Order Code RL31967
The Debt Limit:
History and Recent Increases
Updated May 30, 2008
D. Andrew Austin
Analyst in Government Finance
Government and Finance Division

The Debt Limit: History and Recent Increases
Summary
Total debt of the federal government can increase in two ways. First, debt
increases when the government sells debt to the public to finance budget deficits and
acquire the financial resources needed to meet its obligations. This increases debt
held by the public
. Second, debt increases when the federal government issues debt
to certain government accounts, such as the Social Security, Medicare, and
Transportation trust funds, in exchange for their reported surpluses. This increases
debt held by government accounts. The sum of debt held by the public and debt held
by government accounts
is the total federal debt.
Surpluses generally reduce debt held by the public, while deficits raise it. The
government’s surpluses during FY1998-FY2001 reduced debt held by the public by
$448 billion. The debt holdings of government accounts grew by $853 billion over
the same period. The total net change raised total federal debt by $405 billion.
A statutory limit has restricted total federal debt since 1917 when Congress
passed the Second Liberty Bond Act. Congress has raised the debt limit five times
since 2001. Deficits each year since 2001 and the persistent increases in debt held
by government accounts repeatedly raised the debt to or near the limit in place at the
time. Congress raised the limit in June 2002, and by December 2002 the
Administration asked Congress for another increase. As the debt neared the limit in
February 2003, the Treasury resorted to accounting measures at its disposal to avoid
exceeding the limit. Congress passed a debt limit increase in May 2003. In the
spring of 2004, the Treasury had asked for another increase in the debt limit. After
Congress recessed in mid-October 2004 without acting, the Treasury Secretary
notified Congress that the actions he was taking to avoid exceeding the debt limit
would suffice only through mid-November. Congress approved a debt limit increase
in a post-election session, which the President signed on November 19, 2004.
In 2005, Congress included debt limit raising reconciliation instructions in the
FY2006 budget resolution (H.Con.Res. 95). Approval of the budget resolution in
April 2005 triggered the automatic passage of a debt limit increase in the House.
With no action having been taken by December 2005, the Secretary of the Treasury
sent several letters warning Congress that the Treasury would exhaust its options to
avoid default by mid-March 2006. Congress passed an increase in mid-March, which
the President signed on March 20.
The adoption of the conference report on the FY2008 budget resolution in the
spring of 2007 automatically (in the House) created and deemed passed legislation
(H.J.Res. 43) raising the debt limit by $850 billion to $9,815 billion. The Senate
Finance Committee approved the resolution on September 12, 2007, which was
passed by the Senate September 27 and signed by the President September 29. The
2008 economic slowdown has led to sharply higher estimates of the FY2008 deficit
spending has raising the prospect of another debt limit increase. The House and
Senate budget resolutions (H.Con.Res. 312, S.Con.Res. 70), as well as the conference
agreement (H.Rept. 110-659) recommend spending levels that would require an
increased debt limit in FY2009. This report will be updated as events warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Debt Limit and the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Why Have a Debt Limit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A Brief History of the Federal Debt Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Origins of the Federal Debt Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
World War II and After . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Debt Ceiling in the Last Decade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Debt Limit Issue in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Resolving the Debt Limit Issue in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Debt Limit Issue in 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Debt Limit Issue in 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Debt Limit Issue in 2005, 2006, and 2007 . . . . . . . . . . . . . . . . . . . . . . 10
The 2008 Economic Slowdown and Federal Debt . . . . . . . . . . . . . . . . . . . . 11
Concluding Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Appendix. Debt Subject to Limit by Month Since September 2001 . . . . . . . . . . 15
List of Figures
Figure 1. Components of Federal Debt As Percentage of GDP
FY1980-FY2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
List of Tables
Table 1. Components of Debt Subject to Limit, FY1996-FY2007 . . . . . . . . . . . . 5
Table A1. Components of Debt Subject to Limit by Month,
FY2002-FY2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

The Debt Limit:
History and Recent Increases
Introduction
The statutory debt limit applies to almost all federal debt.1 The limit applies to
federal debt held by the public (that is, debt held outside the federal government
itself) and to federal debt held by the government’s own accounts. Federal trust
funds, such as Social Security, Medicare, Transportation, and Civil Service
Retirement accounts, hold most of this internally held debt.2 The government’s
surpluses or deficits determine essentially all of the change in debt held by the
public.3 The government’s on-budget fiscal balance, on the other hand, does not
directly affect debt held in government accounts.4 Increases or decreases in debt held
by government accounts result from net financial flows into accounts holding the
debt, such as the Social Security Trust Fund. Legal requirements and government
accounting practices also affect levels of debt held by government accounts.5
The Debt Limit and the Treasury
The Treasury’s regular methods of financing federal activities or meeting
government obligations are hindered when federal debt nears its legal limit. If the
limit prevents the Treasury from issuing new debt to manage short-term cash flows
or to finance an annual deficit, the government may be unable to obtain the cash
needed to pay its bills or it may be unable to invest the surpluses of designated
government accounts (federal trust funds) in federal debt as generally required by
1 About 0.8% of total debt is excluded from debt limit coverage. As of mid April 2008, total
public debt outstanding was $9.368 trillion; debt subject to limit was $9.289 trillion or
99.2% of total public debt outstanding. The Treasury defines “Total Public Debt Subject
to Limit” as “the Total Public Debt Outstanding less the Unamortized Discount on Treasury
Bills and Zero-Coupon Treasury Bonds
, old debt issued before 1917, and old currency
called United States Notes, as well as Debt held by the Federal Financing Bank and
Guaranteed Debt.”
2 Although there are hundreds of trust funds, the overwhelming majority are very small. The
12 largest trust funds hold 98.8% of the federal debt held in government accounts.
3 Other means of financing — including cash balance changes, seigniorage, and
capitalization of financing accounts used to fund federal credit programs — have relatively
little effect on the changes in debt held by the public.
4 In future years, when some trust funds are projected to pay out more than they take in,
funds that the Treasury would use to redeem those intergovernmental debts must be obtained
via higher taxes or lower government spending.
5 Trust fund surpluses by law must be invested in special federal government securities.

