The Debt Limit: History and Recent Increases
Released: 2015-11-02T00:00:00

Introduction

The statutory debt limit applies to almost all federal debt. The limit applies to federal debt held by the public (that is, debt held outside the federal government itself) and to federal debt held by the government's own accounts. Federal trust funds, such as Social Security, Medicare, Transportation, and Civil Service Retirement accounts, hold most of this internally held debt. The government's surpluses or deficits determine essentially all of the change in debt held by the public. The government's on-budget fiscal balance, which excludes a U.S. Postal Service net surplus or deficit and a large Social Security surplus of payroll taxes net of paid benefits, does not directly affect debt held in government accounts. Increases or decreases in debt held by government accounts result from net financial flows into accounts holding the debt, such as the Social Security Trust Fund. Legal requirements and government accounting practices also affect levels of debt held by government accounts.

Since the late 1950s, the federal government increased its borrowing from the public in all years, except in FY1969 following imposition of a war surcharge and in the period FY1998-FY2001. The persistence of federal budget deficits has required the government to issue more and more debt to the public. The accumulation of Social Security and other trust funds, particularly after 1983 when recommendations of the Greenspan Commission were implemented, led to sustained growth in government-held debt subject to limit. The growth in federal debt held by the public and in intergovernmental accounts, such as trust funds, has periodically obliged Congress to raise the debt limit.

Debt limit issues since the passage of the Budget Control Act of 2011 are discussed in more detail in CRS Report R43389, The Debt Limit Since 2011 , by [author name scrubbed].

The Debt Limit and the Treasury

Standard methods of financing federal activities or meeting government obligations used by the U.S. Department of the Treasury (Treasury) can be hobbled when federal debt nears its legal limit. The government's income and outlays vary over the course of the year, producing monthly surpluses and deficits that affect the level of debt, whether or not the government has a surplus or deficit for the entire year. Even major government trust fund accounts that usually run annual surpluses can swing back and forth between deficits and surpluses on a month-to-month basis. The ability to borrow is central to Treasury cash management systems that handle fluctuations in federal revenues and outlays. When federal debt has neared the debt limit in the past, limiting the U.S. Treasury's borrowing authority, financial management has become more complicated.

Possible Consequences of a Binding Debt Limit

If the U.S. Treasury were precluded from borrowing due to a binding debt limit in times when federal outlays outpaced revenues, the government would no longer meet all of its legal obligations in a timely manner. If the limit prevents the Treasury from issuing new debt to manage short-term cash flows or to finance an annual deficit, the government may be unable to obtain the cash needed to pay its bills or it may be unable to invest the surpluses of designated government accounts (federal trust funds) in federal debt as generally required by law. In either case, the Treasury is left in a bind; the law requires that the government's legal obligations be paid, but the debt limit may prevent it from issuing the debt that would allow it to do so on time.

Among other consequences, a sustained inability to pay obligations on time could hinder the U.S. Treasury's ability to borrow on advantageous terms in the future. The Government Accountability Office has also concluded that delays in debt limit increases could lead to "serious negative consequences for the Treasury market and increase borrowing costs." A delay in interest payments on Treasury securities would trigger a default and risk serious negative repercussions for economies and financial markets around the world. Default might be avoided in such situations by delaying other types of federal payments and transfers. A government that delays payment of an obligation, in effect, borrows from vendors, contractors, beneficiaries, state and local governments, or employees who are not paid on time. In some cases, delaying 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, and the Internal Revenue Code, which requires the government to pay interest penalties if tax refunds are delayed beyond a certain date.

Several credit ratings agencies and investment banks have expressed concerns about the consequences to the financial system and the economy if the U.S. Treasury were unable to fund federal obligations. Many economists and financial institutions have stated that if the market associated Treasury securities with default risks, the effects on global capital markets could be significant.

U.S. Treasury Debt Management and Extraordinary Measures

Past Treasury Secretaries, when faced with a nearly binding debt ceiling, have used special strategies to handle cash and debt management responsibilities. Actions taken in the past include suspending sales of nonmarketable debt, postponing or downsizing marketable debt auctions, and withholding receipts that would be transferred to certain government trust funds. Congress has authorized the Treasury Secretary to invoke a "debt issuance suspension period" to use some of these strategies using the Civil Service Retirement Fund and the Thrift Savings Fund, along with the authority to make those funds whole after an easing of the debt constraint.

