Order Code RS21111
Updated January 23, 2003
CRS Report for Congress
Received through the CRS Web
The Debt Limit: The Need to Raise It After
Four Years of Surpluses
Philip D. Winters
Analyst in Government Finance
Government and Finance Division
Summary
Increases in total federal debt are driven by government deficits (which increase
debt held by the public) and by the surpluses credited to (and federal accounting for)
debt-holding federal accounts, mostly federal trust funds such as the Social Security,
Medicare, Transportation, and Civil Service trust funds, which increase debt held by
government accounts.
Surpluses generally reduce debt held by the public. The surpluses over the four
fiscal years (1998-2001) reduced debt held by the public by $448 billion. The surpluses
credited to debt-holding government accounts (which generally must invest the
surpluses in federal debt), increased their holdings by $853 billion over the same period.
The combination raised total federal debt by $405 billion. During the first half of
FY2002, debt subject to limit increased enough to reach the then current statutory debt
limit, $5.95 trillion, in both early April and again in May 2002.
Beginning in December 2001, the Administration repeatedly asked Congress to
increase the $5.95 trillion debt ceiling, initially by $750 billion. Not until June 11, 2002
did the Senate pass a $450 billion permanent increase (S. 2578 in the 107th Congress);
the House approved the bill on June 27 (by one vote). The President signed the
legislation on June 28 (P.L. 107-199) raising the limit to $6.4 trillion, ending that debt
limit crisis. The deficit in FY2002 ($158 billion) and the ongoing increases in debt held
by government accounts, led the Administration, in late December 2002, to request that
Congress again raise the debt limit, this time, with no amount specified and to raise it
before late February 2003. (This report will be updated as events warrant.)
The statutory debt limit applies to almost all federal debt.1 It applies to federal debt
held by the public, that is debt held outside the federal government itself, and to federal
1 Less than one percent of total the debt is excluded from debt limit coverage. On January 24,
2003, total debt was $6.392 trillion; debt subject to limit was $6.347 trillion, 999.3% of the total
debt.
Congressional Research Service ˜ The Library of Congress

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debt held by the government’s own accounts, almost all of which are federal trust funds
such as Social Security, Medicare, Transportation, and Civil Service. The government’s
overall surpluses or deficits determine the change in debt held by the public. Debt held
in government accounts, on the other hand, is unaffected by the government’s overall
budget balance. The increases or decreases in debt held by government accounts are the
product of government accounting practices and the reported surpluses (or deficits) of the
accounts holding the debt.
Table 1. Components of Debt Subject to Limit, FY1996-FY2002
(in billions of dollars)
Debt Subject to Limit
End of Fiscal Year
Debt Limit
Held by
(or period)
Held by the
Total
Government
Public
Accounts
1996
$5,500.0
$5,137.2
$1,432.4
$3,704.8
1997
5,950.0
5,327.6
1,581.9
3,745.8
1998
5,950.0
5,439.4
1,742.1
3,697.4
1999
5,950.0
5,567.7
1,958.2
3,609.5
2000
5,950.0
5,591.6
2,203.9
3,387.7
2001
5,950.0
5,732.6
2,435.3
3,297.3
2002
6,400.0
6,161.4
2,644.2
3,517.2
Change, FY1996 to FY2002
405.0
853.4
-448.5
Source: U.S. Department of the Treasury, Financial Management Service, Treasury Bulletin, June 2001
and March 2002. Bureau of the Public Debt Monthly Statement of Public Debt, September 2002. CRS
calculations.
Note: For the fiscal years 1996 through 2000, the amounts held by government accounts and held by the
public are approximations. The Treasury began producing the split into holders of debt subject to limit in
its publications in 2001. The numbers in the table showing this split for 1996 through 2000 were calculated
by subtracting Federal Financing Bank debt (an arm of the Treasury; its debt is not subject to limit) from
total debt held by government accounts to approximate the amount of that debt subject to limit (a second
subtraction, for unamortized discount, is unavailable, leaving the approximate amount too large by billions
of dollars). This adjusted amount was then subtracted from total debt subject to limit to produce an
approximate measure of debt held by the public subject to limit. Because the amount held by government
accounts is too large, the resulting measure of debt held by the public subject to limit is too small. The
approximations provide adequate information to reveal the pattern of change in the two categories over the
seven years shown.