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law. In either case, the Treasury is left in a bind; the law requires that the
government’s legal obligations be paid, but the debt limit may prevent it from issuing
the debt that would allow it to do so.
The government’s income and outlays vary over the course of the year,
producing monthly surpluses and deficits that affect the level of debt, whether or not
the government has a surplus or deficit for the entire year. The government accounts
holding federal debt also can experience monthly deficits and surpluses, even if most
of them currently show annual surpluses.
Why Have a Debt Limit?
The debt limit, as noted above, can hinder the Treasury’s ability to manage the
federal government’s finances. In extreme cases, when the federal debt is very near
its statutory limit, the Treasury must take unusual and extraordinary measures to meet
federal obligations. While the debt limit has never caused the federal government to
default on its obligations, it has at times caused great inconvenience and has added
uncertainty to Treasury operations.
The debt limit also provides Congress with the strings to control the federal
purse, allowing Congress to assert its constitutional prerogatives to control spending.6
The debt limit also imposes a form of fiscal accountability, which compels Congress
and the President to take visible action to allow further federal borrowing when the
federal government spends more than it collects in revenues. In the words of one
author, the debt limit “expresses a national devotion to the idea of thrift and to
economical management of the fiscal affairs of the government.”7
A Brief History of the Federal Debt Limit
Origins of the Federal Debt Limit
The statutory limit on federal debt began with the Second Liberty Bond Act of
1917,8 which helped finance the United States’ entry into World War I.9 By allowing
the Treasury to issue long-term Liberty Bonds in addition to more commonly used
short-term debt instruments, the federal government held down its interest costs.
6 For a vigorous assertion of the utility of the debt ceiling, see Anita S. Drishnakumar, “In
Defense of the Debt Limit Statute,” Harvard Journal on Legislation, vol. 42, 2005, pp. 135-
185.
7 Marshall A. Robinson, The National Debt Ceiling: An Experiment in Fiscal Policy,
Washington, D.C.: The Brookings Institution, 1959, pp.5.
8 P.L. 65-43, 40 Stat. 288, enacted September 24, 1917. Currently codified as amended as
31 U.S.C. § 3101.
9 H. J. Cooke and M. Katzen, “The Public Debt Limit,” Journal of Finance, vol. 9, no. 3
(September 1954), pp. 298-303.

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Congress had previously authorized specific loans, such as the Panama Canal
loan, or allowed the Treasury to issue specific types of debt instruments, such as
certificates of indebtedness, bills, notes and bonds.10 In other cases, Congress
provided the Treasury with limited discretion to choose of debt instruments.11
With the passage of the Second Liberty Bond Act, Congress enacted aggregate
constraints on certificates of indebtedness and on bonds that allowed the Treasury
greater ability to respond to changing conditions and more flexibility in financial
management. Debt limit legislation in the following two decades also set separate
limits for different categories of debt, such as bills, certificates, and bonds.
In 1939, Congress eliminated separate limits on bonds and on other types of
debt, which created the first aggregate limit that covered nearly all public debt.12
This measure gave the Treasury freer rein to manage the federal debt as it saw fit.
In particular, the Treasury could choose to issue debt instruments with maturities that
would reduce interest costs and minimize financial risks stemming from future
interest rate changes given the conditions in financial markets.13 On the other hand,
although the Treasury was delegated greater independence of action, the debt limit
on the eve of World War II was much closer to total federal debt than it had been at
the end of World War I. For example, the 1919 Victory Liberty Bond Act (P.L. 65-
328) raised the maximum allowable federal debt to $43 billion, far above the $25.5
billion in total federal debt at the end of FY1919.14 By contrast, the debt limit in
1939 was $45 billion, only about 10% above the $40.4 billion total federal debt of
that time.
World War II and After
The debt ceiling was raised to accommodate accumulating costs for World War
II in each year from 1941 through 1945, when it was set at $300 billion.15 After
World War II ended, the debt limit was reduced to $275 billion. Because the Korean
War was mostly financed by higher taxes rather than by increased debt, the limit
10 Treasury certificates of indebtedness were short-term, interest-bearing securities.
Treasury bills are securities with a maturity of a year or less. Treasury notes are
interest-bearing securities that generally have maturities of two to five years. Treasury
bonds are interest-bearing securities that generally have maturities of 10 or more years.
11 Marshall A. Robinson, The National Debt Ceiling: An Experiment in Fiscal Policy,
Washington, D.C.: The Brookings Institution, 1959, pp.1-6.
12 P.L. 76-201. Some authors claimed the aggregate limit was first created in Public Debt
Act of 1941 (P.L. 77-7). The 1939 Senate floor debate, however, makes clear that Congress
intended to lift categorical debt restrictions. See Senate debate, Congressional Record, vol.
84, part 6 (June 1, 1939), pp. 6480, 6497-6501.
13 This limit did not apply to certain previous public debt issues that constituted a minor
portion of the federal debt.
14 U.S. Bureau of the Census, Historical Statistics of the United States: Colonial Times to
1970
, H. Doc. 93-78 (Washington: GPO, 1975), Series Y 493-504.
15 Public Debt Acts of 1941 (P.L. 77-7), 1942 (P.L. 77-510), 1943 (78-34), 1944 (P.L. 78-
333), and 1945 (P.L. 79-48).