Some U.S. Treasury responses to the credit crunch that began in mid-2007 created balance sheet items that expanded options available to the Treasury Secretary, although such options would now have minor effects on delaying when federal debt would reach its legal limit. The U.S. Treasury began selling off certain mortgage-backed securities (MBSs) acquired in late 2008. The pace of those sales was targeted at $10 billion per month in order to minimize any market disruptions in the mortgage securities market. As of March 2012, however, that Treasury portfolio of MBSs has been eliminated. Proceeds of other potential asset sales are unlikely to allow the U.S. Treasury to maintain smooth debt management operations indefinitely in the face of a continuing imbalance between federal revenues and outlays without an increase in the debt limit. U.S. Treasury contends that other types of asset sales are unlikely to provide a prudent or practical method of easing debt limit constraints.

Other Proposed Strategies

Some have suggested that the Fourteenth Amendment (Section 4), which states that "(t)he validity of the public debt of the United States ... shall not be questioned," could provide the President with authority to ignore the statutory debt limit. President Obama has rejected such claims, as have most legal analysts. More imaginative strategies to avoid debt ceiling constraints have also been proposed.

Why Have a Debt Limit?

The debt limit can hinder the Treasury's ability to manage the federal government's finances, as noted above. In extreme cases, when the federal debt is very near its statutory limit, the Treasury must take unusual and extraordinary measures to meet federal obligations. While the debt limit has never caused the federal government to default on its obligations, it has at times caused great inconvenience and has added uncertainty to Treasury operations.

The debt limit also provides Congress with the strings to control the federal purse, allowing Congress to assert its constitutional prerogatives to control spending. The debt limit also imposes a form of fiscal accountability that compels Congress and the President to take visible action to allow further federal borrowing when the federal government spends more than it collects in revenues. In the words of one author, the debt limit "expresses a national devotion to the idea of thrift and to economical management of the fiscal affairs of the government." On the other hand, some budget experts have advocated elimination of the debt limit, arguing that other controls provided by the modern congressional budget process established in 1974 have superseded the debt limit, and that the limit does little to alter spending and revenue policies that determine the size of the federal deficit. The Obama Administration has proposed allowing increases in the debt limit subject to congressional disapproval.

While the budget process provides Congress with one means of controlling federal spending, the debt limit may provide a different sort of leverage that is not redundant. Congress ordinarily delegates work to its committees. The Committees on Appropriations have special responsibilities regarding discretionary spending, and authorizing committees are generally responsible for mandatory program spending decisions, while Committees on the Budget are tasked with drafting an overall budgetary framework that specifies aggregate levels for federal spending and taxation. While those committees often incorporate views of other committees and Members, measures involving the debt limit often provide individual Members not belonging to those committees with a separate instrument to influence federal fiscal policy.

A Brief History of the Federal Debt Limit

Origins of the Federal Debt Limit

Congress has always placed restrictions on federal debt. Limitations on federal debt have helped Congress assert its constitutional powers of the purse, of taxation, and of the initiation of war. Between World War I and World War II the form of statutory restrictions on federal debt evolved into an aggregate limit that applied to nearly all federal debt outstanding.

Before World War I, Congress often authorized borrowing for specified purposes, such as the construction of the Panama Canal. Congress also often specified which types of financial instruments Treasury could employ, and specified or limited interest rates, maturities, and details of when bonds could be redeemed. In other cases, especially in time of war, Congress provided the Treasury with discretion, subject to broad limits, to choose debt instruments. Some opponents raised concerns that granting the Treasury Secretary authority to issue debt could affect monetary policies, which might tighten credit conditions. Proponents contended that federal borrowing would not disrupt settlements on such monetary issues reached in 1878 and 1890. Such concerns became moot after the establishment of the Federal Reserve System in 1913.

