Reaching the Debt Limit: Background and
Potential Effects on Government Operations

Mindy R. Levit, Coordinator
Specialist in Public Finance
Clinton T. Brass
Specialist in Government Organization and Management
Thomas J. Nicola
Legislative Attorney
Dawn Nuschler
Specialist in Income Security
November 21, 2013
Congressional Research Service
7-5700
www.crs.gov
R41633


Reaching the Debt Limit: Background and Potential Effects on Government Operations

Summary
The gross federal debt, which represents the federal government’s total outstanding debt, consists
of (1) debt held by the public and (2) debt held in government accounts, also known as
intragovernmental debt. Federal government borrowing increases for two primary reasons: (1)
budget deficits and (2) investments of any federal government account surpluses in Treasury
securities, as required by law. Nearly all of this debt is subject to the statutory limit. The federal
government’s statutory debt limit is currently suspended through February 7, 2014.
Treasury has yet to face a situation in which it was unable to pay its obligations as a result of
reaching the debt limit. In the past, the debt limit has always been raised before the debt reached
the limit. However, on several occasions Treasury took extraordinary actions to avoid reaching
the limit which, as a result, affected the operations of certain programs. If the Secretary of the
Treasury determines that the issuance of obligations of the United States may not be made
without exceeding the public debt limit, Treasury can make use of “extraordinary measures.”
Some of these measures require the Treasury Secretary to authorize a debt issuance suspension
period.
Since 2011, the debt limit has been increased through provisions of three pieces of legislation.
The debt limit was increased on August 2, 2011, as part of the Budget Control Act of 2011 (BCA;
P.L. 112-25). The BCA also provided for two additional debt limit increases, which occurred in
September 2011 and January 2012. On February 4, 2013, the statutory debt limit was suspended
through May 18, 2013, as part of the No Budget, No Pay Act of 2013 (P.L. 113-3). On May 19,
2013, the debt limit was reinstated at a level which accommodated borrowing incurred during the
suspension period (February 4 to May 18, 2013). On October 17, 2013, the debt limit was
suspended again through February 7, 2014, as part of the Continuing Appropriations Act, 2014
(P.L. 113-46). Between the enactment of each of these legislative measures, Treasury used
extraordinary measures to continue financing obligations.
Budget outlays and revenue collections along with the funds contained in the extraordinary
measures will affect the timing of when the debt limit is reached. If the debt limit is reached and
Treasury is no longer able to issue federal debt, federal outlays would have to be decreased or
federal revenues would have to be increased by a corresponding amount to cover the gap in what
cannot be borrowed.
It is extremely difficult for Congress to effectively influence short-term fiscal and budgetary
policy through action on legislation adjusting the debt limit. The need to raise (or lower) the limit
during a session of Congress is driven by previous decisions regarding revenues and spending
stemming from legislation enacted earlier in the session or in prior years. Nevertheless, the
consideration of debt limit legislation often is viewed as an opportunity to reexamine fiscal and
budgetary policy. Consequently, House and Senate action on legislation adjusting the debt limit is
often complicated, hindered by policy disagreements, and subject to delay.

Congressional Research Service

Reaching the Debt Limit: Background and Potential Effects on Government Operations

Contents
Federal Government Debt and the Debt Limit ................................................................................ 1
The Debt Limit and the Treasury ..................................................................................................... 2
Past Treasury Actions to Postpone Reaching the Debt Limit .................................................... 4
Treasury Actions Surrounding the Debt Limit Since 2011 ........................................................ 6
Potential Implications of Reaching and Not Raising the Debt Limit .............................................. 8
Possible Options for Treasury: Could Prioritization Be Used? ................................................. 9
Possible Options for OMB: Could Apportionment Be Used? ................................................. 11
Potential Impacts on Government Operations ......................................................................... 12
Potential Impacts on Programs Generally ......................................................................... 12
Potential Impacts on Programs with Trust Funds .............................................................. 13
Distinction Between a Debt Limit Crisis and a Government Shutdown ........................... 13
Potential Economic and Financial Effects ............................................................................... 13
Considerations for the Current Debt Limit Debate ........................................................................ 17
Views on the Debt Limit, Prioritization, and Default .............................................................. 17
Legislative Action ............................................................................................................. 18
Can an Increase in the Current Debt Limit Be Avoided? ........................................................ 19
How Much Should the Debt Limit Be Raised? ....................................................................... 19
Implications of Future Federal Debt on the Debt Limit ................................................................ 20

Appendixes
Appendix. Detailed History on Past Treasury Actions During Previous Debt Limit Crises.......... 23

Contacts
Author Contact Information........................................................................................................... 30
Acknowledgments ......................................................................................................................... 30

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Reaching the Debt Limit: Background and Potential Effects on Government Operations

he federal government’s statutory debt limit is currently suspended through February 7,
2014 (P.L. 113-46).1 Absent further legislative action, the debt limit will be reinstated on
TFebruary 8, 2014, at a level which will accommodate the borrowing incurred during the
suspension period. At that time, Treasury is expected to begin utilizing its authority outside of its
typical cash management practices to pay federal obligations to delay the date by which the debt
limit would impede the federal government’s ability to make timely payments on all of its
obligations (through a debt issuance suspension period as well as other methods discussed in
more detail later in this report). Similar actions have been taken previously. If these financing
options are exhausted and Treasury is no longer able to pay for all federal obligations, some
federal payments to creditors, vendors, contractors, state and local governments, beneficiaries,
and other entities would be delayed or limited. This could result in significant economic and
financial consequences that may have a lasting impact on federal programs and the federal
government’s ability to borrow in the future.
This report examines the possibility of the federal government reaching its statutory debt limit
and not raising it, with a particular focus on government operations. First, the report explains the
nature of the federal government’s debt, the processes associated with federal borrowing, and
historical events that may influence prospective actions. It also includes an analysis of what could
happen if the federal government may no longer issue debt, has exhausted alternative sources of
cash, and, therefore, depends on incoming receipts or other sources of funds to provide any cash
needed to liquidate federal obligations.2 A discussion of the effects that prior debt limit impasses
have had on the economy is also included. Finally, this report lays out considerations for
increasing the debt limit under current policy and what impact fiscal policy could have on the
debt limit going forward.
Federal Government Debt and the Debt Limit3
The gross federal debt, which represents the federal government’s total outstanding debt, consists
of:
• the debt held by the public and
• the debt held in government accounts, also known as intragovernmental debt.
Federal government borrowing increases for two primary reasons: (1) budget deficits and
(2) investments of any federal government account surpluses in Treasury securities as required by
law.4

1 The current level of federal debt can be found in the U.S. Department of the Treasury, Daily Treasury Statement,
Table III-C, available at http://fms.treas.gov/dts/index.html.
2 The possible scenario sometimes has been referred to generically as a debt limit crisis. U.S. General Accounting
Office (now the Government Accountability Office and hereinafter GAO), Debt Ceiling: Analysis of Actions During
the 2003 Debt Issuance Suspension Periods
, GAO-04-526, May 2004.
3 This section draws on CRS Report 98-453, Debt-Limit Legislation in the Congressional Budget Process, by Bill
Heniff Jr., and CRS Report RL31967, The Debt Limit: History and Recent Increases, by D. Andrew Austin and Mindy
R. Levit.
4 If the budget is in surplus and intragovernmental debt rises by an amount that is less than the budget surplus, the total
debt would not increase. See the later discussion in the section titled “Implications of Future Federal Debt on the
Debt Limit.”
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The debt held by the public represents the total net amount borrowed from the public to cover the
federal government’s accumulated budget deficits. Annual budget deficits increase the debt held
by the public by requiring the federal government to borrow additional funds to fulfill its
commitments.
The debt held in government accounts represents the federal debt issued to certain accounts,
primarily trust funds, such as those associated with Social Security, Medicare, and
Unemployment Compensation. Generally, government account surpluses, which include trust
fund surpluses, by law must be invested in special non-marketable federal government securities
and thus are held in the form of federal debt.5 Treasury periodically pays interest on the special
securities held in a government account. Interest payments are typically paid in the form of
additional special securities issued by Treasury to the trust funds, which also increases the amount
of intragovernmental debt and federal debt subject to limit.
When a trust fund invests in U.S. Treasury securities, it effectively lends money to the rest of the
government. The loan either reduces what the federal government must borrow from the public if
the budget is in deficit, or reduces the amount of publicly held debt if the budget is in surplus. At
the same time, the loan increases intragovernmental debt. The revenues exchanged for these
securities then go into the General Fund of the Treasury and are indistinguishable from other cash
in the General Fund. This cash may be used for any government spending purpose.6
Congress created a statutory debt limit in the Second Liberty Bond Act of 1917.7 This
development changed Treasury’s borrowing process and assisted Congress in its efforts to
exercise its constitutional prerogatives to control the federal government’s fiscal outcomes. The
debt limit also imposes a form of fiscal accountability that compels Congress and the President to
take deliberate action to allow further federal borrowing if necessary.
Almost all of the federal government’s borrowing is subject to a statutory limit.8 From time to
time, Congress has considered and adopted legislation to change this limit. Because the statutory
limit applies to debt held by the public as well as intragovernmental debt, both budget deficits and
government account surpluses may contribute to the federal government reaching the existing
debt limit.
The Debt Limit and the Treasury
Treasury’s standard methods for financing federal activities can be disrupted when the level of
federal debt nears its legal limit. If the limit prevents Treasury from issuing new debt to manage

5 GAO, Federal Trust and Other Earmarked Funds Answers to Frequently Asked Questions, GAO-01-199SP, January
2001, pp. 17-18.
6 For an explanation of how this process works for the Social Security Trust Funds, see the section of the Appendix
titled “Social Security Trust Fund Cash and Investment Management Practices.”
7 Chapter 56, 40 Stat. 288 (1917). The debt limit is now codified at 31 U.S.C. §3101.
8 Treasury currently defines “Total Public Debt Subject to Limit” as “the Total Public Debt Outstanding less
Unamortized Discount on Treasury Bills and Zero-Coupon Treasury Bonds, old debt issued prior to 1917, and old
currency called United States Notes, as well as Debt held by the Federal Financing Bank and Guaranteed Debt.”
Approximately 0.1% of total federal debt is not subject to the debt limit. For more information, see U.S. Office of
Management and Budget (hereinafter OMB), Budget of the U.S. Government for FY2014, Analytical Perspectives,
Chapter 5 and Table 5-2.
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short-term cash flows or to finance an annual deficit, the government may be unable to obtain the
cash needed to pay its bills. The limit may also prevent the government from issuing new debt in
order to invest the surpluses of designated government accounts, such as federal trust funds.
Treasury is caught between two requirements: the law that requires Treasury to pay the
government’s legal obligations or invest trust fund surpluses, on one hand, and the statutory debt
limit which may prevent Treasury from issuing the debt to raise cash to pay obligations or make
trust fund investments, on the other.9
The level of federal debt changes throughout the year due to fluctuations in revenue and outlays,
regardless of whether or not the government has an annual surplus or deficit. Seasonal
fluctuations could still require Treasury to sell debt even if the annual level of federal debt subject
to limit does not increase (i.e., if the budget were balanced and trust funds were not in surplus).
Even on a day-to-day basis, the level of federal debt can vary significantly. For example, Treasury
issues large volumes of individual income tax refunds in February and March, because taxpayers
expecting refunds tend to file early. On the other hand, Treasury tends to collect more revenue in
April because taxpayers making payments tend to file closer to April 15.
Past Treasury Secretaries, when faced with a nearly binding debt ceiling, have used special
strategies to handle cash and debt management responsibilities.10 Since 1985, these measures
have included
• suspending sales of nonmarketable debt (savings bonds, state and local
government series, and other nonmarketable debt);
• trimming or delaying auctions of marketable securities;
• under-investing or disinvesting certain government funds (Social Security,
Government Securities Investment Fund of the Federal Thrift Savings Plan, the
Civil Service Retirement and Disability Trust Fund, Postal Service Retiree Health
Benefit Fund, Exchange Stabilization Fund);11 and
• exchanging Treasury securities for non-Treasury securities held by the Federal
Financing Bank (FFB).
Under current law, if the Secretary of the Treasury determines that the issuance of obligations of
the United States may not be made without exceeding the debt limit, a “debt issuance suspension
period” may be determined.12 This determination gives Treasury the authority to suspend
investments in the Civil Service Retirement and Disability Trust Fund, Postal Service Retiree
Health Benefit Fund, and the Government Securities Investment Fund (G-Fund) of the Federal