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remained at $275 billion until 1954. After 1954, the debt limit was reduced twice
and increased seven times, until March 1962 when it again reached $300 billion, its
level at the end of World War II. Since March 1962, Congress has enacted 69
separate measures that have altered the limit on federal debt.16 Most of these changes
in the debt limit were, measured in percentage terms, small in comparison to changes
adopted in wartime or during the Great Depression. Some recent increases in the
debt limit, however, were large in dollar terms. For instance, in May 2003, the debt
limit increased by $984 billion.
The Debt Ceiling in the Last Decade
During the four years (FY1998-FY2001) the government ran surpluses, federal
debt held by intergovernmental accounts grew by $855 billion and debt held by the
public fell by almost $450 billion. Since FY2001, however, debt held by the public
grew continually due to persistent and substantial budget deficits, as shown in Table
1
, which shows components of debt in current dollars and as percentages of gross
domestic product (GDP). 17 Debt held in government accounts also continued to
grow.
Figure 1 shows the components of federal debt as shares of gross domestic
product (GDP) from FY1980 through FY2007.18 Federal debt held by government
accounts has grown steadily since 1980. Debt held by the public, which changes in
response to total surpluses or deficits, grew as a share of GDP through the mid-
1990s. After FY1992, deficits shrank, and from FY1998 through FY2001 the federal
government ran surpluses.19 Those surpluses, along with rapid GDP growth, reduced
debt held by the public as a percentage of GDP. When large deficits returned and
GDP growth slowed in the early 2000s, debt held by the public as a share of GDP
again increased. Smaller deficits in FY2006 and FY2007 led to smaller increases in
publicly held debt. The total FY2007 deficit fell to 1.2% of GDP according to CBO.
16 FY2008 Budget of the U.S. Government: Historical Tables, Table 7-3.
17 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 Table 1 use CRS
calculations that approximate the amounts of debt subject to limit held in these two
categories for fiscal years prior to 2001.
18 The data show components of debt compared to the size of the economy. This avoids
possible distortions resulting from changing price levels over time and includes changes in
per capita incomes. This percentage increases when debt grows faster than GDP and falls
when it grows more slowly than GDP.
19 Federal on-budget receipts and outlays nearly matched in FY1999, and the on-budget
surplus in FY2000 was 0.9% of GDP. Prior to FY1999, the federal government last had an
on-budget surplus in FY1960. Social Security receipts in excess of benefits comprise most
of the off-budget surplus, which has been positive since FY1985.

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Table 1. Components of Debt Subject to Limit, FY1996-FY2007
(in billions of current dollars and as percentage of GDP)
Debt subject to limit
Held by
End of
Total
government
Held by the public
Debt limit
fiscal year
accounts
% of
% of
% of
$ billion
$ billion
$ billion
GDP
GDP
GDP
1996
$5,500
$5,137.2
65.7%
1,432.4
18.3%
3,704.8
47.4%
1997
5,950
5,327.6
64.2%
1,581.9
19.0%
3,745.8
45.1%
1998
5,950
5,439.4
62.2%
1,742.1
19.9%
3,697.4
42.3%
1999
5,950
5,567.7
60.1%
1,958.2
21.1%
3,609.5
38.9%
2000
5,950
5,591.6
57.0%
2,203.9
22.4%
3,387.7
34.5%
2001
5,950
5,732.8
56.6%
2,436.5
24.1%
3,296.3
32.5%
2002
6,400
6,161.4
58.9%
2,644.2
25.3%
3,517.2
33.6%
2003
7,384
6,737.6
61.4%
2,846.7
25.9%
3,890.8
35.5%
2004
7,384
7,333.4
62.5%
3,056.6
26.0%
4,276.8
36.4%
2005
8,184
7,871.0
64.0%
3,301.0
26.9%
4,570.1
37.2%
2006
8,965
8,420.3
64.2%
3,610.4
27.5%
4,809.8
36.7%
2007
9,815a
9,007.7
65.2%
3,958.4
28.6%
5,049.3
36.5%
Change During
$405.2
$854.6
$-449.5
FY1998 - FY2001
Change During
$-5,327.6
$-1,581.9
$-3,745.8
FY2002 - FY2007
Source: U.S. Department of the Treasury, Financial Management Service, Treasury Bulletin, June
2001 and December 2006. Bureau of the Public Debt, Monthly Statement of Public Debt, August
2007. CRS calculations. Totals may not sum due to rounding.
Note: For the fiscal years 1996 through 2000, the amounts held by government accounts and held by
the public are approximations. In 2001, the Treasury publications began distinguishing holders of debt
subject to limit. The numbers in the table showing this breakdown for FY1996 through FY2000 were
calculated by subtracting debts of the Federal Financing Bank, an arm of the Treasury whose debt is
not subject to limit, from total debt held by government accounts. This approximates the amount of
that debt subject to limit. This approximation overestimates debt by billions of dollars because
estimates of unamortized discount is unavailable. 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 overestimated, the resulting measure of debt held
by the public subject to limit is underestimated. Nevertheless, these approximations reported in the
table above suffice to show how the two categories have changed over the time.
a. Debt limit increased September 29, 2007, to $9,815 billion.

