt limit and require
the implementation of “extraordinary measures” that will
postpone (but not prevent) a binding debt limit; or
(4) temporarily suspend or abolish the debt limit. Some
have suggested that the Fourteenth Amendment may grant
the President authority to ignore the statutory debt limit.
Previous Administrations and many representatives of the
legal community have rejected that argument as an
alternative to debt limit legislation.
Inaction or Delayed Action: Potential
Consequences
The combination of a binding debt limit and continued
budget deficits would leave Treasury with conflicting
directives. As with any borrower, the government is obliged
to pay its bills, and yet a binding debt limit would prevent
Treasury from doing so in a timely fashion. Possible
consequences of a binding debt limit include, but are not
limited to, the following:
reduced ability of Treasury to borrow funds on
advantageous terms, thereby further increasing federal
debt;
substantial negative outcomes in global economies and
financial markets caused by anticipated default on
Treasury securities or failure to meet other legal
obligations;
acquisition of interest penalties from delay on certain
federal payments and transfers; and
downgrades of U.S. credit ratings, which could
negatively impact capital markets.
Possible economic and fiscal consequences of the debt limit
are not confined to scenarios where the debt limit is
binding. Protracted deliberation over raising the debt limit
may also affect the U.S. financial outlook if it changes
household and business behavior. A number of observers
have suggested that debate over the debt limit which
preceded the passage of the Budget Control Act in August
2011 reduced Some research suggests
that debate over the debt limit in August 2011 reduced
economic expansion in the second half of that
year.
“Because the debt ceiling impasse contributed to the
financial market disruptions, reduced confidence and
increased uncertainty, the economic expansion [in
2011] was no doubt weaker than it otherwise would
have been.” – U.S. Treasury, The Potential
Macroeconomic Effect of Debt Ceiling Brinkmanship,
October 2013.
Options for Congress
Increasing the Debt Limit
When debt levels approach the statutory debt limit,
Congress can choose to: (1) leave the debt limit in place; (2)
increase the debt limit to allow for further federal
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The Debt Limit
Increasing the Debt Limit
Increasing the debt limit to accommodate further borrowing
allows federal operations to continue as they otherwise
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The Debt Limit
would have. Increasing the debt limit reduces the likelihood
of experiencing potential consequences associated with a
binding and near-binding debt limit.
One issue for Congress to consider is the size of any
potential debt limit increase. Larger increases in the debt
limit allow more time to enact
changes that adjust
budgetary trends, but could reduce the
effect of the debt
limit on budgetary discussions if
policymakers feel less
constrained by the new debt limit
level. Smaller debt limit
increases potentially offer a greater
role for the debt limit
legislation in budgetary policy
discussions, but may lead to
more frequent debt limit
activity.
“Extraordinary Measures” and Debt Limit
Suspension
Invoking theTreasury’s authority to use “extraordinary
measures” to
stay under the debt limit and temporarily
suspending the
debt limit both postpone when Congress
must act on debt
limit legislation. The authority for using such
such “extraordinary measures,” which include suspensions and
and delays of some debt sales and auctions, underinvestment
underinvestment and disinvestment of certain government
funds, and
exchange of debt securities for debt not subject
to the debt
limit, rests with the Treasury Secretary. Invocation of
“extraordinary measures” has delayed required action on
the debt limit by periods ranging from a few weeks to
several months. Temporary suspensions delay the
Social Security payroll tax receipts exceeded payments to
beneficiaries for much of that period.
Figure 1 shows the debt subject to the limit as a percentage
of GDP from 1940 to 2018, along with how that debt was
divided between debt held by the public and
intragovernmental debt. Although nominal debt levels have
steadily risen in the postwar period, debt measured as a
percentage of GDP (real debt) declined precipitously for
several decades following its peak at 118% in 1946,
reaching 32% in 1981. Real debt has increased in the recent
decades. At the end of FY2018, total debt subject to the
limit was 106% of GDP, and publicly held debt was 78% of
GDP. The remaining 28% of GDP in debt took the form of
intragovernmental debt.
Figure 1. Federal Debt Subject to Limit as a % of
GDP, FY1940-FY2018
Invocation of “extraordinary measures” has delayed
required action on the debt limit by periods ranging from a
few weeks to several months. Temporary suspensions delay
the restrictions imposed by the debt limit for a period
determined by corresponding legislation, and have been
used in lieu of increasing the debt limit to a dollar value in
recent years.
Past Debt Limit Activity
The Bipartisan Budget Act of 20182019 (P.L. 115-123116-37)
suspended the debt limit until March 1, 2019August 1, 2021. Upon
reinstatement, the act provides for a debt limit adjustment to
accommodate borrowing activity that occurred during the
suspension. If action has not been taken to prevent a
binding debt limit as the end of the suspension approaches,
the Treasury Secretary may elect to exercise “extraordinary
measures” to stay beneath the debt limit.
Regular legislative modifications to the debt limit have
been enacted since the aggregate debt limit was first created
in 1917. Congress has enacted 9798 separate debt limit
modifications between the end of World War II and the
present to accommodate the changes in federal debt levels.
Debt held by the public has consistently increased in that
time period, except in the period immediately following
World War II and between 1998 and 2001 when debt
declined due to federal budget surpluses.
Congress has passed 1617 separate changes to the debt limit
since 2001. Much of the recent increase in the debt is
attributable to a rise in debt held by the public. Increases in
spending on old-age and retirement programs, lower tax
receipts, and federal activities related to the Great
Recession all contributed to rising debt levels. Debt held in
government accounts has also increased since 2001, as
Social Security payroll tax receipts exceeded payments to
beneficiaries for much of that period.
Figure 1 shows the debt limit and debt levels as a
percentage of GDP from 1940 to 2018. Although nominal
debt levels have steadily risen in the postwar period, debt
measured as a percentage of GDP (real debt) declined
precipitously for several decades following its peak at
118% in 1946, reaching 32% in 1981. Real debt has
increased in the recent decades. At the end of FY2018, total
debt subject to the limit was 106% of GDP, and publicly
held debt was 78% of GDP.
Figure 1. Federal Debt Subject to Limit as a % of
GDP, FY1940-FY2018
Source: Office of Management and Budget, Department of the
Treasury and Congressional Budget Office. Figure created by CRS.
NotesNote: Values taken at the end of the fiscal year.
Timing Uncertainties with a Binding
Debt Limit
Short-term fluctuations in federal debt levels mean there is
substantial uncertainty as to when debt levels will meet or
exceed the statutory debt ceiling. Federal debt levels change
in response to variation in the timing of payments and
collection of receipts. This fluctuation is influenced by
changes in the size and timing of incoming and outgoing
Treasury payments, and is relatively insensitive to longterm deficit outcomes. Examples include lower debt levels
that follow large income tax receipt collections in March
and April and higher debt levels caused by interest
payments and the issuance of Treasury securities in the
middle and end of a given month. Short-term surpluses
could extend the amount of time “extraordinary measures”
taken by Treasury would delay a binding debt limit, while
short-term deficits would have the opposite effect.
Grant A. Driessen, Analyst in Public Finance
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IF10292
The Debt Limit
Disclaimer
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