9 See generally, 31 U.S.C. §§3321 et seq. for the Treasury Secretary’s duty to pay obligations. Regarding trust fund
investments, see, for example, 42 U.S.C. §401 (Social Security Trust Funds), 5 U.S.C. §8348 (Civil Service Retirement
and Disability Trust Fund), and 5 U.S.C. §8909 (Postal Service Retiree Health Benefit Fund).
10 For example, see out-of-print CRS Report 95-1109, Authority to Tap Trust Funds and Establish Payment Priorities if
the Debt Limit is not Increased
, by Thomas J. Nicola and Morton Rosenberg (available from CRS upon request).
11 Under-investing or disinvesting certain government funds provides room under the debt limit by freezing or reducing
the amount of government debt held in these accounts in order to provide head room for more debt to be issued to the
public to facilitate sufficient cash flow to pay obligations or to use receipts that would otherwise be invested in
Treasury securities for purposes of paying other obligations.
12 Congress formally authorized the additional powers to the Treasury Secretary under a “debt issuance suspension
period” in the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509) and Thrift Savings Fund Investment Act of
1987 (P.L. 100-43).
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Thrift Savings Plan. In addition, this gives Treasury the authority to prematurely redeem
securities held by the Civil Service Retirement and Disability Trust Fund and Postal Service
Retiree Health Benefit Fund. Debt issuance suspension periods were previously in effect from
November 15, 1995, through January 15, 1997; April 4 through April 16, 2002; May 16 through
June 28, 2002; February 20 through May 27, 2003; May 16 through August 2, 2011; December
31, 2012, through February 4, 2013; and May 20, 2013 to October 16, 2013.
Past Treasury Actions to Postpone Reaching the Debt Limit
Treasury has yet to face a situation in which it was unable to pay its obligations as a result of
reaching the debt limit. However, during debt limit impasses in 1985, 1995-1996, 2002, 2003,
2011, and 2013, Treasury took extraordinary actions to avoid reaching the debt limit and to meet
the federal government’s other obligations. Some of the actions Treasury took during these
periods are briefly discussed below.13
Actions in 1985
In September 1985, the Treasury Department informed Congress that it had reached the statutory
debt limit. As a result, Treasury had to take extraordinary measures to meet the government’s cash
requirements. Treasury used various internal transactions involving the Federal Financing Bank
(FFB) and delayed public auctions of government debt. It also was unable to issue, or had to
delay issuing, new short-term government securities to the Civil Service Retirement and
Disability Trust Fund, the Social Security Trust Funds, and several smaller trust funds. In
particular, new Treasury obligations could not be issued to the trust funds because doing so would
have exceeded the debt limit. Treasury took the additional step of “disinvesting” the Civil Service
Retirement and Disability Trust Fund, the Social Security Trust Funds, and several smaller trust
funds by redeeming some trust fund securities earlier than usual. Premature redemption of these
securities created room under the debt ceiling for Treasury to borrow sufficient cash from the
public to pay other obligations, including November 1985 Social Security benefits.14 The debt
limit was subsequently temporarily increased on November 14, 1985 (P.L. 99-155) and
permanently increased on December 12, 1985 (P.L. 99-177) from $1,824 billion to $2,079
billion.
As a result of the 1985 debt limit crisis, Congress subsequently authorized Treasury to alter its
normal investment and redemption procedures for certain trust funds during a debt limit crisis.
Such authority was not provided with respect to the Social Security Trust Funds. In addition, both
P.L. 99-155 and P.L. 99-177 included provisions to require Treasury to restore any interest
income lost to the trust funds as a result of delayed investments and early redemptions.

13 For a more detailed analysis of past Treasury actions surrounding the debt limit impasses of 1985, 1995-1996, and
2011, see the Appendix.
14 Treasury also redeemed some of the Social Security Trust Funds’ holdings of long-term securities to reimburse the
General Fund for cash payments of benefits in September through November 1985. During this period, Treasury was
unable to follow its normal procedure of issuing short-term securities to the trust funds and then redeeming short-term
securities to reimburse the General Fund when it paid Social Security benefits.
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Actions in 1995-1996
During the debt limit crisis of 1995-1996, Treasury, once again, used nontraditional methods of
financing, including some of the methods used during the 1985 crisis as well as not reinvesting
some of the maturing Treasury securities held by the Exchange Stabilization Fund.15 In early
1996, Treasury announced that it had insufficient cash to pay Social Security benefits for March
1996, because it was unable to issue new public debt.16 To allow benefits to be paid in March
1996, Congress authorized Treasury to issue securities to the public in the amount needed to make
the March 1996 benefit payments and specified that, on a temporary basis, those securities would
not count against the debt limit (P.L. 104-103 and P.L. 104-115). In 1996, Congress passed P.L.
104-121 to increase the debt limit and, among other provisions, to codify Congress’s
understanding that the Secretary of the Treasury and other federal officials are not authorized to
use Social Security and Medicare funds for debt management purposes, except when necessary to
provide for the payment of benefits or administrative expenses of the programs.
Actions in 2002-2003
During periods in 2002 and 2003 (from April 4 through April 16, 2002; from May 16 through
June 28, 2002; and from February 20 through May 27, 2003), Treasury again took actions to
avoid reaching the debt limit. These actions included utilizing certain trust fund assets and
suspending the sale of securities to certain trust funds. The debt limit was permanently increased
on June 28, 2002 (P.L. 107-199), from $5,950 billion to $6,400 billion and on May 27, 2003
(P.L. 108-24), from $6,400 billion to $7,384 billion.
Actions in 2009
Treasury used another tool in 2009 to cope with the debt limit without declaring a debt issuance
suspension period. Specifically, Treasury used a program that was originally established as an
alternative method for the Federal Reserve (Fed) to increase its assistance to the financial sector
during the financial downturn, the Supplementary Financing Program (SFP). The SFP was
announced on September 17, 2008. Under the SFP, Treasury temporarily auctioned more new
securities than were needed to finance government operations and deposited the proceeds at the
Fed. Beginning in January 2009, Treasury generally held $200 billion at the Fed under this
program. When debt subject to limit approached the statutory debt limit around October 2009,
however, Treasury withdrew all but $5 billion from the Fed to create room under the debt ceiling.
Once the debt limit was raised on February 12, 2010, from $12,394 billion to $14,294 billion
(P.L. 111-139), Treasury began increasing the balances held at the Fed back to $200 billion by

15 Treasury’s Exchange Stabilization Fund buys and sells foreign currency to promote exchange rate stability and
counter disorderly conditions in the foreign exchange market.
16 As described in the Appendix, under normal procedures Treasury pays Social Security benefits from the General
Fund and offsets this by redeeming an equivalent amount of the trust funds’ holdings of government debt. In order to
pay Social Security benefits, and depending on the government’s cash position at the time, Treasury may need to issue
new public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public debt, however,
because of the debt limit. Social Security benefit payments may be delayed or jeopardized if the Treasury does not have
enough cash on hand to pay benefits.
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issuing new debt to the public. As the debt limit was approached again, the SFP was reduced from
$200 billion on February 2, 2011, to $5 billion on March 3, 2011, and to $0 on August 3, 2011.17
Treasury Actions Surrounding the Debt Limit Since 2011
Actions in 2011
Beginning in January 2011, Treasury again took actions to avoid reaching the debt limit and
began notifying Congress of its intentions. On January 6, 2011, Treasury Secretary Geithner sent
a letter to Congress stating that Treasury had the ability to delay the date by which the debt limit
would be reached by utilizing similar methods used during past crises, including declaring a debt
issuance suspension period, if necessary.18 On May 2, 2011, Secretary Geithner issued another
letter to Congress reiterating that the debt limit would be reached no later than May 16, 2011, but
that the use of extraordinary measures would extend Treasury’s ability to meet commitments
through August 2, 2011.19
On Friday, May 6, the issuance of State and Local Government Series (SLGS) Treasury securities
was suspended until further notice.20 On May 16, 2011, Secretary Geithner notified Congress of
his determination of a debt issuance suspension period and informed them of his intent to utilize
extraordinary measures to create additional room under the debt ceiling to allow Treasury to
continue funding the operations of the government.21 Between May 16, 2011, and August 2, 2011,
Treasury prematurely redeemed securities of the Civil Service Retirement and Disability Trust
Fund and did not invest receipts of the Civil Service Retirement and Disability Trust Fund and the
Postal Service Retiree Health Benefit Fund. Treasury also suspended investments in the Exchange
Stabilization Fund and the Government Securities Investment Fund (G-Fund) of the Federal
Thrift Savings Plan. Because these funds are required by law to be made whole once the debt
limit is increased, these specific actions did not affect federal retirees or employees once the debt
limit was increased.22
The debt limit was permanently increased on August 2, 2011, as part of the Budget Control Act of
2011 (BCA; P.L. 112-25), from $14,294 billion to $14,694 billion. The BCA provided for two

17 The SFP has not been used since August 2011. Balances in the SFP account prior to that date can be found in Federal
Reserve Bank, “Factors Affecting Reserve Balances,” Table H.4.1, available at http://www.federalreserve.gov/releases/
h41/.
18 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader, January
6, 2011, available at http://www.treasury.gov/connect/blog/Pages/letter.aspx (hereinafter Treasury January 6th letter).
19 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. John A. Boehner, Speaker of the House,
May 2, 2011, available at http://www.treasury.gov/connect/blog/Documents/
FINAL%20Debt%20Limit%20Letter%2005-02-2011%20Boehner.pdf (hereinafter Treasury May 2nd letter).
20 For more information, see CRS Report R41811, State and Local Government Series (SLGS) Treasury Debt: A
Description
, by Steven Maguire.
21 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader, May
16, 2011, available at http://www.treasury.gov/connect/blog/Documents/20110516Letter%20to%20Congress.pdf
(hereinafter Treasury May 16th letter).
22 Letter from Richard L. Gregg, Fiscal Assistant Secretary, Department of the Treasury, to the Hon. John A. Boehner,
Speaker of the House, August 24, 2011, available at http://www.treasury.gov/initiatives/Documents/
G%20Fund%20Letters.pdf and Letter to the Hon. Harry Reid, Senate majority leader, January 27, 2012, available at
http://www.treasury.gov/initiatives/Documents/Debt%20Limit%20CSRDF%20Report%20to%20Reid.pdf.
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additional debt limit increases. After the initial increase on August 2, 2011, the debt limit was
permanently increased again on September 21, 2011, from $14,694 billion to $15,194 billion and
again on January 27, 2012, from $15,194 billion to $16,394 billion.23
Actions in 2013
On December 26, 2012, Secretary Geithner sent a letter to Congress stating that the debt limit, the
last increase provided for under the BCA, would be reached on December 31, 2012. Treasury
estimated that the use of extraordinary measures would provide additional headroom under the
debt limit until early 2013.24 A debt issuance suspension period was declared on December 31,
2012, at which time Treasury prematurely redeemed securities of the Civil Service Retirement
and Disability Trust Fund and did not invest receipts of the Civil Service Retirement and
Disability Trust Fund and the Postal Service Retiree Health Benefit Fund.25 On January 15, 2013,
Secretary Geithner notified Congress that Treasury would suspend investments in the
Government Securities Investment Fund (G-Fund) of the Federal Thrift Savings Plan.26 On
February 4, 2013, the statutory debt limit was suspended through May 18, 2013, as part of the No
Budget, No Pay Act of 2013 (P.L. 113-3).
On May 19, 2013, the debt limit was reinstated and raised to $16,699 billion, a level which
accommodated borrowing incurred during the suspension period.27 The issuance of SLGS
Treasury securities was suspended until further notice on May 15, 2013. A debt issuance
suspension period was declared on May 20, 2013, at which time Treasury prematurely redeemed
securities of the Civil Service Retirement and Disability Trust Fund and did not invest receipts of
the Civil Service Retirement and Disability Trust Fund and the Postal Service Retiree Health
Benefit Fund.28 On May 31, 2013, Secretary Lew notified Congress that Treasury would suspend
investments in the Government Securities Investment Fund (G-Fund) of the Federal Thrift

