Updated February 5, 2019
The Debt Limit
Overview
borrowing; (3) maintain the current debt limit and require
the implementation of “extraordinary measures” that will
The debt limit places a statutory constraint on the amount of
postpone (but not prevent) a binding debt limit; or
money that Treasury may borrow to fund federal
(4) temporarily suspend or abolish the debt limit. Some
operations. The debt limit is currently suspended, and
have suggested that the Fourteenth Amendment may grant
scheduled to be reinstated on March 1, 2019, at a level
the President authority to ignore the statutory debt limit.
precisely accommodating federal borrowing at that point.
Previous Administrations and many representatives of the
Congress may debate the merits of various debt limit
legal community have rejected that argument as an
modifications in advance of that date or later if
“extraordinary measures”
alternative to debt limit legislation.
are implemented to prevent a
binding debt limit. This In Focus provides background
Inaction or Delayed Action: Potential
information and discusses recent legislative activity.
Consequences
More information on the debt limit can be found in CRS
The combination of a binding debt limit and continued
Report R41633, Reaching the Debt Limit: Background and
budget deficits would leave Treasury with conflicting
Potential Effects on Government Operations, by D. Andrew
directives. As with any borrower, the government is obliged
Austin et al.; CRS Report RL31967, The Debt Limit:
to pay its bills, and yet a binding debt limit would prevent
History and Recent Increases, by D. Andrew Austin; and
Treasury from doing so in a timely fashion. Possible
CRS Report R44383, Deficits and Debt: Economic Effects
consequences of a binding debt limit include, but are not
and Other Issues, by Grant A. Driessen.
limited to, the following:
Rationale and Role of the Debt Limit
reduced ability of Treasury to borrow funds on
advantageous terms, thereby further increasing federal
The Constitution allows Congress to restrict the amount of
debt;
federal debt that may be incurred as part of its “power of
the purse.” Under current law Congress exercises this
substantial negative outcomes in global economies and
power through the federal debt limit, which is codified at 31
financial markets caused by anticipated default on
U.S.C. §3101. Debt subject to limit is more than 99% of
Treasury securities or failure to meet other legal
total federal debt, and includes debt held by the public
obligations;
(which is used to finance budget deficits) and debt issued to
acquisition of interest penalties from delay on certain
federal government accounts (which is used to meet federal
federal payments and transfers; and
obligations).
downgrades of U.S. credit ratings, which could
Federal debt increases when total expenditures exceed total
negatively impact capital markets.
receipts (producing a budget deficit). Expansion of the
federal lending portfolio, through programs like college
Possible economic and fiscal consequences of the debt limit
student loans, also increases federal debt levels. Periods of
are not confined to scenarios where the debt limit is
sustained debt increases bring debt levels near the debt
binding. Protracted deliberation over raising the debt limit
limit. CBO’s January 2019 baseline projected that the debt
may also affect the U.S. financial outlook if it changes
subject to limit will be $28.0 trillion at the end of FY2024
household and business behavior. A number of observers
and $33.7 trillion by the end of FY2029; debt held by the
have suggested that debate over the debt limit which
public is forecasted to equal $22.1 trillion and $28.7 trillion
preceded the passage of the Budget Control Act in August
in those respective years.
2011 reduced economic expansion in the second half of that
year.
The federal debt limit acts as a check to ensure that recent
revenue and expenditure trends meet the approval of
Congress. However, federal collection and spending
“Because the debt ceiling impasse contributed to the
decisions affecting debt levels may have been agreed to by
financial market disruptions, reduced confidence and
Congress and the Administration well in advance of debt
increased uncertainty, the economic expansion [in
limit deliberations. Some past debt limit legislation has
2011] was no doubt weaker than it otherwise would
linked debt limit increases with fiscal policy proposals such
have been.” – U.S. Treasury, The Potential
as budget enforcement measures.
Macroeconomic Effect of Debt Ceiling Brinkmanship,
Options for Congress
October 2013.