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Figure 1. Components of Federal Debt As Percentage of GDP
FY1980-FY2007
70%
60%
50%
P
D
40%
f G
t o

30%
ercen
P

20%
10%
0%
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
Fiscal Year
Held By Government Accounts
Held by the Public
Total
Source: OMB, Budget of the United States for FY2008, Historical Tables, February 2007; CBO.
The Debt Limit Issue in 2002
Accumulating debt in government accounts produced most of the pressure on
the debt limit that occurred early in 2002. As deficits reemerged in FY2002,
increases in debt held by the public added to the pressure on the debt limit in the
spring of 2002. During the four fiscal years with surpluses (FY1998-FY2001), the
increases in federally held debt and decreases in debt held by the public produced a
net increase of $405 billion in total debt subject to limit. At the beginning of FY2002
(October 1, 2001), debt subject to limit was within $217 billion of the existing $5.95
trillion debt limit.20 Between then and the end of May 2002, debt subject to limit
increased by another $217 billion, divided between a $117 billion increase in debt
held by government accounts and a $100 billion increase in debt held by the public,
putting the debt close to the $5.95 trillion limit. Table A1, presented in the
Appendix, shows month-by-month debt totals and accumulations from September
2001 through September 2007.
20 The debt limit was raised from $5.5 trillion to $5.95 trillion on August 5, 1997, as part of
the Balanced Budget Act of 1997 (P.L.105-33, 111 Stat. 251).

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In the fall of 2001, the Administration recognized that a deteriorating budget
outlook and continued growth in debt held by government accounts were likely to
lead to the debt limit soon being reached. In early December 2001, 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
asked Congress repeatedly to increase the debt limit, warning of adverse financial
consequences were the limit not raised.
On April 4, 2002, the Treasury held debt below the limit by invoking its
legislatively mandated authority to suspend reinvestment of government securities
in the G-Fund of the federal employees’ Thrift Savings Plan (TSP). This allowed the
Treasury to issue new debt and meet the government’s obligations. On April 15, debt
subject to limit stood at $5,949,975 million, just $25 million below the limit. Once
April 15 tax revenues flowed in, the Treasury “made whole” the G-Fund by restoring
all of the debt that had not been issued to the TSP over this period and crediting the
fund with interest it would have earned on that debt.21 By the end of April, that debt
had fallen back $35 billion below the limit.
Resolving the Debt Limit Issue in 2002. By the middle of May 2002, debt
subject to limit had again risen to within $15 million of the statutory limit.22 At the
FY2002 average spending rate, $15 million equaled about five minutes of federal
outlays. The Treasury, for the second time in 2002, used its statutory authority to
avoid a default. The Treasury’s financing problems, however, would persist without
an increase in the debt limit. On May 14, the Treasury asked Congress to raise the
debt limit or enact other statutory changes allowing the Treasury to issue new debt.
A Treasury news release stated “absent extraordinary actions, the government will
exceed the statutory debt ceiling no later than May 16,” and that
a “debt issuance suspension period” will begin no later than May 16 [2002]....
[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.23
The Treasury reduced federal debt held by these government accounts by
replacing it with non-interest-bearing, non-debt instruments, which enabled it to issue
new debt to meet the government’s obligations. The Treasury claimed these
extraordinary actions would suffice, at the latest, through June 28, 2002. Without a
debt limit increase by that date, the Treasury indicated it would need to take other
actions available to it to avoid breaching the ceiling. By June 21, the Treasury had
postponed a regular securities auction, but took no other actions. With large
21 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 U.S. General Accounting Office, Debt Ceiling: Analysis of Actions During the
1995-1996 Crisis
, GAO/AIMD-96-130, August 1996.
22 See Table A1, presented in the Appendix, for details.
23 U.S. Department of the Treasury, Treasury News, Treasury Statement on the Debt
Ceiling
, May 14, 2002.

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payments and other obligations due at the end of June and at the beginning of July,
the Treasury stated it would soon exhaust all options to issue debt and fulfill
government obligations, putting the government on the verge of a default.
During May and June 2002, Congress took steps to increase the debt limit. The
FY2002 supplemental appropriations bill (H.R. 4775) passed by the House on May
24 included, after extended debate, language allowing any eventual House-Senate
conference on the legislation to increase the debt limit. However, the Senate’s
supplemental appropriations bill (S. 2551; incorporated as an amendment to H.R.
4775, June 3, 2002) omitted debt-limit-increasing language. The Senate leadership
expressed strong reluctance to include a debt limit increase in the supplemental
appropriation bill. Instead, on June 11, the Senate adopted a bill (S. 2578), without
debate, to raise the debt limit by $450 billion to $6.4 trillion. At that time, a $450
billion debt limit increase was thought to provide enough borrowing authority for
government operations through the rest of calendar year 2002, if not through the
summer of 2003. With the possibility of default looming over it, the House passed
the $450 billion debt limit increase by a single vote on June 27. The President signed
the bill into law on June 28 (P.L. 107-199, 116 Stat. 734), ending the 2002 debt limit
crisis.24
The Debt Limit Issue in 2003
On Christmas Eve, 2002, Kenneth Dam, Deputy Secretary of the Treasury sent
a letter to Congress requesting an unspecified increase in the debt limit by late
February 2003, signaling that the $6.4 trillion debt limit would then be reached.25
The 108th Congress, still in the process of organizing itself, did not immediately
respond. Through the winter and into the spring, the Treasury repeatedly requested
that the debt limit be raised to avoid serious financial problems. By February 20,
2003, the Treasury, as in 2002, used legislatively mandated measures to manage debt
holdings of certain government accounts to avoid reaching the debt limit. These
actions included the replacement of internally held government debt with non-debt
instruments in certain government accounts and not issuing new debt to these
accounts. These actions allowed the Treasury to issue additional debt to the public
to acquire the cash needed to pay for the government’s commitments or to issue new
debt to other federal accounts.
Through the rest of February and into May, the Treasury held debt subject to
limit $15 million below the limit.26 The adoption of the conference report on the
FY2004 budget resolution (H.Con.Res. 95; H.Rept. 108-71) on April 11, 2003, in the
House triggered the “Gephardt rule” (House Rule XXVII) that deems to have passed
24 For additional details, see U.S. GAO report, Debt Ceiling: Analysis of Actions During the
2002 Debt Issuance Suspension Period
, GAO-03-134, December 2002.
25 The text of the letter is available at [http://www.treas.gov/press/releases/po3718.htm].
26 The Treasury reduced the amount of debt held by selected federal accounts while it sold
an equal (or smaller) amount of debt to the public. This raised cash needed to pay for
ongoing obligations and kept the debt below the limit.