23 For more information on the provisions providing for the debt limit to be increased under the BCA, see CRS Report
R41965, The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan. Prior to the
third debt limit increase, investments in the Government Securities Investment Fund (G-Fund) of the Federal Thrift
Savings Plan were suspended from January 17 to January 27, 2012. The G-Fund was made whole on January 27, 2012.
Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader, January
17, 2012, available at http://www.treasury.gov/initiatives/Documents/011712TFGLettertoReid.pdf.
24 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader,
December 26, 2012, available at http://www.treasury.gov/connect/blog/Documents/
Sec%20Geithner%20LETTER%2012-26-2012%20Debt%20Limit.pdf.
25 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader,
December 31, 2012, available at http://www.treasury.gov/initiatives/Documents/
Sec%20Geithner%20Letter%20to%20Congress%2012-31-2012.pdf.
26 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. John A. Boehner, Speaker of the House,
January 15, 2013, available at http://www.treasury.gov/initiatives/Documents/1-15-
2013%20G%20Fund%20Debt%20Limit%20Letter.pdf.
27 P.L. 113-3 provided for the debt limit to be increased on May 19, 2103 “to the extent that—(1) the face amount of
obligations issued under chapter 31 of such title and the face amount of obligations whose principal and interest are
guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury)
outstanding on May 19, 2013, exceeds (2) the face amount of such obligations outstanding on the date of the enactment
of this Act. An obligation shall not be taken into account under paragraph (1) unless the issuance of such obligation
was necessary to fund a commitment incurred by the Federal Government that required payment before May 19, 2013.”
28 Letter from Jacob J. Lew, Secretary of the Treasury, to the Hon. John A. Boehner, Speaker of the House, May 20,
2013, available at http://www.treasury.gov/initiatives/Documents/
Debt%20Limit%20Letter%202%20Boehner%20May%2020%202013.pdf.
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Savings Plan.29 On October 1, 2013, Treasury estimated that the extraordinary measures would be
exhausted “no later than October 17, 2013.”30 On October 17, 2013, the debt limit was suspended
through February 7, 2014, as part of the Continuing Appropriations Act, 2014 (P.L. 113-46).
Observations from Past Actions
As discussed above, short delays in increasing the debt limit have caused the Treasury Secretary
to take extraordinary actions to avoid disrupting the payments of federal obligations. Though the
federal government incurred additional costs during these periods, such as disruption of
government borrowing and trust fund investment programs, the payment of benefits and other
outlays occurred largely on schedule and trust funds were made whole once these crises ended.31
As long as the budget continues to be in deficit and policy makers wish to avoid a default on
federal obligations, methods such as those described above cannot circumvent the need to
eventually raise the debt limit.
Potential Implications of Reaching and Not Raising
the Debt Limit

If the federal government were to reach the debt limit and Treasury were to exhaust its alternative
strategies for remaining under the debt limit, then the federal government would need to rely
solely on incoming revenues to finance obligations. If this occurred during a period when the
federal government was running a deficit, the dollar amount of newly incurred federal obligations
would continually exceed the dollar amount of newly incoming revenues.
It is not possible for CRS to specifically predict what Congress, the President, the Office of
Management and Budget (OMB), Treasury, federal agencies, and financial markets would do in
certain situations. Nevertheless, it is possible to scope out some aspects of what could happen
under a specific scenario, in which the federal government is no longer able to issue debt, has
exhausted alternative sources of cash, and therefore is dependent upon incoming receipts or other
sources of funds to provide any cash that is necessary to pay federal obligations. That said, CRS
cannot state the full range of events that may occur if the described scenario were to actually take
place.
In this scenario, the federal government implicitly would be required to use some sort of decision-
making rule about whether to pay obligations in the order they are received, or, alternatively, to
prioritize which obligations to pay, while other obligations would go into an unpaid queue. In
other words, the federal government’s inability to borrow or use other means of financing implies
that payment of some or all bills or obligations would be delayed.

29 Letter from Jacob J. Lew, Secretary of the Treasury, to the Hon. John A. Boehner, Speaker of the House, May 31,
2013, available at http://www.treasury.gov/initiatives/Documents/
Debt%20Limit%20G%20Fund%2020130531%20Boehner.pdf.
30 Letter from Jacob J. Lew, Secretary of the Treasury, to the Hon. John A. Boehner, Speaker of the House, October 1,
2013, available at http://www.treasury.gov/initiatives/Documents/Treasury%20Letter%20to%20Congress_100113.pdf.
31 For a discussion of how Treasury’s cash management practices and borrowing costs were affected during previous
debt limit event periods, see GAO, Delays Create Debt Management Challenges and Increase Uncertainty in the
Treasury Market
, GAO-11-203, February 2011, pp. 10-18.
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Possible Options for Treasury: Could Prioritization Be Used?
Some have argued that prioritization of payments can be used by Treasury to avoid a default on
selected federal obligations by paying interest on outstanding debt before other obligations.32
Treasury officials have maintained that the department lacks formal legal authority to establish
priorities to pay obligations, asserting, in effect, that each law obligating funds and authorizing
expenditures stands on an equal footing.33 In other words, Treasury would have to make payments
on obligations as they come due. With regard to this view, Treasury noted in 2011 that an attempt
to prioritize payments was “unworkable” because adopting a policy that would require certain
types of payments taking precedence over other U.S. legal obligations would merely be “a failure
by the U.S. to stand behind its commitments.”34 In an August 2012 letter, the Treasury Inspector
General also addressed this topic by stating, “Treasury officials determined that there is no fair or
sensible way to pick and choose among the many bills that come due every day. Furthermore,
because Congress has never provided guidance to the contrary, Treasury’s systems are designed to
make each payment in the order it comes due.”35 At a hearing before the Senate Finance
Committee in October 2013, Treasury Secretary Lew stated the following:
We write roughly 80 million checks a month. The systems are automated to pay because for
224 years, the policy of Congress and every president has been we pay our bills. You cannot
go into those systems and easily make them pay some things and not other things. They
weren't designed that way because it was never the policy of this government to be in the
position that we would have to be in if we couldn't pay all our bills.36
In contrast to this view, GAO wrote to then-Chairman Bob Packwood of the Senate Finance
Committee in 1985 that it was aware of no requirement that Treasury must pay outstanding
obligations in the order in which they are received.37 GAO concluded that “Treasury is free to
liquidate obligations in any order it finds will best serve the interests of the United States.” In any
case, if Treasury were to prioritize, it is not clear what the priorities might be among the different
types of spending.38

32 A more in-depth discussion of these proposals and their implications can be found in the section titled “Views on the
Debt Limit, Prioritization, and Default.”
33 U.S. Congress, Senate Committee on Finance, Increase of Permanent Public Debt Limit, S.Rpt. 99-144, September
26, 1985. For more information, see out-of-print CRS Report 95-1109, Authority to Tap Trust Funds and Establish
Payment Priorities if the Debt Limit is Not Increased
, by Thomas J. Nicola and Morton Rosenberg (available from CRS
upon request).
34 “Treasury: Proposals to ‘Prioritize’ Payments on U.S. Debt Not Workable: Would Not Prevent Default,” Neal Wolin,
Deputy Secretary of the Treasury, January 21, 2011, at http://www.treasury.gov/connect/blog/Pages/Proposals-to-
Prioritize-Payments-on-US-Debt-Not-Workable-Would-Not-Prevent-Default.aspx.
35 Letter from Eric M. Thorson, Chair, Council of the Inspectors General on Financial Oversight, to Hon. Orrin G.
Hatch, ranking Member, Committee on Finance, August 24, 2012, Enclosure 1, pp. 5-6, available at
http://www.treasury.gov/about/organizational-structure/ig/Audit%20Reports%20and%20Testimonies/
Debt%20Limit%20Response%20(Final%20with%20Signature).pdf.
36 U.S. Congress, Hearing of the Senate Committee on Finance, The Debt Limit, 113th Congress, 1st Session, October
10, 2013. Transcript available on CQ.com at http://www.cq.com/doc/congressionaltranscripts-4359941.
37 Letter from GAO to the Hon. Bob Packwood, chairman of Senate Finance Committee, GAO B-138524, October 9,
1985, at http://redbook.gao.gov/14/fl0065142.php.
38 While CRS has not located a list of established priorities to pay bills during a lapse in increasing the debt limit, OMB
previously prepared a list of excepted functions that the government should continue to conduct during a government
shutdown caused by a lapse in enacting appropriations. These priorities are based on a distinction between functions
deemed essential and thus excepted, such as providing health care or air traffic control, and those deemed non-
(continued...)
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While the positions of Treasury and GAO may appear at first glance to differ, closer analysis
suggests that they merely offer two different interpretations of silence in statute with respect to a
prioritization system for paying obligations. On one hand, GAO’s 1985 opinion posits that silence
in statute with regard to prioritization simply leaves the determination of payment prioritization to
the discretion of the Treasury Department. Conversely, Treasury appears to assert that the lack of
specific statutory direction operates as a legal barrier, effectively preventing it from establishing a
prioritization system.
Another perspective on prioritization relates to the Impoundment Control Act of 1974 (ICA), as
amended.39 The term impoundment refers to actions by the President, OMB, an agency head, or
any officer or employee to preclude obligation or expenditure of budget authority. One type of
impoundment action, deferral, refers to a temporary withholding or delaying of the obligation or
expenditure of budget authority provided for projects or activities, or any other type of executive
action or inaction which effectively precludes the obligation or expenditure of budget authority.
Through the establishment of several statutory processes and restrictions, the ICA generally
prohibited the use of discretion to effect “policy” impoundments. A policy impoundment might
be, for example, a decision not to spend funds appropriated by Congress because a given federal
activity may not be favored by a sitting President or agency official. Funds may be deferred only
for certain reasons specified in 2 U.S.C. 684(b) (e.g., contingencies).40 The relationship between
prioritization associated with a debt limit impasse, on one hand, and the ICA, on the other, is that
prioritization could be characterized as undertaking some spending but, due to lack of cash,
deferring other spending.
In the event of a debt limit impasse, however, if the prioritization appears to disfavor certain
programs, issues similar to those that gave rise to the ICA might resurface. These issues could
include the balance of power between Congress and the President over spending priorities and the
potential for use of prioritization in ways that Congress might not intend.41 For example, if