Nearing or reaching the debt limit interferes with the Treasury’s normal ability to
finance federal activities or meet government obligations. If the Treasury cannot issue
new debt (the effect of reaching the limit), the government may be unable to obtain the
cash needed to pay its bills (when the government is operating with a deficit) or it may be
unable to invest the surpluses of designated government accounts (the federal trust funds)
in federal debt as generally required by law. In either case, the Treasury is in a bind; it
is required by law to continue meeting the government’s legal obligations, but the debt
limit may prevent it from issuing the debt that would allow it to do so.
The federal debt held by the government’s own accounts grew by $853 billion over
the four years, FY1998 through FY2001, and continues to grow; debt held by the public

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fell by $448 billion over the same period (see Table 1). The continuing increases in debt
held by government accounts produced most of pressure on the debt limit early in 2002.
The re-emergence of deficits in FY2002, which led to increases in debt held by the public,
added to the pressure on the debt limit later in the first six months of 2002.2 The effect
of the changes raised total debt subject to limit by $405 billion between the end of fiscal
year 1997 and the end of fiscal year 2001. At the beginning of FY2002, debt subject to
limit was within $220 billion of the then existing $5.95 trillion debt limit.3 Between the
beginning of FY2002 and the end of May 2002, debt subject to limit increased by another
$217 billion, divided between an increase of $117 billion in debt held by government
accounts and an increase of $100 billion in debt held by the public. Table 2 shows debt
by month for fiscal year 2002 and FY2003 with month-to-month changes.
On April 4, 2002, the Treasury, to avoid exceeding the limit, used authority provided
through existing legislation to suspend reinvestment of government securities in the G-
Fund of the federal employees’ Thrift Savings Plan. The Treasury exchanged between $5
billion and $35 billion in federal securities for the same amount of credit balances. This
action lowered the amount of debt subject to limit and allowed the Treasury issue debt
and meet the government’s obligations. On April 16, after the influx of April 15th tax
revenues, the Treasury “made whole” the G-Fund by restoring all the debt not provided
over this period and crediting the fund with interest it would have earned on that debt.4
(As the Treasury awaited the influx of tax payments due on April 15, the debt subject to
limit stood at $5,949,975 million, less than $25 million below the limit.) By the end of
April, debt-subject-to-limit had fallen to $35 billion below the limit. The Treasury
continued to issue debt during May, ending the month with debt subject to limit $15
million below the statutory limit (see Table 2).
Earlier in the fall of 2001, the Administration recognized that the deterioration in the
budget outlook and continued growth in debt held by government accounts was likely to
lead to the debt limit being reached sooner rather than later. In early December, it asked
Congress to raise the debt limit by $750 billion to $6.7 trillion. As the debt moved closer
to and reached the debt limit over the first six months of FY2002, the Administration
repeatedly requested that Congress adopt an increase in the debt limit and warned
Congress of the adverse financial consequences of not raising the limit.
2 Until 2001, government publications did not divide debt subject to limit into the portions held
by the public and held by government accounts. This discussion and the table use CRS
calculated amounts that approximate the amounts of debt subject to limit held in these two
categories for fiscal years prior to 2001.
3 The previous increase in the debt limit was on August 5, 1997, as part of the Balanced Budget
Act of 1997 (P.L. 105-33). The limit was raised from $5.5 trillion to $5.95 trillion.
4 For a short discussion of the Treasury’s previous uses of its short-term ability to avoid
breaching the debt limit, see CRS Report 98-805, Public Debt Limit Legislation: A Brief History
and Controversies in the 1980s and 1990s, by Philip Winters; for a comprehensive report see the
GAO report, Debt Ceiling: Analysis of Actions During the 1995-1996 Crisis, Aug. 1996,
GAO/AIMD-96-130.

