Updated September 20, 2019
The Debt Limit
Overview
(2) increase the debt limit to allow for further federal
borrowing; (3) maintain the current debt limit and require
The debt limit places a statutory constraint on the amount of
the implementation of “extraordinary measures” that will
money that Treasury may borrow to fund federal
postpone (but not prevent) a binding debt limit; or
operations. The debt limit is currently suspended, and
(4) temporarily suspend or abolish the debt limit. Some
scheduled for reinstatement on August 1, 2021, at a level
have suggested that the Fourteenth Amendment may grant
precisely accommodating federal borrowing at that point.
the President authority to ignore the statutory debt limit.
Congress may debate the merits of various debt limit
Previous Administrations and many representatives of the
modifications in advance of that date or later if Treasury
legal community have rejected that argument as an
implements “extraordinary measures” to prevent a binding
alternative to debt limit legislation.
debt limit after reinstatement. This In Focus provides
background information and discusses recent legislative
Inaction or Delayed Action: Potential
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 R43389, The Debt Limit Since
to pay its bills, and yet a binding debt limit would prevent
2011, by D. Andrew Austin; and CRS Report R44383,
Treasury from doing so in a timely fashion. Possible
Deficits, Debt, and the Economy: An Introduction, by Grant
consequences of a binding debt limit include, but are not
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 grants Congress the “power of the purse,”
debt;
which allows Congress to restrict the amount of federal
debt. Under current law Congress exercises this power
substantial negative outcomes in global economies and
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 August 2019 baseline projected that the debt
may also affect the U.S. financial outlook if it changes
subject to limit will be $28.5 trillion at the end of FY2024
household and business behavior. Some research suggests
and $34.4 trillion by the end of FY2029; debt held by the
that debate over the debt limit in August 2011 reduced
public is forecasted to equal $22.5 trillion and $29.3 trillion
economic expansion in the second half of that year.
in those respective years.
The federal debt limit acts as a check to ensure that recent
“Because the debt ceiling impasse contributed to the
revenue and expenditure trends meet the approval of
financial market disruptions, reduced confidence and
Congress. However, the federal collection and spending
increased uncertainty, the economic expansion [in
decisions affecting debt levels may have been agreed to by
2011] was no doubt weaker than it otherwise would
Congress and the Administration well in advance of debt
have been.” – U.S. Treasury, The Potential
limit deliberations. Some past debt limit legislation has
Macroeconomic Effect of Debt Ceiling Brinkmanship,
linked debt limit increases with fiscal policy proposals such
October 2013.
as budget enforcement measures.
Options for Congress
Increasing the Debt Limit
When debt levels approach the statutory debt limit,
Increasing the debt limit to accommodate further borrowing
Congress can choose to: (1) leave the debt limit in place;
allows federal operations to continue as they otherwise
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link to page 2 
The Debt Limit
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 subject to the limit as a percentage
Larger increases in the debt limit allow more time to enact
of GDP from 1940 to 2018, along with how that debt was
changes that adjust budgetary trends, but could reduce the
divided between debt held by the public and
effect of the debt limit on budgetary discussions if
intragovernmental debt. Although nominal debt levels have
policymakers feel less constrained by the new debt limit
steadily risen in the postwar period, debt measured as a
level. Smaller debt limit increases potentially offer a greater
percentage of GDP (real debt) declined precipitously for
role for the debt limit legislation in budgetary policy
several decades following its peak at 118% in 1946,
discussions, but may lead to more frequent debt limit
reaching 32% in 1981. Real debt has increased in the recent
activity.
decades. At the end of FY2018, total debt subject to the
limit was 106% of GDP, and publicly held debt was 78% of
“Extraordinary Measures” and Debt Limit
GDP. The remaining 28% of GDP in debt took the form of
Suspension
intragovernmental debt.
Invoking Treasury’s authority to use “extraordinary
Figure 1. Federal Debt Subject to Limit as a % of
measures” to stay under the debt limit and temporarily
GDP, FY1940-FY2018
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.
Past Debt Limit Activity
Source: Office of Management and Budget, Department of the
The Bipartisan Budget Act of 2019 (P.L. 116-37)
Treasury and Congressional Budget Office. Figure created by CRS.
suspended the debt limit until August 1, 2021. Upon
Note: Values taken at the end of the fiscal year.
reinstatement, the act provides for a debt limit adjustment to
accommodate borrowing activity that occurred during the
Timing Uncertainties with a Binding
suspension. If action has not been taken to prevent a
Debt Limit
binding debt limit as the end of the suspension approaches,
the Treasury Secretary may elect to exercise “extraordinary
Short-term fluctuations in federal debt levels mean there is
substantial uncertainty as to when debt levels will meet or
measures” to stay beneath the debt limit.
exceed the statutory debt ceiling. Federal debt levels change
Regular legislative modifications to the debt limit have
in response to variation in the timing of payments and
been enacted since the aggregate debt limit was first created
collection of receipts. This fluctuation is influenced by
in 1917. Congress has enacted 98 separate debt limit
changes in the size and timing of incoming and outgoing
modifications between the end of World War II and the
Treasury payments, and is relatively insensitive to long-
present to accommodate the changes in federal debt levels.
term deficit outcomes. Examples include lower debt levels
Debt held by the public has consistently increased in that
that follow large income tax receipt collections in March
time period, except in the period immediately following
and April and higher debt levels caused by interest
World War II and between 1998 and 2001 when debt
payments and the issuance of Treasury securities in the
declined due to federal budget surpluses.
middle and end of a given month. Short-term surpluses
could extend the amount of time “extraordinary measures”
Congress has passed 17 separate changes to the debt limit
taken by Treasury would delay a binding debt limit, while
since 2001. Much of the recent increase in the debt is
short-term deficits would have the opposite effect.
attributable to a rise in debt held by the public. Increases in
spending on old-age and retirement programs, lower tax
Grant A. Driessen, Analyst in Public Finance
receipts, and federal activities related to the Great
Recession all contributed to rising debt levels. Debt held in
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government accounts has also increased since 2001, as
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The Debt Limit
Disclaimer
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