Updated November 22, 2022
The Debt Limit
Overview
limit. Maintaining the current debt limit could lead
Treasury to implement “extraordinary measures” to
The debt limit places a statutory constraint on the amount of
postpone a binding debt limit, but such measures do not
money that Treasury may borrow to fund federal
prevent a binding debt limit indefinitely. Some have
operations. Federal debt is projected to reach the current
suggested that the Fourteenth Amendment may grant the
debt limit, set at $31.385 trillion, sometime in 2023.
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 reaching the limit, or later if
legal community have rejected that argument as an
Treasury implements “extraordinary measures” to prevent a
alternative to debt limit legislation.
binding debt limit before the limit is reached. This In Focus
provides background information and discusses recent
Inaction or Delayed Action: Potential
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; CRS Report
directives. As with any borrower, the government is obliged
R43389, The Debt Limit Since 2011; CRS Report R45011,
to pay its bills, and yet a binding debt limit would prevent
Clearing the Air on the Debt Limit; and CRS Report
Treasury from doing so in a timely fashion. Possible
R44383, Deficits, Debt, and the Economy: An Introduction.
consequences of a binding debt limit include, but are not
Rationale and Role of the Debt Limit
limited to, the following:
reduced ability of Treasury to borrow funds on
The Constitution grants Congress the “power of the purse,”
advantageous terms, thereby further increasing federal
which allows Congress to restrict the amount of federal
debt;
debt. Under current law Congress exercises this power
through the federal debt limit, which is codified at 31
substantial negative outcomes in global economies and
U.S.C. §3101. Debt subject to limit is more than 99% of
financial markets caused by anticipated default on
total federal debt, and includes debt held by the public
Treasury securities or failure to meet other legal
(which is used to finance budget deficits) and debt issued to
obligations;
federal government accounts (which is used to meet federal
acquisition of interest penalties from delay on certain
obligations).
federal payments and transfers; and
Federal debt increases when total expenditures exceed total
downgrades of U.S. credit ratings, which could
receipts (producing a budget deficit). Expansion of the
negatively impact capital markets.
federal lending portfolio, through programs like college
student loans, also increases federal debt levels. Periods of
Possible economic and fiscal consequences of the debt limit
sustained debt increases bring debt levels near the debt
are not confined to scenarios where the debt limit is
limit. CBO’s May 2022 baseline projected that the debt
binding. Protracted deliberation over raising the debt limit
subject to limit will be $36.9 trillion at the end of FY2027
may also affect the U.S. financial outlook if it changes
and $45.4 trillion by the end of FY2032; debt held by the
household and business behavior. Some research suggests
public is forecast to equal $30.3 trillion and $40.2 trillion in
that debate over the debt limit in August 2011 reduced
those respective years.
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
“Because the debt ceiling impasse contributed to the
Congress. However, the federal collection and spending
financial market disruptions, reduced confidence and
decisions affecting debt levels may have been agreed to by
increased uncertainty, the economic expansion [in
Congress and the Administration well in advance of debt
2011] was no doubt weaker than it otherwise would
limit deliberations. Some past debt limit legislation has
have been.”—U.S. Treasury, The Potential
linked debt limit increases with fiscal policy proposals such
Macroeconomic Ef ect of Debt Ceiling Brinkmanship,
as budget enforcement measures.
October 2013.
Options for Congress
Increasing the Debt Limit
When debt levels approach the statutory debt limit,
Congress can choose to (1) leave the debt limit in place; (2)
Increasing the debt limit to accommodate further borrowing
increase the debt limit to allow for further federal
allows federal operations to continue as they otherwise
borrowing; or (3) temporarily suspend or abolish the debt
would have. Increasing the debt limit reduces the likelihood
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The Debt Limit
of experiencing potential consequences associated with a
steadily risen in the postwar period, debt measured as a
binding and near-binding debt limit.
percentage of GDP (real debt) declined precipitously for
several decades following its peak at 118% in 1946,
Larger increases in the debt limit allow more time to enact
reaching 32% in 1981. Real debt has increased in the recent
changes that adjust budgetary trends, but could reduce the
decades. At the end of FY2022, total debt subject to the
effect of the debt limit on budgetary discussions if
limit was 125% of GDP and publicly held debt was 98% of
policymakers feel less constrained by the new debt limit
GDP. The remaining 27% of GDP in debt took the form of
level. Smaller debt limit increases potentially offer a greater
intragovernmental debt.
role for the debt limit legislation in budgetary policy
discussions, but may lead to more frequent debt limit
Figure 1. Federal Debt Subject to Limit as a
activity.
Percentage of GDP, FY1940-FY2022
“Extraordinary Measures” and Debt Limit
Suspension
Invoking Treasury’s 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
Source: Office of Management and Budget, Department of the
determined by corresponding legislation, and have been
Treasury and Congressional Budget Office. Figure created by CRS.
used in lieu of increasing the debt limit to a specific dollar
Note: Values taken at the end of the fiscal year. FY2022 values
value in recent years.
represent CRS estimates based on preliminary Treasury data and
Past Debt Limit Activity
CBO economic projections.
Timing Uncertainties with a Binding
In December 2021, Congress approved a joint resolution
Debt Limit
(P.L. 117-73) that increased the debt limit by $2.5 trillion,
to $31.385 trillion. If action is not taken to prevent a
Short-term fluctuations in federal debt levels mean there is
binding debt limit as federal debt approaches the debt limit,
substantial uncertainty as to when debt levels will meet or
the Treasury Secretary may elect to exercise “extraordinary
exceed the statutory debt ceiling. Federal debt levels change
measures” to stay beneath the debt limit.
in response to variation in the timing of payments and
collection of receipts. This fluctuation is influenced by
Regular legislative modifications to the debt limit have
changes in the size and timing of incoming and outgoing
been enacted since the aggregate debt limit was first created
Treasury payments, and is relatively insensitive to long-
in 1917. Congress has approved 102 separate debt limit
term deficit outcomes. Examples include lower debt levels
modifications between the end of World War II and the
that follow large income tax receipt collections in March
present to accommodate the changes in federal debt levels.
and April and higher debt levels caused by interest
Debt held by the public has consistently increased in that
payments and the issuance of Treasury securities in the
time period, except in the period immediately following
middle and end of a given month. Short-term surpluses
World War II and between 1998 and 2001 when debt
could extend the amount of time “extraordinary measures”
declined due to federal budget surpluses.
taken by Treasury would delay a binding debt limit, while
Congress has approved 20 distinct changes to the debt limit
short-term deficits would have the opposite effect.
since 2001. Much of the recent increase in the debt is
As of November 2022, budget experts project that, should
attributable to a rise in debt held by the public. Increases in
the Treasury Secretary invoke extraordinary measures in
spending on old-age and retirement programs, lower tax
anticipation of a binding debt limit, debt limit activity
receipts, and federal activities related to the Great
would not be required until the third quarter of calendar
Recession and in response to the COVID-19 pandemic have
year 2023. Those estimates are subject to considerable
all contributed to rising debt levels. Debt held in
uncertainty, however, as small fluctuations in economic
government accounts has also increased since 2001, as
output could significantly shift the month or quarter in
Social Security payroll tax receipts exceeded payments to
which such action would be needed.
beneficiaries for much of that period.
Figure 1 shows the debt subject to the limit as a percentage
Grant A. Driessen, Specialist in Public Finance
of GDP from 1940 to 2022, along with how that debt was
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divided between debt held by the public and
intragovernmental debt. Although nominal debt levels have
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The Debt Limit
Disclaimer
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