(...continued)
excepted. If it should become necessary to establish priorities to pay bills when the debt limit has not been increased, it
is possible that the Secretary of the Treasury may look to this list of essential functions for some guidance. For OMB’s
guidance on what activities are essential during a shutdown, see Sylvia Burwell, “Memorandum for the Heads of
Executive Departments and Agencies,” Office of Management and Budget, Sep. 17, 2013, http://www.whitehouse.gov/
sites/default/files/omb/memoranda/2013/m-13-22.pdf. See also the later discussion in the section titled “Distinction
Between a Debt Limit Crisis and a Government Shutdown.”
39 Title X of the Congressional Budget and Impoundment Control Act of 1974 (P.L. 93-344; 88 Stat. 297, at 332, and
subsequently amended; 2 U.S.C. Chapter 17B, §681 et seq.). The act grew out of extended conflict over spending
priorities between Congress and the Richard M. Nixon Administration, including over “policy” impoundments, where
the Administration sought to not spend funds associated with disfavored programs. The act generally has been
interpreted as being intended to protect congressional budget decisions and priorities, as manifest in statutes, from
deviations by the President, OMB, and agency officials. For discussion, see Allen Schick, Congress and Money:
Budgeting, Spending, and Taxing
(Washington, DC: Urban Institute, 1980), pp. 17-49, 401-412.
40 The ICA does not prohibit impoundments, but rather controls them. Among other things, the ICA established a
mechanism for the President, the Director of OMB, the head of an agency, or any officer or employee to propose
deferrals, for which the President is required to transmit a special message to each chamber of Congress with certain
information. In addition, a deferral may not be proposed for any period of time extending beyond the end of the fiscal
year in which the special message is transmitted.
41 For related discussion, see Laurence H. Tribe, “Guest Post on the Debt Ceiling by Laurence Tribe,” July 16, 2011, at
http://www.dorfonlaw.org/2011/07/guest-post-on-debt-ceiling-by-laurence.html; and Neil H. Buchanan and Michael C.
Dorf, “How to Choose the Least Unconstitutional Option: Lessons for the President (and Others) From the Debt
Ceiling Standoff,” Columbia Law Review, vol. 112, no. 6, October 2012, pp. 1175-1243, at
http://www.columbialawreview.org/wp-content/uploads/2012/10/Buchanan-Dorf.pdf.
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spending for a program that uses one-year funds were deferred until the end of a fiscal year, when
the underlying budget authority expires, the deferral might constitute a functional equivalent of a
rescission (cancellation of budget authority), akin to a line-item veto.42 It appears that OMB and
the Department of Justice have grappled with some of these issues in the past without coming to
firm resolution, as evidenced by a 1995 internal OMB memorandum that was publicly released
with papers of former White House Associate Counsel and current Supreme Court Justice Elena
Kagan.43
Possible Options for OMB: Could Apportionment Be Used?
It also is possible that OMB may use statutory authority to apportion or reapportion budget
authority (i.e., the authority to incur obligations) that Congress has granted in appropriations,
contract, and borrowing authority to delay expenditures and effectively establish priorities for
liquidating obligations. OMB is required by statute to “apportion” these funds (e.g., quarterly) to
prevent agencies from spending at a rate that would exhaust their appropriations before the end of
the fiscal year.44 If OMB were to use statutory apportionment authority to affect the rate of federal
spending, its ability to do so would be constrained by the Impoundment Control Act of 1974, as
amended.45 As noted earlier, the Impoundment Control Act does not prohibit the President from
withholding funds, but establishes procedures for the President to submit formal requests to
Congress either to defer (i.e., delay) spending until later or to rescind (i.e., cancel) the budget
authority that Congress previously had granted.46 Although the use of OMB’s apportionment

42 See related discussion in ibid. As noted earlier, the ICA provides that deferrals may not be proposed for any period of
time extending beyond the end of the fiscal year in which the special message is transmitted. However, a debt limit
impasse may create a situation in which it is impossible for the President or an agency official to comply with all
aspects of existing law at the same time. Neil H. Buchanan and Michael C. Dorf characterized a debt ceiling standoff as
a “trilemma,” in which officials in the executive branch are offered “three unconstitutional options: ignore the debt
ceiling and unilaterally issue new bonds, thus usurping Congress’s borrowing power; unilaterally raise taxes, thus
usurping Congress’s taxing power; or unilaterally cut spending, thus usurping Congress’s spending power.” Ibid., p.
1175.
43 See Office of Management and Budget, “Background Material on Prior Debt Ceiling Crises,” memorandum from
Roz Rettman to Bob Damus, August 2, 1995, pp. 4-5, as paginated within the document, which is available as pp. 7-11
of a PDF file, at http://www.clintonlibrary.gov/_previous/KAGAN%20COUNSEL/Counsel%20-%20Box%20006%20-
%20Folder%20011.pdf. The OMB memorandum’s author and recipient were senior career officials at OMB at the
time. Elena Kagan currently is serving as Associate Justice of the U.S. Supreme Court. In 1995-1996, she served as
Associate White House Counsel under President Clinton. Access to certain records from Justice Kagan’s time in the
Office of White House Counsel is provided at the Clinton Library website.
44 31 U.S.C. §1512, a provision of the Antideficiency Act, for example, states that appropriations for a definite period
must be apportioned by such things as months, activities, or a combination of them to avoid obligation at a rate that
would indicate a necessity of a deficiency or supplemental appropriations for the period. While apportionment
commonly is used to control the rate at which agencies are allowed to obligate funds such as by placing orders and
signing contracts, the text of Section 1512 also provides that it may be used to avoid expending funds.
45 See 2 U.S.C. §§681-692. During the period leading up to enactment of the Impoundment Control Act of 1974, the
Nixon Administration used apportionment authority as a tool ultimately to limit outlays to conform to the President’s
budgetary priorities. Several lawsuits were brought to challenge the President’s authority not to expend funds that
Congress had appropriated, and some lower courts held that the President lacked this authority. The Supreme Court did
not address the merits of this issue.
46 Generally, funds that have been proposed for deferral or rescission may be withheld from obligation for 45 days of
continuous legislative session (excluding periods of more than three days when Congress is not in session), after which
period the funds must be released unless Congress enacts a joint resolution to acquiesce in whole or in part to these
requests. Congress sometimes responds to presidential deferral or rescission requests by acting on bills to defer or
rescind different budget authorities from the ones that the President has proposed. Because deferrals or rescissions
proposed by the President do not take effect unless Congress acquiesces to them, Congress as a matter of law has the
(continued...)
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authority in the event of a debt limit crisis might delay the need to pay some obligations, use of
the authority would not prevent obligations from remaining unpaid.
Potential Impacts on Government Operations
If the debt limit is reached and not increased, federal spending would be affected. Under normal
circumstances, Treasury has sufficient financial resources to liquidate all obligations arising from
discretionary and mandatory (direct) spending, the latter of which includes interest payments on
the debt.47 If a lapse in raising the debt limit should prevent Treasury from being able to liquidate
all obligations on time, it is not clear whether the distinction between different types of spending
would be significant or whether the need to establish priorities would disproportionately impact
one type of spending or another. It is also not clear whether the distinctions among different types
of obligations, such as contract, grant, benefit, and interest payments, would prove to be
significant.
Potential Impacts on Programs Generally
A government that delays paying its obligations in effect borrows from vendors, contractors,
beneficiaries, other governments,48 or employees who are not paid on time. Moreover, a backlog
of unpaid bills would continue to grow until the government collects more revenues or other
sources of cash than its outlays. In some cases, delaying federal payments incurs interest penalties
under some statutes such as the Prompt Payment Act, which directs the government to pay
interest penalties to contractors if it does not pay them by the required payment date,49 and the
Internal Revenue Code, which requires the government to pay interest penalties if tax refunds are
delayed beyond a certain date.50 The specific impacts of delayed payment would depend upon the
nature of the federal program or activity for which funds are to be paid.

(...continued)
final say on these matters. In practice, however, funds that are subject to these presidential requests often are withheld
for long periods because of congressional recesses, which as noted above are not counted for purposes of the ICA. For
more information, see CRS Report RL33869, Rescission Actions Since 1974: Review and Assessment of the Record, by
Virginia A. McMurtry, p. 2.
47 Discretionary spending is provided in, and controlled by, annual appropriations acts, which fund many of the routine
activities commonly associated with such federal government functions as running executive branch agencies,
congressional offices and agencies, and international operations of the government. Mandatory spending includes
federal government spending on entitlement programs as well as other budget outlays controlled by laws other than
appropriations acts. Mandatory spending also includes appropriated entitlements, such as Medicaid and certain
veterans’ programs, which are funded in annual appropriations acts. For more information, see CRS Report RS20129,
Entitlements and Appropriated Entitlements in the Federal Budget Process, by Bill Heniff Jr.
48 For example, because federal, state, and local government finances are linked by various intergovernmental transfers,
late payment or nonpayment of federal obligations to states could affect the budgets and finances of local governments,
such as school districts, counties, and municipalities.
49 31 U.S.C. §3902. The Prompt Payment Act generally requires federal agencies to pay interest on any payments they
fail to make by the date(s) specified in a contract or within 30 days of a receipt of a proper invoice. For more
information, see the section titled “The Prompt Payment Act” in CRS Report R41230, Legal Protections for
Subcontractors on Federal Prime Contracts
, by Kate M. Manuel.
50 26 U.S.C. §6611.
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Potential Impacts on Programs with Trust Funds
If Treasury delays investing a federal trust fund’s revenues in government securities, or redeems
prematurely a federal trust fund’s holdings of government securities, the result would be a loss of
interest to the affected trust fund. This could potentially worsen the financial situation of the
affected trust fund(s) and accelerate insolvency dates.51 As noted earlier, Congress passed P.L.
104-121 to prevent federal officials from using the Social Security and Medicare Trust Funds for
debt management purposes, except when necessary to provide for the payment of benefits and
administrative expenses of the programs. Under P.L. 99-509, Treasury is permitted to delay
investment in the TSP’s G-Fund and the Civil Service Retirement and Disability Trust Fund, and
also to redeem prematurely assets of the Civil Service Retirement and Disability Trust Fund.
However, the law also requires Treasury to make these funds whole after a debt limit impasse is
resolved. The government maintains a number of other trust funds whose finances could
potentially be harmed by delayed investment or early redemption in the absence of similar actions
to make the trust funds whole after a debt limit impasse has ended.
Distinction Between a Debt Limit Crisis and a Government Shutdown
In 1995, the Congressional Budget Office (hereinafter CBO) contrasted this sort of scenario,
under which the debt limit is reached and not raised, with a substantially different situation, in
which the government must shut down due to lack of appropriations.
Failing to raise the debt ceiling would not bring the government to a screeching halt the way
that not passing appropriations bills would. Employees would not be sent home, and checks
would continue to be issued. If the Treasury was low on cash, however, there could be delays
in honoring checks and disruptions in the normal flow of government services.52
Alternatively stated, in a situation when the debt limit is reached and Treasury exhausts its
financing alternatives, aside from ongoing cash flow, an agency may continue to obligate funds.
However, Treasury may not be able to liquidate all obligations that result in federal outlays due to
a shortage of cash. In contrast to this, if Congress and the President do not enact interim or full-
year appropriations for an agency, the agency does not have budget authority available for
obligation. If this occurs, the agency must shut down non-excepted activities, with immediate
effects on government services.53
Potential Economic and Financial Effects
In addition to the potential impact on federal programs and activities if the debt limit is not
increased, there may also be economic and financial consequences. A 1979 GAO report described
the consequences of failing to increase the debt ceiling. GAO said the government had never
defaulted on any of its securities, because cash has been available to pay interest and redeem