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legislation (in this case, H.J.Res. 51) raising the debt limit to accommodate the
spending and revenue levels approved in the adopted budget resolution.27
The Senate received the debt-limit legislation on April 11, but did not act until
May 23, after receiving further Treasury warnings of imminent default. On that day,
debt subject to limit was $25 million (or 0.0004%) below the existing $6.4 trillion
limit. The Senate adopted the legislation, after rejecting eight amendments and sent
it to the President, who signed it on May 27. This legislation raised the debt limit to
$7.384 trillion (P.L. 108-24, 117 Stat. 710).
The Debt Limit Issue in 2004
In January 2004, CBO estimated that the debt limit, then set at $7.384 trillion,
would be reached the following summer.28 By the spring of 2004, the Treasury asked
Congress to raise the debt limit in order to avoid the disruptions to government
finances experienced in the previous two years. In August, and again in September,
the Treasury declared that the debt limit would be reached in the first half of October.
On October 14, debt subject to limit reached $7,383.975 billion, just $25 million
below the existing limit. The Treasury employed methods used in the previous two
years to keep debt under the legal limit. On October 14, Secretary of the Treasury
John Snow informed Congress, just before the election season break, that available
measures to avoid breaching the debt limit would be exhausted by mid-November.
Without an increase in the debt limit, the Treasury would be unable to meet all of the
government’s existing obligations, and the government could default.29
Although the House passed a budget resolution for FY2005 in the spring of
2004, it did not reach final agreement with the Senate on the measure. Without a
budget resolution passed by Congress, no resolution to raise the debt limit could be
deemed passed by the House automatically under the Gephardt rule. Consequently,
no measure was available to send to the Senate. As the debt approached the limit
through the summer and into the fall, no legislation was moved to raise the debt limit.
Earlier, in September 2004, the House had added an amendment to the FY2005
Transportation-Treasury appropriations (H.R. 5025) in an effort to remove the
Treasury’s flexibility in financing the government as federal debt approached and
reached the existing limit. Without that flexibility, the government would be unable
to meet its financial obligations as the amount of debt neared the limit. The
legislation cleared the House, but the Senate did not act on it.
27 The House Budget Committee has some discretion in setting the debt limit level in the
House Joint resolution generated by the Gephardt rule. See CRS Report 98-453, Debt-Limit
Legislation in the Congressional Budget Process
; and CRS Report RL31913, Developing
Debt-Limit Legislation: The House’s ‘Gephardt Rule,’
both by Bill Heniff Jr.
28 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2005 to
2014
, January 2004.
29 Although not all the possible consequences of a government default are known, it would
mean that the government could no longer meet all of its legal obligations. Not only the
default, but the efforts to resolve it would arguably have negative repercussions on both
domestic and international financial markets and economies.

CRS-10
After the elections, Senator Frist, on November 16, 2004, introduced legislation
(S. 2986) to raise the debt by $800 billion, from $7,384 billion to $8,184 billion.
The Senate approved the increase on November 17, 2004. The House considered and
approved the increase on November 18. The President signed the legislation into law
(P.L. 108-415, 118 Stat. 2337) on November 19, 2004. Estimates made at that time
anticipated the new limit would be reached between August and December 2005.
Shortly before the increase in the debt limit, the Treasury delayed a debt auction
and informed Congress that it would invoke a “debt limit suspension period” as it
had in previous years. The increase in the debt limit in mid-November allowed the
Treasury to reschedule the debt auction and cancel, before it began, the “debt limit
suspension period.”
The Debt Limit Issue in 2005, 2006, and 2007
Debt limit increases in 2005, 2006, and 2007 took a less dramatic path than
those in President Bush’s first term. In 2005, Congress included three reconciliation
instructions in the FY2006 budget resolution (H.Con.Res. 95, 109th Congress; April
28, 2005), the third of which directed the House Committee on Ways and Means and
the Senate Finance Committee to report bills raising the debt limit. The instructions
specified a $781 billion debt limit increase, to $8,965 billion, with a reporting date
of no later than September 30, 2005. Neither committee reported a bill to raise the
debt limit.
The adoption of the conference report on the FY2006 budget resolution in late
April 2005 also triggered the Gephardt rule (House Rule XXVII), producing a House
Joint Resolution (H.J.Res. 47) that also would raise the debt limit by $781 billion to
$8.965 trillion. Under the rule, the resolution was automatically deemed passed by
the House and sent to the Senate. Through the end of the first session of the 109th
Congress, the Senate had not considered H.J.Res. 47, nor had Congress considered
a reconciliation bill raising the debt limit as called for in the budget resolution.
At the end of December 2005, Secretary of the Treasury Snow wrote Congress
that the debt limit would probably be reached in mid-February 2006, although the
Treasury could take actions that maintain the debt below its limit until mid-March.
He therefore requested an increase in the debt limit.30 In two more letters, sent on
February 19 and March 6, Secretary Snow advised Congress that the Treasury was
taking measures within its legal discretion to avoid reaching the limit and that these
measures would suffice only until the middle of March 2006. Secretary Snow
authorized actions used previously by the Treasury, including declaring a debt
issuance suspension period. As March began, the government was again close to
becoming unable to meet its obligations. During the week of March 13 the Senate
took up H.J.Res. 47. On March 16, the Senate passed a debt limit increase after
rejecting several amendments. The President’s signature on March 20, 2006, then
raised the debt limit (P.L. 109-182) to $8.965 trillion.
30 A facsimile of the letter is available at [http://www.ombwatch.org/budget/pdf/
snow_debtlimit_2006.pdf].