When debt levels approach the statutory debt limit,
Congress can choose to (1) leave the debt limit in place; (2)
increase the debt limit to allow for further federal
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link to page 2
The Debt Limit
Increasing the Debt Limit
spending on old-age and retirement programs, lower tax
receipts, and federal activities related to the Great
Increasing the debt limit to accommodate further borrowing
Recession all contributed to rising debt levels. Debt held in
allows federal operations to continue as they otherwise
government accounts has also increased since 2001, as
would have. Increasing the debt limit reduces the likelihood
Social Security payroll tax receipts exceeded payments to
of experiencing potential consequences associated with a
beneficiaries for much of that period.
binding and near-binding debt limit.
Figure 1 shows the debt limit and debt levels as a
One issue for Congress to consider is the size of any
percentage of GDP from 1940 to 2018. Although nominal
potential debt limit increase. Larger increases in the debt
debt levels have steadily risen in the postwar period, debt
limit allow more time to enact changes that adjust
measured as a percentage of GDP (real debt) declined
budgetary trends, but could reduce the effect of the debt
precipitously for several decades following its peak at
limit on budgetary discussions if policymakers feel less
118% in 1946, reaching 32% in 1981. Real debt has
constrained by the new debt limit level. Smaller debt limit
increased in the recent decades. At the end of FY2018, total
increases potentially offer a greater role for the debt limit
debt subject to the limit was 106% of GDP, and publicly
legislation in budgetary policy discussions, but may lead to
held debt was 78% of GDP.
more frequent debt limit activity.
Figure 1. Federal Debt Subject to Limit as a % of
“Extraordinary Measures” and Debt Limit
GDP, FY1940-FY2018
Suspension
Invoking the authority to use “extraordinary measures” to
stay under the debt limit and temporarily suspending the
debt limit both postpone when Congress must act on debt
limit legislation. The authority for using such
“extraordinary measures,” which include suspensions and
delays of some debt sales and auctions, underinvestment
and disinvestment of certain government funds, and
exchange of debt securities for debt not subject to the debt
limit, rests with the Treasury Secretary. Invocation of
“extraordinary measures” has delayed required action on
the debt limit by periods ranging from a few weeks to
several months. Temporary suspensions delay the
restrictions imposed by the debt limit for a period
determined by corresponding legislation, and have been
used in lieu of increasing the debt limit to a dollar value in
recent years.
Source: Office of Management and Budget, Department of the
Treasury and Congressional Budget Office. Figure created by CRS.
Past Debt Limit Activity
Notes: Values taken at the end of the fiscal year.
The Bipartisan Budget Act of 2018 (P.L. 115-123)
Timing Uncertainties with a Binding
suspended the debt limit until March 1, 2019. Upon
Debt Limit
reinstatement, the act provides for a debt limit adjustment to
Short-term fluctuations in federal debt levels mean there is
accommodate borrowing activity that occurred during the
suspension. If action has not been taken to prevent a
substantial uncertainty as to when debt levels will meet or
binding debt limit as the end of the suspension approaches,
exceed the statutory debt ceiling. Federal debt levels change
in response to variation in the timing of payments and
the Treasury Secretary may elect to exercise “extraordinary
collection of receipts. This fluctuation is influenced by
measures” to stay beneath the debt limit.
changes in the size and timing of incoming and outgoing
Regular legislative modifications to the debt limit have
Treasury payments, and is relatively insensitive to long-
been enacted since the aggregate debt limit was first created
term deficit outcomes. Examples include lower debt levels
in 1917. Congress has enacted 97 separate debt limit
that follow large income tax receipt collections in March
modifications between the end of World War II and the
and April and higher debt levels caused by interest
present to accommodate the changes in federal debt levels.
payments and the issuance of Treasury securities in the
Debt held by the public has consistently increased in that
middle and end of a given month. Short-term surpluses
time period, except in the period immediately following
could extend the amount of time “extraordinary measures”
World War II and between 1998 and 2001 when debt
taken by Treasury would delay a binding debt limit, while
declined due to federal budget surpluses.
short-term deficits would have the opposite effect.
Congress has passed 16 separate changes to the debt limit
Grant A. Driessen, Analyst in Public Finance
since 2001. Much of the recent increase in the debt is
attributable to a rise in debt held by the public. Increases in
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The Debt Limit
Disclaimer
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