51 For information about the balances of all federal trust funds, see CRS Report R41328, Federal Trust Funds and the
Budget
, by Thomas L. Hungerford.
52 CBO, The Economic and Budget Outlook: An Update, August 1995, p. 49.
53 In the event of a funding hiatus, the Antideficiency Act nevertheless allows an exception for agencies to incur
obligations for emergencies involving the safety of human life or the protection of property. For a discussion, see CRS
Report RL34680, Shutdown of the Federal Government: Causes, Processes, and Effects, coordinated by Clinton T.
Brass.
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them upon maturity or demand.54 Further, GAO said a default on the securities could have
adverse effects on the economy, the public welfare, and the government’s ability to market future
securities.
It is difficult to perceive all the adverse effects that a government default for even a short
time would have on the economy and the public welfare. It is generally recognized that a
default would preclude the government from honoring all of its obligations to pay for such
things as employees’ salaries and wages; social security benefits, civil service retirement,
and other benefits from trust funds; contractual services and supplies, and maturing
securities.... At a minimum, however, the government could be subject to additional claims
for interest on unredeemed matured debt and to claims for damages resulting from failure to
make payments. But even beyond that, the full faith and credit of the U.S. government would
be threatened. Domestic money markets, in which government securities play a major role,
could be affected substantially.55
If the debt limit were reached and interest payments on debt were paid, it is not clear what the
repercussions would be on the financial markets or the economy. If Treasury had to rely on
incoming cash to pay its obligations, a significant portion of government spending would go
unpaid. Removing a portion of government spending from the economy would leave behind
significant economic effects and would have an effect on gross domestic product (GDP) by
definition, all other things being equal.56 Further, if the government fails to make timely payments
to individuals, service providers, and other organizations, these persons and entities would also be
affected. Even if the government continued paying interest, it is not clear whether creditors would
retain or lose faith in the government’s willingness to pay its obligations. If creditors lost this
confidence, the federal government’s interest costs would likely increase substantially and there
would likely be broader disruptions to financial markets.
On April 25, 2011, the Treasury Borrowing Advisory Committee57 sent a letter to Secretary
Geithner expressing its views on the impact on financial markets if the debt ceiling is not raised.58
The letter warned that any delay by Treasury in making an interest or principal payment could
trigger “another catastrophic financial crisis.” Further, the committee described several potential
consequences stemming from a Treasury default on its obligations including a downgrade of the
U.S. credit rating, an increase in federal and private borrowing costs, damage to the economic
recovery, and broader disruptions to the financial system. Finally, the committee also warned that
a prolonged delay in raising the debt limit could have negative consequences on the market
before the time when default would actually occur.59

54 While this passage indicates that a delay in increasing the debt limit has the potential to postpone the payment of
Social Security benefits, among other benefits, Social Security benefits have been paid on time during past debt limit
crises. Non-marketable securities can be redeemed on demand. GAO, A New Approach to the Public Debt Legislation
Should be Considered
, FGMSD-79-58, September 1979, pp. 17-18, http://archive.gao.gov/f0302/110373.pdf.
55 Ibid.
56 GDP = consumption + investment + government spending + (exports – imports). If government spending declines,
then GDP will also decline by definition, all else equal.
57 The Treasury Borrowing Advisory Committee is a group of senior representatives from investment funds and banks
that presents its observations on the overall strength of the U.S. economy and provides recommendations on a variety
of technical debt management issues to the Treasury Department.
58 More information on the Treasury Borrowing Advisory Committee can be found at http://www.treasury.gov/
resource-center/data-chart-center/quarterly-refunding/Pages/default.aspx.
59 Letter from Matthew E. Zames, Chairman of Treasury Borrowing Advisory Committee, to Timothy F. Geithner,
April 25, 2011, available at http://www.sifma.org/issues/item.aspx?id=25013.
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Effects of 2011 and 2013 “Brinkmanship”60
Extended debate over whether or not to raise the debt limit can also have financial and economic
consequences even if the debt limit does eventually get raised. While not causing financial
instability, what has been referred to as “brinkmanship” can lead to worse economic or financial
outcomes than raising the debt limit well ahead of time. While the debt limit impasse has no
direct effect on the economy because it does not interfere with government financing, it could still
have had indirect effects on GDP and financial conditions if it altered the behavior of households
and businesses.
The effects of “brinkmanship” can be answered by observing what happened to the economy and
financial markets during the 2011 and 2013 debt limit impasse. Neither episode caused financial
disruption or recession (although, in the case of 2013, GDP data are not yet released).61
Nevertheless, both episodes had discernible effects. Economic growth in the third quarter of 2011
was noticeably slower (1.4%) than the preceding or following quarter, although it is difficult to
isolate how much of that slowdown could be attributed to the debt limit impasse.62 The Treasury
Department released a report detailing how the August 2011 debt limit impasse coincided with a
marked decline in consumer confidence, small business optimism, and the S&P 500 stock index,
and an increase in the equity market volatility index (“VIX”). In each case, these indicators did
not return to their previous levels until several months after the debt limit was raised.63 The
Treasury report does not attempt to isolate the effects of the debt limit impasse from other events
that would also affect financial markets concurrently. Notably, the debt limit impasse also resulted
in the first downgrade of federal debt by a major credit rating agency, when Standard & Poor’s
downgraded the debt from AAA on August 5, 2011. In its statement on the downgrade, S&P said
that
More broadly, the downgrade reflects our view that the effectiveness, stability, and
predictability of American policymaking and political institutions have weakened at a time
of ongoing fiscal and economic challenges to a degree more than we envisioned...64
Thus, as their statement would suggest, another channel through which the debt limit might affect
private spending is via heightened policy uncertainty.
By contrast, however, those same indicators showed a much smaller deterioration in October
2013. Consumer confidence also fell in October 2013, although this may have been partly caused
by the concurrent government shutdown. It remained at higher levels than in August 2011 or
during the financial crisis, however. The S&P 500 stock index fell by less than 3% during the
shutdown, but had recovered its previous value by the time the government was reopened. This
suggests that either investors felt more confident that the debt limit would ultimately be raised

60 This section was written by Marc Labonte, Specialist in Macroeconomic Policy.
61 The absence of large declines in financial markets could be interpreted as a market belief that a default would not
have serious effects or that “brinkmanship” is unlikely to result in a default because the debt limit will ultimately be
raised.
62 The fact that growth accelerated in the following quarter suggests that the debt limit impasse did not have prolonged
effects on the economy.
63 U.S. Treasury, The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship, Oct. 2013.
64 Standard & Poors, “United States of America Long-Term Rating Lowered to AA+ Due to Political Risks, Rising
Debt Burden; Outlook Negative,” August 5, 2011, available at http://www.standardandpoors.com/ratings/articles/en/us/
?assetID=1245316529563.
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(perhaps because it had been raised in similar circumstances in 2011) or other factors, such as the
downgrade, are responsible for the greater deterioration in credit markets in August 2011.65
The two financial instruments that experienced the most pronounced price movements in the 2011
and 2013 debt limit impasses were short-term Treasury securities and credit default swaps (CDS)
on U.S. Treasuries. First, Treasury yields exhibited a highly unusual pattern. For example, from
October 1 to October 16, 2013, yields on Treasury bills maturing in four weeks exceeded those
maturing in three months. The consensus explanation for this phenomenon was fear that a failure
to raise the debt limit in a timely fashion could cause short-term interruptions in repaying
maturing debt, and the unusual pattern disappeared as soon as the debt limit was raised. (The rest
of the yield curve has not exhibited any unusual movements recently.) Nevertheless, the yield on
4-week bills (0.32% on October 15) implied that this risk was still perceived to be relatively low.
Since noticeably higher rates were not manifested throughout the rest of the Treasury yield curve,
the broader economic consequences of this anomaly were likely limited. Their main effect was to
directly raise the borrowing costs of the Treasury on securities sold during the period of elevated
yields. In the 2011 debt limit impasse, GAO estimated that the debt limit impasse increased
Treasury borrowing costs by $1.3 billion in 2011.66
Second, CDS prices for which Treasury securities are the reference entity rose significantly.
Credit default swaps for which federal debt is the reference entity would trigger a payment from
the seller of the CDS to the buyer if the security experiences a “credit event” related to timely and
full payment.67 In 2011, CDS prices for five-year Treasury securities (i.e., the cost to insure
against default) rose above 60 basis points, for example; this level was unusually high compared
with historical standards, but lower than at the depth of the 2008 financial crisis.68 At its peak on
October 10, 2013, CDS prices for five-year Treasury securities more than doubled compared to
the previous month, rising to 40 basis points; this price was below the peak price in 2011.69
Economic indicators covering the 2013 debt limit impasse will not be available for some time,
and it will be difficult to disentangle the effects of the debt limit impasse from the effects of the
government shutdown, which happened simultaneously.

65 There was also a marked decline in Treasury yields in August 2011; since this was not matched by a decline in
private yields, it caused the spread between Treasury yields and private yields to widen. Based on the timing, this
movement appears to have been in response to the downgrade rather than the debt limit impasse, and so is attributable
to the debt limit impasse only in the sense that it triggered the downgrade.
66 This estimate includes only costs incurred in FY2011. It does not include any additional interest costs incurred in
future years on outstanding securities related to this borrowing. See Government Accountability Office, Analysis of
2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs
, report number GAO-12-701, July 23,
2012.
67 The circumstances under which CDS on Treasury securities would be triggered are described in International Swaps
and Derivatives Association, CDS on US Sovereign Debt- FAQ, updated Oct. 9, 2013.
68 Abigail Moses, “U.S. Credit-Default Swaps Trading Surges 80% as Debt Deadline Approaches,” Bloomberg, July
28, 2011. For more information on Treasury CDS in 2011 and the pricing of CDS, see CRS Report R41932, Treasury
Securities and the U.S. Sovereign Credit Default Swap Market
, by D. Andrew Austin and Rena S. Miller.
69 Markit, Biggest Credit Movers, Oct. 10, 2013, http://www.markit.com/assets/en/docs/commentary/markit-movers/
Biggest%20Credit%20Movers%20Import/BigMovers_101013.pdf.
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Considerations for the Current Debt Limit Debate
There are various viewpoints about how to deal with debt limit issues. The debt subject to limit
will generally continue to rise as long as the budget remains in deficit and/or trust funds remain in
surplus. To avoid raising the debt limit and continue normal government operations, significant
spending cuts and/or revenue increases would be required.
Views on the Debt Limit, Prioritization, and Default
Members of the Obama Administration have maintained that not raising the debt limit would
cause serious consequences. Former Treasury Secretary Geithner repeatedly asserted that not
increasing the debt limit and, therefore, not meeting the country’s obligations as a result “would
cause irreparable harm to the American economy and to the livelihoods of all Americans.”70
President Obama has also repeatedly stated that the debt limit must be raised and he will not
negotiate on this issue. He stated, “The financial well-being of the American people is not
leverage to be used. The full faith and credit of the United States of America is not a bargaining
chip.”71
Speaker of the House John A. Boehner has stated that the debt limit should not be increased
without “spending cuts or reforms” greater than the amount of the increase.72 Senate Majority
Leader Harry Reid has stated that he will require a balanced approach to dealing with the budget
deficit and the debt with spending cuts paired with “revenue measures asking millionaires to pay
their fair share.” In the absence of an agreement to this effect, he remains committed to the
spending cuts already in place.73
Economists have expressed concern regarding the current level of federal debt. However, they
generally maintain that there would be significant consequences if the debt limit is not raised.
Federal Reserve Chairman Ben Bernanke has stated that Congress must work to put a plan in to
place that would lower the nation’s federal debt. He also stated that not raising the debt limit
could ultimately lead the nation to default on its debt with catastrophic implications for the
financial system and the economy.74 Mark Zandi, chief economist for Moody’s Analytics,
expressed similar sentiments regarding the debt limit and the potential impact on the economy.
He stated, “Global investors are already anxious regarding our ability to come to a political
consensus to address the nation’s fiscal challenges; a protracted debate over the debt ceiling
would be very counterproductive.”75 Donald Marron, the former director of the Urban-Brookings