CRS-11
In mid-May 2007, Congress passed the conference report (H.Rept. 110-153) on
the FY2008 budget resolution. The House’s Gephardt rule, triggered by the adoption
of the conference report on the budget resolution, resulted in the automatic
engrossment of a joint resolution (in this case, H.J.Res. 43, 110th Congress) raising
the debt limit by $850 billion to $9,815 billion, and sending it to the Senate. At the
end of July 2007, the Treasury asked Congress to raise the debt limit, stating the limit
would be reached in early October 2007. In August, the CBO Director said that
projections suggested that the limit would be reached in late October or early
November. Without an increase, the Treasury indicated that it would take steps
within its legal authority to avoid exceeding the debt limit. The Senate Finance
Committee approved the House resolution (H.J.Res. 43) without changes on
September 12, 2007. The Senate then passed the measure on September 27, which
the President signed on September 29, 2007 (P.L. 110-91).
The 2008 Economic Slowdown and Federal Debt
A serious economic slowdown, which many economic forecasters say started
in the last quarter of 2007, has led to sharply higher estimates of federal deficit
spending in FY2008 and FY2009. The slowdown began with a rapid deceleration
of housing prices and a rise in interest rate spreads between private lending rates and
benchmark Federal Reserve rates, indicating an increasing reluctance of major
financial institutions to lend to each other as well as to firms and individuals. The
effects of this slowdown will depend in large part whether market difficulties remain
concentrated in the housing and financial sector, or whether economic troubles
spread more widely through the economy.
An economic recession affects the federal deficit in several ways. First, falling
prices of many assets and equities can sharply reduce federal revenues from capital
gains taxes and from the corporate tax. Second, more difficult economic conditions
may reduce tax revenues on earned income and other income sources. Third,
“automatic stabilizers” such as unemployment insurance and income support
programs pay out more money as unemployment rises and the number of households
eligible for means-tested benefits rises. An increase in deficit spending provides a
fiscal stimulus to the economy, if the output levels of goods and services produced
in the nation are below their potential levels. Deficit spending, however, can help
accelerate inflation if output levels are near or at potential levels, and in addition,
exacerbates long-term fiscal challenges.
In March 2008, CBO estimates the President’s budget would lead to a $396
billion deficit in FY2008 and a $342 billion deficit in FY2009.31 Some private
forecasters have predicted that the FY2008 deficit could reach $500 billion or more.32
At that rate, a higher federal debt limit could become necessary in 2009. The House
Concurrent Resolution on the Budget (H.Con.Res. 312) recommends policies that
would result in a $10.200 trillion debt in FY2009. The Senate Concurrent Resolution
on the Budget (S.Con.Res. 70) recommends policies that would result in a total debt
31 CBO, Analysis of the President’s Budgetary Proposals for FY2009, March 2008.
32 Goldman Sachs U.S. Research, “US Daily: The Fiscal 2008 Deficit — Likely to Top $500
Billion,” March 25, 2008.

CRS-12
of $10.278 trillion in FY2009.33 Implementing either set of policies would require
an increase in the federal debt limit. The conference agreement (H.Rept. 110-659)
also recommends spending levels that would lead to a debt subject to limit of
$10.207 trillion in FY2009, a level that would require an increase in the statutory
debt limit.
Several economists have expressed concerns that inflation, which had been
relatively low since the early 1980s, could accelerate due to rising prices of food,
energy, and primary commodities. While inflation would reduce the market value
of the federal deficit, it would require Treasury to pay higher nominal interest rates
on federal debt.
Concluding Comments
Since the late 1950s, the federal government increased its borrowing from the
public in all years, except in FY1969 following imposition of a war surcharge and in
the period FY1997-FY2001. The persistence of federal budget deficits has required
the government to issue more and more debt to the public.34 The accumulation of
Social Security and other trust funds, particularly after 1983 when recommendations
of the Greenspan Commission were implemented, led to sustained growth in
government-held debt subject to limit.35 The growth in federal debt held by the
public and in intergovernmental accounts, such as trust funds, has periodically
obliged Congress to raise the debt limit.
Between August 1997, when the debt limit was raised to $5,950 billion, and the
beginning of FY2002 in October 2001, federal budget surpluses reduced debt held
by the public. From the end of FY2001, the last fiscal year with a surplus, until the
end of FY2007, debt held by the public grew by $1,729 billion. Federal debt held in
intergovernmental accounts has grown steadily throughout the period, rising by
$1,508 billion since the beginning of FY2002.
In early 2001, the 10-year budget forecasts projected large and growing
surpluses, indicating rapid reduction in debt held by the public. Some experts
expressed concern about consequences of retiring all federal debt held by the
public.36 Most long-term forecasts computed at that time, however, showed large
33 U.S. Congress, House Committee on the Budget, Report to Accompany H. Con. Res. 312,
110th Cong., 2nd sess., H.Rept. 110-543, March 2008, p. 99; U.S. Congress, Senate
Committee on the Budget, Report to Accompany S. Res. 70, S.Prt. 110-039, March 2008.
34 The ability to run fiscal deficits gives the federal government useful flexibility in
managing its finances, although large deficits may harm economic performance. See CRS
Report RL33657, Running Deficits: Positives and Pitfalls, by D. Andrew Austin.
35 Report of the National Commission on Social Security Reform, January 1983, available
at [http://www.ssa.gov/history/reports/gspan.html].
36 Testimony of Federal Reserve Chairman Alan Greenspan, in U.S. Congress, Senate
Committee on the Budget, Outlook for the Federal Budget and Implications for Fiscal
(continued...)