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Table 2. Components of Debt Subject to
Limit by Month in FY2002-FY2003
(in millions of dollars)
Held by
End of
Held by the
Total
Change from
Government
Change from
Change from
Month
Previous
Public
Accounts
Previous
Previous
Period
Period
Period
Sept. 2001
$5,732,802
$2,436,521
$3,296,281
Oct. 2001
5,744,523
$11,721
2,451,815
$15,294
3,292,709
$-3,572
Nov. 2001
5,816,823
72,300
2,469,647
17,832
3,347,176
54,467
Dec. 2001
5,871,413
54,590
2,516,012
46,365
3,355,401
8,225
Jan. 2002
5,865,892
-5,521
2,525,755
9,743
3,340,138
-15,263
Feb. 2002
5,933,154
67,262
2,528,494
2,739
3,404,659
64,521
March 2002
5,935,108
1,954
2,528,318
-176
3,406,789
2,130
April 2002
5,914,816
-20,292
2,549,438
21,120
3,365,378
-41,411
May 2002
5,949,975
35,159
2,553,350
3,912
3,396,625
31,247
June 2002
6,058,313
108,338
2,630,646
77,296
3,427,667
31,042
July 2002
6,092,050
33,737
2,627,980
-2,666
3,464,070
36,403
Aug. 2002
6,142,835
50,785
2,620,946
-7,034
3,521,890
57,820
Sept. 2002
6,161,431
18,596
2,644,244
23,298
3,517,187
-4,703
Oct. 2002
6,231,284
69,853
2,680,812
36,568
3,550,472
33,285
Nov. 2002
6,294,480
63,196
2,680,788
-24
3,613,692
63,220
Dec. 2002
6,359,412
64,932
2,745,787
64,999
3,613,625
-67
Change in FY2002
$428,629
$207,723
$220,906
Change, Sept 01-Dec. 02
$626,610
$309,266
$317,344
Source: U.S. Treasury, Bureau of the Public Debt, Monthly Statement of the Public Debt, September
2001-May 2002.
Resolving the Debt Limit Issue in 2002
By mid-May 2002, federal debt subject to limit effectively reached the statutory limit
of $5,950 billion. For the second time in FY2002, the Treasury took extraordinary actions
to avoid defaulting on government obligations. The previous brush with the debt limit
took place from early to mid-April. That earlier episode was short-term and resolved
itself with the large tax payments received on and after April 15. When the debt limit was
again reached in mid-May 2002, the Treasury again used its available statutory authority
to temporarily avoid the possibility of defaulting on the government’s obligations.
The situation that began in mid-May was more serious than the earlier episode. It
required the Treasury to resort to the financing actions used earlier and, if it lasted long
enough, possibly could have led to additional actions that had not yet been used. The
situation could not be relieved without an increase in the debt limit. On May 14, the
Treasury issued another request to Congress to raise the debt limit or produce some other
statutory change that would allow the Treasury to issue new debt. The Treasury, in a
news release, stated that, “absent extraordinary actions, the government will exceed the

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statutory debt ceiling no later than May 16.”5 The release went on to state that “a ‘debt
issuance suspension period’ will begin no later than May 16 .... [This] allows the Treasury
to suspend or redeem investments in two trust funds, which will provide flexibility to
fund the operations of the government during this period.”6 By reducing the amount of
federal debt held by these government accounts (and replacing it with non-interest
bearing, non-debt instruments), the Treasury was again able to issue debt to meet the
government’s obligations. The Treasury also stated that these “extraordinary” actions
would suffice only, at the longest, through June 28, 2002. By late-June, without an
increase in the debt limit, the Treasury indicated that it would need to take other actions
to avoid breaching the ceiling.7 By the end of June and into the first days of July, with
large payments and other obligation due, the Treasury stated that it would be out of all
available options to issue debt and fulfill government obligations. The situation would
then put the government on the verge of defaulting.