70 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. John A. Boehner, Speaker of the U.S. House
of Representatives, January 14, 2013, available at http://www.treasury.gov/connect/blog/Documents/1-14-
13%20Debt%20Limit%20FINAL%20LETTER%20Boehner.pdf.
71 “President Obama Holds the Final Press Conference of His First Term,” January 14, 2013, available at
http://www.whitehouse.gov/blog/2013/01/14/president-obama-holds-final-press-conference-his-first-term.
72 Peter G. Peterson Foundation’s 2012 Fiscal Summit, Speaker Boehner’s Address on the Economy, Debt Limit, and
American Jobs
, May 15, 2012, available at http://www.speaker.gov/speech/full-text-speaker-boehners-address-
economy-debt-limit-and-american-jobs.
73 Cooper, Helene, “Obama and House Republicans Offer Taste of Renewed Fight Over the Debt Ceiling,” New York
Times
, May 16, 2012.
74 Davidson, Paul, “Economy still in a deep hole, Bernanke says,” USA Today, February 4, 2011.
75 U.S. Congress, Senate Committee on the Budget, Challenges for the U.S. Economic Recovery, Testimony of Mark
Zandi, February 3, 2011, available at http://budget.senate.gov/democratic/testimony/2011/
(continued...)
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Tax Policy Center and a former Acting Director of the Congressional Budget Office, expressed
similar views in January 2011. He stated, “Geithner is correct that the debt limit must increase.
With monthly deficits running more than $100 billion, it’s simply unthinkable that Congress
could cut spending or increase revenue enough to avoid borrowing more.... Still, I am troubled by
any suggestion that the United States might willingly default on its public debt. Doing so would
have absolutely no upside.”76
Questions have been raised regarding what constitutes a legal “default” by the government. Some
proponents of a prioritization system suggest that the term “default” applies only if the
government fails to pay interest on debt obligations held by third parties. Opponents of
prioritization appear to argue that the term “default” applies not only to a failure to pay third-
party debt holders, but also to the failure by the government to meet any obligation authorized by
law, which would include a failure to fund an appropriated program, pay federal salaries or
benefits, or pay an amount owed on a federal contract. No general statutory definition of the term
“default” exists; however, Black’s Law Dictionary 428 (7th Ed. 1999) defines the term “default” as
“the failure to make a payment when due,” which, if accepted as the governing definition, would
not appear to distinguish between various types of government obligations.
Aside from technical definitions, financial markets’ perceptions of what constitutes a default, or a
real threat of default, may be more relevant when assessing the potential impacts of not raising
the debt limit. For example, if the federal government were to prioritize payments on debt
obligations above other obligations, it is not clear whether financial markets would find this
distinction to be significant when deciding whether and how to invest in federal government
Treasury securities, since Treasury would be postponing payments on other legal obligations.
Because perceptions such as these are difficult if not impossible to predict, it is not clear what the
effects of prioritization would be, in the event of an impasse.77 In the event of reaching the debt
limit and the enactment of prioritization legislation, certain payments would receive priority.
However, issues also might arise related to how a President, OMB, or an agency prioritizes
among any obligations and expenditures that are not explicitly subject to prioritization, by statute.
As noted earlier in this report, circumstances like these could prompt issues similar to those that
gave rise to the Impoundment Control Act of 1974.
Legislative Action78
On April 30, 2013, the House Ways and Means Committee reported the Full Faith and Credit Act
(H.R. 807, 113th Congress). This legislation, as reported by the committee, would require
Treasury to prioritize payments on obligations of debt held by the public and to the Social
Security Trust Funds in the event that the debt limit is reached and to provide weekly reports of
these obligations. On May 9, 2013, the House approved this legislation by a vote of 221-207. A
similar measure was included as part of proposed legislation to provide for appropriations for a

(...continued)
Zandi_Senate_Budget_2_3_2011.pdf.
76 Marron, Donald, “Debt Ceiling: Geithner Won't Let Us Default,” CNNMoney.com, January 19, 2011.
77 The potential effects of reaching the debt limit on financial markets are further discussed in the section titled
“Potential Economic and Financial Effects.”
78 This section contains descriptions of legislation that has been either reported by committee or considered in either the
House or the Senate as it relates to the debt limit since the enactment of P.L. 113-3 (H.R. 325). Other bills related to
prioritization of payments in the event the debt limit is reached have been introduced in the House and the Senate.
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portion of FY2014 via a continuing resolution. The legislation, including this provision, was
approved by the House on September 20, 2013 (H.J.Res. 59, 113th Congress) though ultimately
not included in the final bill enacted into law.
Can an Increase in the Current Debt Limit Be Avoided?
Budget outlays and revenue collections over the fiscal year, along with the funds contained in the
extraordinary measures, will affect the timing of the debate over raising the debt limit. The debt
limit is currently suspended through February 7, 2014. In May 2013, CBO estimated that the
federal government would have to issue an additional $728 billion in debt in FY2014 under
current law.79 If the current suspension period ends and the extraordinary measures are exhausted,
Treasury will no longer be able to issue federal debt absent further legislative action. At that time,
federal spending would have to be decreased or federal revenues would have to be increased by a
corresponding amount to cover what cannot be borrowed.
If the debt limit is reached and the extraordinary measures are exhausted, incoming revenues
would be the only way to finance obligations. To put this into context, the federal government is
expected to spend roughly $100 billion per month on discretionary programs, $180 billion per
month on mandatory programs, and $20 billion in interest, on average, in FY2014. Monthly
revenue collections are expected to be roughly $250 billion, yielding a monthly deficit of roughly
$50 billion. (Spending, revenue collection, and interest payments can vary significantly from
month to month.) This means that discretionary spending would have to be cut by half or
mandatory would have to be cut by 30% each month, or some combination of the two would have
to occur to counteract the shortfall of what cannot be borrowed.80 Alternatively, revenues could be
increased by roughly 20% per month to cover the spending provided for in current law.81
This provides an approximation of what would be required to cover the average monthly
borrowing need for FY2014. It does not address what would be required in future years to avoid
further increases in the debt limit. Moreover, if Congress and the President enact legislation
raising future levels of spending or lowering revenues without providing offsets, the borrowing
needs of government would increase as the deficit grows larger.
How Much Should the Debt Limit Be Raised?
Under several current policy proposals, the debt subject to limit is projected to increase
throughout the remainder of the decade. Under President Obama’s FY2014 budget, the debt
subject to limit is projected to reach $25,329 billion at the end of FY2023.82 This represents an
increase of roughly $800 billion, on average, in each fiscal year during the FY2014 to FY2023

79 This amounts to an increase of $164 billion in new debt subject to limit in FY2013 relative to the current statutory
debt limit ($16.699 trillion). CRS calculations based on CBO, Updated Budget Projections: Fiscal Years 2013 to 2023,
May 2013, Table 5.
80 The levels of spending discussed here assume that the discretionary spending caps and automatic spending reductions
enacted under the BCA remain in place. These reductions in spending to cover borrowing needs would occur on top of
the cuts already scheduled to take place under current law.
81 CRS calculations based on CBO, Updated Budget Projections: Fiscal Years 2013 to 2023, May 2013, Table 1.
82 Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2014, The Budget, Table S-13,
available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf.
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period. Increases in debt subject to limit at this level occur even as the budget deficit is projected
to decline, in nominal dollars, between FY2014 and FY2018. Between FY2019 and FY2023, the
budget deficit is projected to remain roughly stable.83 In other words, the debt subject to limit
increases even if the budget deficit declines in nominal terms as issuing debt would still be
required to finance the projected federal spending in excess of federal revenues.
According to the figures provided in the House Budget Committee report (H.Rept. 113-17)
accompanying the House FY2014 Budget Resolution (H.Con.Res. 25, 113th Congress) agreed to
on March 21, 2013, the debt subject to limit is projected to rise from $17,776 billion at the end of
FY2014 to $20,320 billion at the end of FY2023. This means that, if the policies contained in the
House-passed budget resolution were to be enacted, the debt limit would have to increase by
$2,544 billion (or roughly $300 billion in each fiscal year) during the FY2014 to FY2023 period
to accommodate these proposals.
According to the figures provided in the Senate Budget Committee print (S.Prt. 113-12) to
accompany the Senate FY2014 Budget Resolution (S.Con.Res. 8, 113th Congress) agreed to on
March 23, 2013, the gross debt is projected to rise from $18,008 billion at the end of FY2014 to
$24,365 billion at the end of FY2023.84 This means that, if the policies contained in the Senate-
passed budget resolution were to be enacted, the debt limit would have to increase by $6,357
billion (or roughly $700 billion in each fiscal year) during the FY2014 to FY2023 period to
accommodate these proposals.
Given the borrowing requirements under both the President’s FY2014 budget and the House- and
Senate-passed budget resolutions, the current estimates stipulate the increases in the debt limit
that would be required. However, depending on the spending and revenue proposals that may be
subsequently enacted, borrowing requirements could change going forward. These borrowing
requirements will dictate the level of debt and future increases in the debt limit. How often
Congress wishes to reconsider statutory debt limit legislation typically affects the level at which
the debt limit is set.
Temporary increases in the debt limit have been used in the past to provide additional time for
Congress to consider debt limit increases. However, past temporary debt limit increases were
eventually followed by permanent increases. If a temporary increase were to expire and the debt
limit were to revert to a prior lower level, Congress may want to enact legislation that would
result in a budget surplus in excess of the intragovernmental surplus in order to lower the level of
debt subject to limit. If this legislation is not enacted and fully realized prior to the expiration of
the temporary limit, then the level of debt would exceed the lowered debt limit.
Implications of Future Federal Debt on the
Debt Limit

It is extremely difficult for Congress to effectively influence short-term fiscal and budgetary
policy through action on legislation adjusting the debt limit. For example, the debt could reach

83 Ibid., Table S-1.
84 The committee print did not provide figures on debt subject to limit, which is typically less than 1% lower than gross
debt.
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the statutory limit after spending and revenue decisions for the current fiscal year have already
been made. The need to raise (or lower) the limit during a session of Congress is driven by
previous decisions regarding revenues and spending. These decisions stem from legislation
enacted earlier in the session or in prior years.
From the Congressional Budget Office (CBO):
By itself, setting a limit on the debt is an ineffective means of controlling deficits because the
decisions that necessitate borrowing are made through other legislative actions. By the time
an increase in the debt ceiling comes up for approval, it is too late to avoid paying the
government’s pending bills without incurring serious negative consequences.85
Nevertheless, the consideration of debt limit legislation often is viewed as an opportunity to
reexamine fiscal and budgetary policy. Consequently, House and Senate action on legislation
adjusting the debt limit often is complicated, hindered by policy disagreements, and subject to
delay.86 Many in Congress have stated that the debt limit should not be raised without
accompanying deficit reduction legislation.
Generally, the following scenarios dictate whether or not an increase in the debt limit would be
necessary, all else constant:
• If the federal budget is in deficit and intragovernmental debt is rising, an increase
in the debt limit would be necessary.
• If the federal budget is in deficit and intragovernmental debt falls by an amount
that is smaller than the budget deficit, an increase in the debt limit would be
necessary.
• If the federal budget is balanced or in surplus and intragovernmental debt rises by
an amount that is larger than the budget surplus, an increase in the debt limit
would be necessary.
• If the federal budget is balanced or in surplus and intragovernmental debt is
falling, an increase in the debt limit would not be required.
In other words, increases in the statutory debt limit would be required if the budget remains in
deficit, even if future deficit levels are lower than they are at present, or if there are increases in
the level of intragovernmental debt. If intragovernmental debt is declining, presumably due to the
need of certain trust funds to redeem their holdings of Treasury securities in order to pay benefits,
Treasury would have to provide the trust funds with cash either from the General Fund resources
or by issuing additional debt to the public to raise cash. If the federal budget is in deficit, Treasury
would have to raise the necessary cash to redeem trust fund securities by issuing debt to the
public. This would not require an increase in the debt limit, as the decline in intragovernmental
debt would be offset by an equal increase in debt held by the public. A decline in
intragovernmental debt as a result of a redemption in trust fund securities could be financed by
using surplus cash if the federal budget is in surplus at that time.87 In this situation, debt held by

85 CBO, Federal Debt and Interest Costs, December 2010, p. 23, available at http://www.cbo.gov/ftpdocs/119xx/
doc11999/12-14-FederalDebt.pdf.
86 For more information, see CRS Report RS21519, Legislative Procedures for Adjusting the Public Debt Limit: A
Brief Overview
, by Bill Heniff Jr.
87 Under the most recent projections, the federal budget is expected to remain in deficit through FY2023 under current
(continued...)
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the public, debt held by government accounts, and total federal debt would decrease. If the budget
surplus were less than the reduction in intragovernmental debt, the increase in the debt held by
the public would be offset by the decline in intragovernmental debt, resulting in a decrease in the
total debt.