CRS-13
deficits emerging once the baby boomers began to retire. Short-term forecasts
projected continuous growth in debt held by government accounts, largely due to the
difference between Social Security tax revenues and benefit payments. The
combination of falling levels of publicly held debt and rising levels of debt held by
government accounts moderated the expected growth of total debt. The moderate
growth in total debt those projections had forecast was expected to postpone the need
to increase the debt limit until late into the decade, when accumulating debt in
government accounts would overtake reductions in debt held by the public.
New budget projections released in early 2002 smashed expectations of large,
persistent surpluses, and hopes for reductions in debt held by the public collapsed.
The return to large federal deficits accelerated the growth of total debt. Increases in
the debt limit would be necessary much sooner than previously expected.
Early in 2003, the FY2003 deficit and the persistent rise in debt held by
government accounts drove the federal debt up to the $6.4 trillion limit in effect at
the time. The Treasury avoided breaching the limit into May. Congress adopted a
debt limit increase of $934 billion on May 23, 2003, that provided enough room for
the growing federal debt through the fall of 2004. The debt limit increase passed by
Congress late in 2004 was expected, at the time, to accommodate the government’s
debt growth well into 2005, if not into early 2006. In late December 2005, and early
in 2006, the Treasury informed Congress that the limit would be reached between
mid-February and mid-March 2006. On March 16, 2006, the Senate passed the
House-initiated debt limit increase, raising the debt limit to $8,965 billion. The debt
limit crisis was resolved when the President signed the debt limit increase on March
20. Smaller than expected deficits in FY2006 and FY2007 postponed, but did not
end the need for a new, higher debt limit. The House passed legislation in May 2007
(H.J.Res. 43) to raise the debt limit. The Senate passed the measure (P.L. 110-91)
on September 27, which the President signed on September 29.
The 2008 economic slowdown, which will reduce federal tax revenues and
increase some federal outlays, has caused forecasts of federal deficit spending to rise,
thus bringing forward the projected date when federal debt reaches its current limit.
The House and Senate budget resolutions (H.Con.Res. 312, S.Con.Res. 70), as well
as the conference agreement (H.Rept. 110-659), recommend spending levels that
would require an increased debt limit in FY2009.
Over the next decade, without major changes in federal policies, persistent and
possibly growing deficits, along with the ongoing growth in the debt holdings of
government accounts, would increase substantially the amount of federal debt subject
to limit. Unless federal policies change, Congress would repeatedly face demands
to raise the debt limit to accommodate the growing federal debt in order to provide
the government with the means to meet its financial obligations.
36 (...continued)
Policy, hearings, 107th Cong., 1st sess., January 25, 2001, available at
[http://www.federalreserve.gov/boarddocs/testimony/2001/20010125/default.htm].

CRS-14
Further Reading
Drishnakumar, Anita S., “In Defense of the Debt Limit Statute,” Harvard Journal on
Legislation, vol. 42, 2005, pp. 135-185.
Gordon, John Steele, Hamilton’s Blessing: the Extraordinary Life and Times of Our
National Debt, New York: Penguin, 1998.
Hormats, Robert D., The Price of Liberty: Paying for America’s Wars from the
Revolution to the War on Terror, New York: Times Books, 2007.
Noll, Franklin, “The United States Public Debt, 1861 to 1975,” EH.Net
Encyclopedia, edited by Robert Whaples, May 26, 2004. Available at
[http://eh.net/encyclopedia/article/noll.publicdebt].
Wright, Robert E., One Nation Under Debt: Hamilton, Jefferson, and the History of
What We Owe, New York: McGraw-Hill, 2008.

CRS-15
Appendix. Debt Subject to Limit by Month
Since September 2001
Table A1, below, provides data on the dollar amount, in current dollars, of
federal debt and the changes in these amounts by month between the end of
September 2001 (the end of FY2001) and the end of September 2007. The table
shows outstanding monthly balances of total federal debt, debt held by government
accounts, and debt held by the public. The final row shows the change for each
category for the entire period, September 2001 to September 2007.
All three measures of debt subject to limit increased over this period. Total
federal debt increased by $3,275 billion, debt held in government accounts increased
by $1,522 billion, and debt held by the public increased by $1,753 billion. All three
measures experienced periodic reductions in some months. Because federal receipts
and outlays are spread unevenly over the fiscal year, changes in debt may be negative
or positive in a given month, even if debt measures follow an overall increasing
trend.