Congress took action over May and June 2002, that eventually did lead to an increase
in the debt limit. The House-passed supplemental appropriations for FY2002 (H.R. 4775;
May 24, 2002) included, after extended debate, language allowing any eventual House-
Senate conference on the legislation to add an increase in the debt limit. The Senate did
not add debt-limit-increase language to its version of the supplemental appropriations bill,
S. 2551 (incorporated as an amendment to H.R. 4775, June 3, 2002). The Senate
leadership indicated a strong reluctance to include a debt limit increase in the
supplemental appropriation bill. Instead, the Senate adopted a bill, S. 2578, raising the
debt limit by $450 billion (to $6.4 trillion) without debate on June 11. At that time, a
$450 billion increase in the debt limit was thought to provide enough borrowing authority
for government operations through at least the rest of calendar year 2002 and possibly into
the summer of 2003. With the warning of possible imminent default looming over it, the
House passed the $450 billion increase in the debt limit (by one vote) on June 27. The
President signed the bill into law on June 28 (P.L. 107-199), ending that debt limit crisis.
The Current Situation
The growth in debt subject to limit since the June 2002 adoption of the last increase
in the limit has again brought the outstanding amount close to the current $6.4 trillion
limit. The Daily Treasury Statement for January 24, 2003 (from the Financial
Management Service in the Department of Treasury) reports that debt subject to limit,
$3,346.6 billion, is less than $55 billion below the existing limit. On Christmas Eve,
2002, the Treasury sent a letter to Congress requesting an unspecified increase in the debt
limit by late February 2003. The 108th Congress, just getting organized early in 2003, has
not indicated publicly how it will deal with a – likely – need to increase the limit. At this
time, exactly when the debt limit will be reached is unknown, what actions Treasury will
take to maintain the integrity of the government’s accounts is unknown, and how long
such actions can avoid a default is also uncertain. The Treasury may take actions such as
5 U.S. Department of the Treasury. Treasury News. Treasury Statement on the Debt Ceiling,
May 14, 2002.
6 Ibid.
7 By June 21, 2002, the Treasury had postponed a regular auction of securities but had not
announced any other actions.

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those undertaken in 2002 of using existing authority to manage a limited number of
government accounts’ debt holdings to avoid precipitating a government default. These
actions will work only for a limited time. Without an increase in the debt limit by
Congress sometime in the relatively near future, the government will be unable to acquire
the resources, financial or budgetary, that it will need to operate.
Concluding Comments
Between the previous increase in the debt limit (August 1997) and the beginning of
fiscal year 2002, the government’s surpluses reduced debt held by the public. Since the
beginning of FY2002, the government’s budget deficit has increased debt held by the
public (by $318 billion). Debt held by government accounts has grown steadily over the
entire period and has increased by $309 billion in fiscal year 2002. The increases moved
debt-subject-to-limit $627 billion closer to the current limit.
The budget forecasts in 2001 of large and growing surpluses through FY2011
showed rapid reductions in debt held by the public. The same forecasts (as in most years)
showed steady growth in debt held by government accounts. The combination of the
shrinkage in debt held by the public and growth in debt held by government accounts
moderated the expected growth in total debt. The estimate indicates that the moderate
growth delayed the need to increase the debt limit late into the decade (the continued
increases in debt held by government accounts would eventually overwhelm the
reductions in debt held by the public). When the expectations of large surpluses
collapsed, late in the fall of 2001, so did the reductions in debt held by the public. Total
debt resumed a more rapid rate of growth, making an increase in the debt limit necessary
sooner rather than later.
Pressure to raise the debt limit over the last 50 years generally came from growth in
debt held by the public as the government needed to borrow from the public to finance
deficits. Growth in debt held by government accounts in the past, particularly before the
1983 changes to Social Security, was usually a relatively minor, but not insignificant
factor in the growth of total debt subject to limit. In the current instance, in spite of an
expected deficit and the resulting increase in debt held by the public, the increases in debt
held by government accounts over the last five years (and continuing) have driven the
growth in that debt subject to limit and were the primary cause of the need to raise the
debt limit in FY2002.

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