(...continued)
law. CBO, The Budget and Economic Outlook: Fiscal Years 2013 to 2023, February 2013, Table 1-1.
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Appendix. Detailed History on Past Treasury
Actions During Previous Debt Limit Crises

Selected Actions in 1985
In September 1985, the Treasury Department informed Congress that it had reached the statutory
debt limit. As a result, Treasury had to take extraordinary measures to meet the government’s cash
requirements. Treasury used various internal transactions involving the Federal Financing Bank
(FFB) and delayed public auctions of government debt. It also was unable to issue, or had to
delay issuing, new short-term government securities to the Civil Service Retirement and
Disability Trust Fund, the Social Security Trust Funds, and several smaller trust funds. Issuing
new government securities to the trust funds would have caused the federal debt to exceed the
debt limit. During this period, the bulk of Social Security payroll tax revenues were kept in a non-
interest bearing account.
Treasury took the additional step of “disinvesting” the Civil Service Retirement and Disability
Trust Fund, the Social Security Trust Funds, and several smaller trust funds by redeeming some
trust fund securities earlier than usual. Premature redemption of these securities created room
under the debt ceiling for Treasury to borrow sufficient cash from the public to pay other
obligations, including November Social Security benefits.88
As a result of these various actions, Social Security benefit payments and other federal payments
were not jeopardized. The debt limit was subsequently temporarily increased on November 14,
1985 (P.L. 99-155), and permanently increased on December 12, 1985 (P.L. 99-177), from
$1,824 billion to $2,079 billion. Both P.L. 99-155 and P.L. 99-177 included provisions to
require Treasury to restore any interest income lost to the trust funds as a result of delayed
investments and early redemptions.
Concerning Treasury’s management of the Social Security Trust Funds during the 1985 debt limit
impasse, the General Accounting Office (GAO, now the Government Accountability Office)
wrote: “We conclude that, although some of the Secretary’s actions appear in retrospect to have
been in violation of the requirements of the Social Security Act, we cannot say that the Secretary
acted unreasonably given the extraordinary situation in which he was operating.”89 In particular,
GAO found that not all the delayed investment and securities redemptions during the period from
September through November 1985 were necessary to meet Social Security benefit payments,
and the excess was used to finance general government operations.90

88 Treasury redeemed some of the Social Security Trust Funds’ holdings of long-term securities to reimburse the
General Fund for cash payments of benefits in September through November 1985. During this period, the Treasury
was unable to follow its normal procedure of issuing short-term securities to the trust funds and then redeeming short-
term securities to reimburse the General Fund when it paid Social Security benefits.
89 Letter from Charles A. Bowsher, Comptroller General of the United States, to the Hon. James R. Jones, chairman,
Subcommittee on Social Security, House Committee on Ways and Means, December 5, 1985, GAO B-221077.2,
http://archive.gao.gov/d12t3/128621.pdf.
90 Ibid.
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Following the 1985 debt limit crisis, Congress formally authorized the Secretary of the Treasury
to declare a debt issuance suspension period and, during such periods, to depart from normal trust
fund investment practices with respect to certain funds such as the Civil Service Retirement and
Disability Fund and the TSP’s G Fund (P.L. 99-509, the Omnibus Budget Reconciliation Act of
1986). Funds raised by procedures authorized during a debt issuance suspension period can only
be used to the extent necessary to prevent the public debt from exceeding the debt limit. After the
debt issuance suspension period has ended, P.L. 99-509 requires Treasury to make the trust funds
whole by issuing the appropriate amount of securities and crediting any interest lost due to non-
investment or early disinvestment of these funds.91 Such authority to depart from normal trust
fund investment practices was not provided with respect to the Social Security Trust Funds. A
provision to allow such authority was dropped from P.L. 99-509 during conference.
Selected Actions in 1995-1996
Following the enactment of this additional authority, the first debt issuance suspension period was
announced on November 15, 1995. Treasury, once again, used non-traditional methods of
financing, including some of the methods used during the 1985 crisis as well as not reinvesting
some of the maturing Treasury securities held by the Exchange Stabilization Fund.92 In addition,
Treasury utilized the new authority that was enacted under P.L. 99-509 to declare a debt issuance
suspension period.
In early 1996, Treasury announced that it had insufficient cash to pay Social Security benefits for
March 1996.93 Congress responded on February 1, 1996, by passing P.L. 104-103, which
provided Treasury with temporary authority to issue securities to the public in an amount equal to
the March 1996 Social Security benefit payments. Treasury issued about $29 billion of securities
on February 23, 1996, and, under P.L. 104-103, these new securities were not to count against
the debt limit until March 15, 1996. On March 7, 1996, Congress passed P.L. 104-115, which
amended P.L. 104-103 to permit Treasury to continue investing payroll tax revenues in
government securities and also to extend the exemption of the securities issued under P.L. 104-
103 from counting against the debt limit until March 30, 1996.
The debt limit was permanently increased on March 29, 1996 (P.L. 104-121) from $4,900 billion
to $5,500 billion. P.L. 104-121 also codified Congress’s understanding that the Secretary of the
Treasury and other federal officials are not authorized to use Social Security and Medicare funds
for debt management purposes.94 SSA states the following:

91 GAO, Debt Ceiling Options, AIMD-96-20R, December 7, 1995, http://archive.gao.gov/paprpdf1/155750.pdf.
92 Treasury’s Exchange Stabilization Fund buys and sells foreign currency to promote exchange rate stability and
counter disorderly conditions in the foreign exchange market.
93 As described later in this Appendix, under normal procedures Treasury pays Social Security benefits from the
General Fund and offsets this by redeeming an equivalent amount of the trust funds’ holdings of government debt. In
order to pay Social Security benefits, and depending on the government’s cash position at the time, Treasury may need
to issue new public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public debt,
however, because of the debt limit. Social Security benefit payments may be delayed or jeopardized if the Treasury
does not have enough cash on hand to pay benefits.
94 See 42 U.S.C. §1320b-15.
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Specifically, the Secretary of the Treasury and other federal officials are required not to
delay or otherwise underinvest incoming receipts to the Social Security and Medicare Trust
Funds. They are also required not to sell, redeem, or otherwise disinvest securities,
obligations, or other assets of these Trust Funds except when necessary to provide for the
payment of benefits and administrative expenses of the programs.95
These restrictions apply to the Federal Old-Age and Survivors Insurance (OASI) Trust Fund, the
Federal Disability Insurance (DI) Trust Fund, the Federal Hospital Insurance (HI) Trust Fund, and
the Federal Supplementary Medical Insurance (SMI) Trust Fund.
Selected Actions in 2011
Beginning in January 2011, Treasury again took actions to avoid reaching the debt limit and
began notifying Congress of its intentions. On January 6, 2011, Treasury Secretary Geithner sent
a letter to Congress stating that Treasury had the ability to delay the date by which the debt limit
would be reached by utilizing similar methods used during past crises, including declaring a debt
issuance suspension period, if necessary. According to Treasury, these actions could delay the
date that the debt limit would be reached by several weeks. However, if the debt limit was not
raised after that point, payment of other obligations and benefits would be “discontinued, limited,
or adversely affected.”96
On April 4, 2011, Secretary Geithner issued another letter to Congress stating that the debt limit
would be reached no later than May 16, 2011, and the use of extraordinary measures would
extend Treasury’s ability to meet commitments through July 8, 2011. Beyond these extraordinary
measures discussed in the letter and detailed earlier, Treasury stated that it did not have other
actions available that year that it could take to find additional authority to issue debt. The letter
further stated that the sale of certain financial assets would not be a viable option to avoid
increasing the debt limit.97
On May 2, 2011, Secretary Geithner issued a third letter to Congress reiterating that the debt limit
would be reached no later than May 16, 2011, but that the use of extraordinary measures would
extend Treasury’s ability to meet commitments through August 2, 2011. The revision in the latter
date was a result of stronger than expected tax receipts. Further, Secretary Geithner again stated
that not raising the debt limit “would have catastrophic economic impact that would be felt by
every American” and that federal payments would be affected.98 In addition, the letter stated that
on Friday, May 6, the issuance of State and Local Government Series (SLGS) Treasury securities
would be suspended until further notice.99

95 U.S. Social Security Administration, “Program Legislation Enacted in Early 1996,” Social Security Bulletin, vol. 59,
no. 2, Summer 1996, p. 65, at http://www.ssa.gov/policy/docs/ssb/v59n2/index.html.
96 Treasury January 6th letter.
97 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader, April 4,
2011, available at http://www.treasury.gov/connect/blog/Documents/FINAL%20Letter%2004-04-
2011%20Reid%20Debt%20Limit.pdf.
98 Treasury May 2nd letter.
99 For more information, see CRS Report R41811, State and Local Government Series (SLGS) Treasury Debt: A
Description
, by Steven Maguire.
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On May 16, 2011, Secretary Geithner notified Congress of a debt issuance suspension period and
informed them of his intent to utilize extraordinary measures to create additional room under the
debt ceiling to allow Treasury to continue funding the operations of the government.100 Between
May 16, 2011, and August 2, 2011, Treasury prematurely redeemed securities of the Civil Service
Retirement and Disability Trust Fund and did not invest receipts of the Civil Service Retirement
and Disability Trust Fund and the Postal Service Retiree Health Benefit Fund. Treasury also
suspended investments in the Exchange Stabilization Fund and the Government Securities
Investment Fund (G-Fund) of the Federal Thrift Savings Plan. Because these funds are required
by law to be made whole once the debt limit is increased, these specific actions did not affect
federal retirees or employees once the debt limit was increased.101 The debt limit was
permanently increased on August 2, 2011 (Budget Control Act of 2011 or BCA; P.L. 112-25),
from $14,294 billion to $14,694 billion.
The enactment of P.L. 112-25 provided for three separate debt limit increases. The first, as
discussed above, permanently increased the debt limit on August 2, 2011. Thereafter, the debt
limit was permanently increased on September 21, 2011, from $14,694 billion to $15,194 billion
and on January 27, 2012, from $15,194 billion to $16,394 billion.102 Secretary Geithner has stated
that the current debt limit would be reached on December 31, 2012, and the use of extraordinary
measures would provide additional headroom under the debt limit until early 2013.103
Views on the Debt Limit, Prioritization, and Default During the 2011 Debt
Limit Debate

During the debate over the debt limit in 2011, both the Administration and Congress maintained
various views on this issue. Members of the Obama Administration stated that default cannot be
avoided if the debt limit is not raised, and that the consequences of a federal default would be
serious. Treasury Secretary Geithner’s letter of January 6, 2011, provided Treasury’s views on the
“consequences of default by the United States.” The letter described, among other things, federal
payments that would be “discontinued, limited, or adversely affected.”104 The letter also said a
short-term or limited default on legal obligations would cause “catastrophic damage to the
economy.”105 Chairman of the White House Council of Economic Advisers Austan Goolsbee
elaborated, saying that a default would cause “a worse financial economic crisis than anything we