CRS-16
Table A1. Components of Debt Subject to Limit
by Month, FY2002-FY2007
(in millions of current dollars)
Change
Change
Change
Held by
End of
from
from
Held by the
from
Total
government
month
previous
previous
public
previous
accounts
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
Mar. 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
Jan. 2003
6,355,812
-3,600
2,753,301
7,514
3,602,511
-11,114
Feb. 2003
6,399,975
44,163
2,750,471
-2,830
3,649,504
46,993
Mar. 2003
6,399,975
0
2,722,812
-27,659
3,677,163
27,659
Apr. 2003
6,399,975
0
2,731,042
8,230
3,668,933
-8,230
May 2003
6,498,658
98,683
2,755,895
24,853
3,742,763
73,830
June 2003
6,625,519
126,861
2,842,361
86,466
3,783,158
40,395
July 2003
6,704,814
79,295
2,835,566
-6,795
3,869,247
86,089
Aug. 2003
6,743,775
38,961
2,829,387
-6,179
3,914,388
45,141
Sept. 2003
6,737,553
-6,222
2,846,730
17,343
3,890,823
-23,565
Oct. 2003
6,826,668
89,115
2,869,493
22,763
3,957,175
66,352
Nov. 2003
6,879,626
52,958
2,879,117
9,624
4,000,509
43,334
Dec. 2003
6,952,893
73,267
2,940,736
61,619
4,012,157
11,648
Jan. 2004
6,966,851
13,958
2,951,219
10,483
4,015,633
3,476
Feb. 2004
7,049,163
82,312
2,953,123
1,904
4,096,040
80,407
Mar. 2004
7,088,648
39,485
2,941,195
-11,928
4,147,453
51,413
Apr. 2004
7,089,700
1,052
2,960,151
18,956
4,129,549
-17,904
May 2004
7,151,523
61,823
2,973,869
13,718
4,177,653
48,104
June 2004
7,229,320
77,797
3,039,987
66,118
4,189,334
11,681
July 2004
7,271,328
42,008
3,033,396
-6,591
4,237,933
48,599
Aug. 2004
7,305,531
34,203
3,037,149
3,753
4,268,382
30,449
Sept. 2004
7,333,350
27,819
3,056,590
19,441
4,276,760
8,378
Oct. 2004
7,383,975
50,625
3,096,207
39,617
4,287,768
11,008
Nov. 2004
7,464,740
80,765
3,087,834
-8,373
4,376,906
89,138
Dec. 2004
7,535,644
70,904
3,158,531
70,697
4,377,114
208

CRS-17
Change
Change
Change
Held by
End of
from
from
Held by the
from
Total
government
month
previous
previous
public
previous
accounts
period
period
period
Jan. 2005
7,567,702
32,058
3,171,089
12,558
4,396,615
19,501
Feb. 2005
7,652,726
85,024
3,176,406
5,317
4,476,320
79,705
Mar. 2005
7,715,503
62,777
3,175,460
-946
4,540,042
63,722
Apr. 2005
7,704,041
-11,462
3,185,364
9,904
4,518,677
-21,365
May 2005
7,717,574
13,533
3,207,232
21,868
4,510,342
-8,335
June 2005
7,778,128
60,554
3,280,914
73,682
4,497,214
-13,128
July 2005
7,829,029
50,901
3,278,725
-2,189
4,550,304
53,090
Aug. 2005
7,868,395
39,366
3,284,696
5,971
4,583,699
33,395
Sept. 2005
7,871,040
2,645
3,300,969
16,273
4,570,071
-13,628
Oct. 2005
7,964,782
93,742
3,345,589
44,620
4,619,193
49,122
Nov. 2005
8,028,918
64,136
3,351,093
5,504
4,677,826
58,633
Dec. 2005
8,107,019
78,101
3,424,304
73,211
4,682,715
4,889
Jan. 2006
8,132,290
25,271
3,442,543
18,239
4,689,747
7,032
Feb. 2006
8,183,975
51,685
3,457,409
14,866
4,726,567
36,820
Mar. 2006
8,281,451
97,476
3,443,602
-13,807
4,837,849
111,282
Apr. 2006
8,262,718
-18,733
3,479,623
36,021
4,783,095
-54,754
May 2006
8,263,812
1,094
3,492,648
13,025
4,771,165
-11,930
June 2006
8,330,646
66,834
3,566,186
73,538
4,764,460
-6,705
July 2006
8,352,614
21,968
3,569,550
3,364
4,783,064
18,604
Aug. 2006
8,423,321
70,707
3,576,166
6,616
4,847,155
64,091
Sept. 2006
8,420,278
-3,043
3,610,443
34,277
4,809,835
-37,320
Oct. 2006
8,498,016
77,738
3,650,241
39,798
4,847,775
37,940
Nov. 2006
8,545,715
47,699
3,649,736
-505
4,895,979
48,204
Dec. 2006
8,592,513
46,798
3,724,450
74,714
4,868,063
-27,916
Jan. 2007
8,619,499
26,986
3,737,894
13,444
4,881,605
13,542
Feb. 2007
8,690,921
71,422
3,744,299
6,405
4,946,622
65,017
Mar. 2007
8,760,735
69,814
3,740,127
-4,172
5,020,608
73,986
Apr. 2007
8,753,070
-7,665
3,778,255
38,128
4,974,815
-45,793
May 2007
8,740,892
-12,178
3,792,201
13,946
4,948,691
-26,124
June 2007
8,779,168
38,276
3,867,819
75,618
4,911,348
-37,343
July 2007
8,845,417
66,249
3,873,239
5,420
4,972,178
60,830
Aug. 2007
8,948,493
103,076
3,854,115
-19,124
5,064,377
92,199
Sept. 2007
9,007,653
59,160
3,958,348
104,233
5,049,306
-15,071
Change,
3,274,851
1,521,827
1,753,025
Sept. 2001-Sept. 2007
Source: U.S. Treasury, Bureau of the Public Debt, Monthly Statement of the Public Debt, Sept. 2001-
Sept. 2007, TreasuryDirect website; CRS calculations