100 Treasury May 16th letter.
101 Letter from Richard L. Gregg, Fiscal Assistant Secretary, Department of the Treasury, to the Hon. John A. Boehner,
Speaker of the House, August 24, 2011, available at http://www.treasury.gov/initiatives/Documents/
G%20Fund%20Letters.pdf and Letter to the Hon. Harry Reid, Senate Majority Leader, January 27, 2012, available at
http://www.treasury.gov/initiatives/Documents/Debt%20Limit%20CSRDF%20Report%20to%20Reid.pdf.
102 For more information on the provisions providing for the debt limit to be increased under the BCA, see CRS Report
R41965, The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan. Prior to the
third debt limit increase, investments in the Government Securities Investment Fund (G-Fund) of the Federal Thrift
Savings Plan were suspended from January 17 to January 27, 2012. The G-Fund was made whole on January 27, 2012.
Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader, January
17, 2012, available at http://www.treasury.gov/initiatives/Documents/011712TFGLettertoReid.pdf.
103 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader,
December 26, 2012, available at http://www.treasury.gov/connect/blog/Documents/
Sec%20Geithner%20LETTER%2012-26-2012%20Debt%20Limit.pdf.
104 Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate Majority Leader,
January 6, 2011, p. 4.
105 Ibid., pp. 1, 3.
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saw in 2008.”106 Secretary Geithner, in his letter to Congress, added, “Default would have
prolonged and far-reaching negative consequences on the safe-haven status of Treasuries and the
dollar’s dominant role in the international financial system, causing further increases in interest
rates and reducing the willingness of investors here and around the world to invest in the United
States.”107 In a later online posting, Treasury Deputy Secretary Neal Wolin wrote that proposals to
prioritize payments on the national debt above other legal obligations would not prevent default
and would bring the same economic consequences Secretary Geithner described.108 Looking
forward, Secretary Geithner said in his letter that in addition to addressing the debt limit,
President Obama wanted to work with Congress to address the federal government’s fiscal
position with particular attention to addressing “medium- and long-term fiscal challenges.”109
Other policy makers have expressed some contrasting perspectives focusing on the need to tie
proposals to raise the debt limit to spending cuts, changes in the budget process, or instructions on
how to deal with the payment of obligations if the debt limit is reached. For example, Senator Jim
DeMint wrote in an op-ed that a vote to raise the debt limit should be opposed “unless Congress
first passes a balanced-budget amendment that requires a two-thirds majority to raise taxes.”110
Legislative proposals related to the potential debt limit crisis began emerging in early 2011. For
example, Senator Pat Toomey and Representative Tom McClintock introduced legislation that, in
the event of a debt limit crisis, would require Treasury to make payment of principal and interest
on debt held by the public a higher priority than all other federal government obligations (S.
163/H.R. 421, 112th Congress). In a letter to Secretary Geithner, Senator Toomey said “This
legislation is designed to maintain orderly financial markets by reassuring investors in U.S.
Treasury securities that their investments are perfectly safe even in the unlikely event that the
debt limit is temporarily reached.”111 Similarly, Senator David Vitter and Representative Dean
Heller introduced legislation that would require priority be given to payment of all obligations on
the debt held by the public and Social Security benefits in the event that the debt limit is reached
(S. 259/H.R. 568, 112th Congress).112 Representative Marlin Stutzman introduced legislation that
would require priority be given to payment of all obligations on the debt held by the public,
Social Security benefits, and specified military expenditures in the event that the debt limit is
reached (H.R. 728, 112th Congress).113 As noted earlier, Congress passed and the President
signed the Budget Control Act, which addressed the debt limit and several aspects of fiscal policy.

106 ABC News This Week, Transcript: White House Adviser Austan Goolsbee, January 2, 2011, at
http://abcnews.go.com/ThisWeek/week-transcript-white-house-adviser-austan-goolsbee/story?id=12522822.
107 Treasury Secretary Geithner letter, January 6, 2011, p. 4.
108 Neal Wolin, Deputy Secretary of the Treasury, “Treasury: Proposals to ‘Prioritize’ Payments on U.S. Debt Not
Workable; Would Not Prevent Default,” January 21, 2011, at http://www.treasury.gov/connect/blog/Pages/Proposals-
to-Prioritize-Payments-on-US-Debt-Not-Workable-Would-Not-Prevent-Default.aspx.
109 Treasury Secretary Geithner letter, January 6, 2011, p. 4.
110 Senator Jim DeMint, “More Spending is a Threat to America,” Politico, January 24, 2011, available at
http://www.politico.com/news/stories/0111/48020.html.
111 Senator Pat Toomey, “Senator Toomey Sends Letter to Secretary Geithner on the Debt Limit,” press release,
February 2, 2011, http://toomey.senate.gov/record.cfm?id=330828&.
112 Representative Dean Heller was sworn in to the U.S. Senate on May 9, 2011, to fill the seat of former Senator John
Ensign who had resigned.
113 These are examples of legislation introduced as of February 15, 2011. Some of this legislation has been considered
as amendments to other legislation and were tabled or withdrawn. Other legislation has been subsequently introduced,
however, this is not intended to be a legislative tracking report. Therefore not all bills are included in the list above.
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Social Security Trust Fund Cash and Investment
Management Practices

By law, the Social Security Trust Funds must be invested in interest-bearing obligations of the
United States or in obligations guaranteed as to both principal and interest by the United States
(42 U.S.C. §401(d) and 42 U.S.C. §1320b-15).114 The securities that Treasury issues to the Social
Security Trust Funds count toward the federal debt limit.
Under normal procedures, Social Security revenues (Social Security payroll taxes and individual
income taxes) are immediately credited to the Social Security Trust Funds in the form of short-
term, non-marketable Treasury securities called certificates of indebtedness (CIs). Under the
terms of this exchange, when Treasury credits payroll tax and other revenues to Social Security in
the form of CIs, the revenues themselves become available in the General Fund for other
government operations.
CIs generally mature on the following June 30. Each June 30, any surplus for the year is
converted from short-term Treasury securities to long-term, non-marketable Treasury securities
called “special-issue obligations” or “specials.”115 In addition, other special issues that have just
matured and that are not needed to pay near-term benefits are reinvested in special-issue
obligations. Interest income is credited to the trust funds semi-annually (on June 30 and
December 31) in the form of additional special-issue obligations.116
Social Security benefits are paid by Treasury from the General Fund. When Treasury pays Social
Security benefits, it redeems an equivalent amount of Treasury securities held by the trust funds
in order to reimburse the General Fund.
The Social Security program is projected to run a cash deficit through the 75-year forecast period.
That is, Social Security’s tax revenues are projected to be less than outlays for benefit payments
and administration.117 In a year when Social Security runs a cash flow deficit, Treasury redeems
some long-term government securities held by the trust funds. However, Social Security will still
need to invest in non-marketable, short-term government securities to manage short-term cash
flows during the periods between receiving revenues and paying benefits (42 U.S.C. §401(a), 42
U.S.C. §401(d) and 42 U.S.C. §1320b-15). Investing the trust funds’ revenues for even very short

114 There are two sources of Social Security revenues: (1) payroll taxes paid by workers and employers and (2) federal
income taxes paid by some beneficiaries on a portion of their benefits. In addition, Social Security receives income
from trust fund investments. Interest income is paid to the trust funds as a credit from the General Fund to the trust
funds, in the form of additional non-marketable government securities.
115 The trust funds’ long-term securities have maturities ranging from 1 to 15 years and normally mature in June of the
applicable year.
116 For a detailed discussion, see Social Security Administration, Office of the Chief Actuary, Social Security Trust
Fund Investment Policies and Practices
, Actuarial Note Number 142, January 1999, http://www.ssa.gov/OACT/
NOTES/pdf_notes/note142.pdf (hereinafter cited as SSA Actuarial Note Number 142).
117 For SSA’s projections of Social Security Trust Fund operations, see 2013 Annual Report of the Board of Trustees of
the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Washington, DC, May 31,
2013, http://www.socialsecurity.gov/OACT/TR/2013/tr2013.pdf. Social Security’s cash deficit will be offset by interest
income for many years, with the result that Social Security will have a positive total trust fund balance until the trust
funds are exhausted in 2033 under the intermediate projections of the Social Security Board of Trustees. Social
Security benefits scheduled under current law can be paid in full as long as there is a sufficient balance in the trust
funds.
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periods ensures that the trust funds maximize their interest earnings. Social Security will also
need to invest in non-marketable, long-term government securities in June of each year, when
short-term and certain long-term trust fund securities mature and amounts not needed to pay near-
term benefits are rolled over into long-term government securities, and in June and December of
each year, when semi-annual interest income is paid in the form of government securities.
In 2011 and 2012, Social Security drew on general revenues as a result of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312, as
amended by P.L. 112-78 and P.L. 112-96). P.L. 111-312 provided a temporary 2 percentage
point reduction in the Social Security payroll tax for employees and the self-employed in 2011,
resulting in a tax rate of 4.2% for employees and 10.4% for the self-employed.118 To protect the
trust funds, P.L. 111-312 appropriated to the Social Security Trust Funds amounts equal to the
reduction in payroll tax revenues. P.L. 111-312 specified that the appropriated amounts “shall be
transferred from the General Fund at such times and in such manner as to replicate to the extent
possible the transfers which would have occurred to such Trust Fund had such amendments not
been enacted.”119 On December 23, 2011, Congress passed H.R. 3765 and President Obama
signed the bill into law as P.L. 112-78 to extend the payroll tax reduction for workers and the
general revenue transfers through February 2012. On February 17, 2012, the House and the
Senate agreed to the conference report on H.R. 3630, which further extended the payroll tax
reduction for workers and the general revenue transfers through the end of calendar year 2012.
H.R. 3630 was signed into law by President Obama on February 22, 2012 (P.L. 112-96).
Depending on the extent and duration of any future debt limit crisis, and also on Treasury
prioritization decisions, Social Security Trust Fund investment management procedures and
benefit payments potentially could be affected because of the requirement that Treasury
obligations cannot be issued to the Social Security Trust Funds if doing so would exceed the debt
limit.120 At the same time, as described above, P.L. 104-121 restricts the Treasury Secretary’s
ability to delay or otherwise underinvest incoming receipts to the Social Security and Medicare
Trust Funds. Delayed issuance of government obligations to the Trust Funds, or early redemption
of some Trust Fund assets, could accelerate depletion of the Trust Funds and move up the
expected insolvency date, absent congressional action to make the Trust Funds whole.
Depending on the government’s cash position in a given month, Treasury may need to issue new
public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public
debt, however, if doing so would exceed the debt limit. Social Security benefit payments may be
delayed or jeopardized if Treasury does not have enough cash on hand to pay benefits.


118 P.L. 111-312, as amended by P.L. 112-78 and P.L. 112-96, made no change to the Social Security payroll tax rate
for employers (6.2%) or to the amount of wages and net self-employment income subject to the Social Security payroll
tax ($113,700 in 2013).
119 See P.L. 111-312, Title VI (Temporary Employee Payroll Tax Cut), at http://www.gpo.gov/fdsys/pkg/PLAW-
111publ312/pdf/PLAW-111publ312.pdf.
120 SSA Actuarial Note Number 142, p. 3.
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Author Contact Information

Mindy R. Levit, Coordinator
Thomas J. Nicola
Specialist in Public Finance
Legislative Attorney
mlevit@crs.loc.gov, 7-7792
tnicola@crs.loc.gov, 7-5004
Clinton T. Brass
Dawn Nuschler
Specialist in Government Organization and
Specialist in Income Security
Management
dnuschler@crs.loc.gov, 7-6283
cbrass@crs.loc.gov, 7-4536

Acknowledgments
The authors wish to thank D. Andrew Austin and Marc Labonte for their helpful comments on this report
and former CRS analyst Alison M. Shelton for her contributions to this report.

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