For example, the War Revenue Act of 1898 allowed Treasury to use certificates of indebtedness, which had maturities of a year or less, and were used for short-term borrowing and cash management, as well as long-term bonds. For example, the 1898 War Revenue Act (30 Stat. 448-470) that funded Spanish-American War costs granted the Treasury Secretary the authority to have $100 million outstanding in certificates of indebtedness with maturities under a year, which were mainly sold to large investors, banks, and other financial institutions. The act also allowed the Treasury to issue $400 million in longer-term notes and bonds, which were made available to public subscription, allowing smaller investors to participate. Proponents of the act, however, made clear their intention to allow the Treasury Secretary substantial administrative leeway within those limits.

World War I and the Liberty Bond Acts

Over time, the leeway granted the Treasury Secretary tended to expand. For example, the Second Liberty Bond Act of 1917, which helped finance the United States' entry into World War I, dropped certain limits on the maturity and redemption of bonds. The act also incorporated unused borrowing capacity authorized by the First Liberty Bond Act (40 Stat 35; P.L. 65-3) and other previous borrowing acts. Separate limits for previous debt issues, however, were retained in the text of that act—an overall aggregated debt limit evolved later. Features of debt authorized by previous acts, such as the broad tax exemption for First Liberty Bond Act securities, remained intact.

Subsequent borrowing measures were drafted as amendments to Second Liberty Bond Act until 1982. Setting debt policy by amendments to the Second Liberty Bond Act of 1917 rather than through original statutes reflected changes in legislative drafting practices at that time.

In the 1920s, Congress provided Treasury Secretary Andrew Mellon with additional leeway in order to replace expensive older federal debt with cheaper new issues. Congress allowed Treasury to issue notes, a financial instrument issued extensively in the Civil War and rarely thereafter, and limited the amount of notes outstanding, rather than the sum of issuances, which gave greater Treasury flexibility to roll over debt. Savings certificates designed for small investors were also reintroduced.

Aggregate Debt Limit Created in 1930s

In the 1930s, Congress moved towards aggregate constraints on federal borrowing that allowed the Treasury greater ability to respond to changing conditions and more flexibility in financial management. In 1930, Treasury Secretary Mellon, noting that Liberty bonds would become ready for refinancing in the next few years, argued that "orderly and economical management of the public debt requires that the Treasury Department should have complete freedom in determining the character of securities to be issued and should not be confronted with any arbitrary limitation." Congress granted the U.S. Treasury greater flexibility in issuing bonds in 1931.

In 1935, Treasury Secretary Henry Morgenthau called for replacing a limit on bond issuance with a more flexible limit on the amount of outstanding bonds. This change underlined Treasury bonds' role as a means of managing federal finances rather than securities tied to specific projects or wars. Following that request, Congress then established a $20 billion limit on shorter-term debt and a $25 billion limit on outstanding bonds.

In March 1939, President Franklin Roosevelt and Secretary Morgenthau asked Congress to eliminate separate limits on bonds and on other types of debt. The House approved the measure (H.R. 5748) on March 23, 1939, and the Senate passed an amended version on June 1. On July 14, the amendment was withdrawn in the Senate after the House had disagreed, thus clearing the way for President Franklin Roosevelt's signature. When enacted on July 20, the law (P.L. 76-201) created the first aggregate limit ($45 billion) covering nearly all public debt. Combining a $30 billion limit on bonds with a $15 billion limit on shorter-term debt, while retaining the $45 billion total limit in effect, enabled Treasury to roll over maturing notes into longer-term bonds. This measure gave the Treasury freer rein to manage the federal debt as it saw fit. Thus, the Treasury could issue debt instruments with maturities that would reduce interest costs and minimize financial risks stemming from future interest rate changes. While a separate $4 billion limit for "National Defense" series securities was introduced in 1940, legislation in 1941 folded that borrowing authority back under an increased aggregate limit of $65 billion.

Although the Treasury was delegated greater independence of action on the eve of the United States' entry into World War II, the debt limit at the time was much closer to total federal debt than it had been at the end of World War I. For example, the 1919 Victory Liberty Bond Act (P.L. 65-328) raised the maximum allowable federal debt to $43 billion, far above the $25.5 billion in total federal debt at the end of FY1919. By contrast, the debt limit in 1939 was $45 billion, only about 10% above the $40.4 billion total federal debt of that time.

World War II and After

The debt ceiling was raised to accommodate accumulating costs for World War II in each year from 1941 until 1945, when it was set at $300 billion. After World War II ended, the debt limit was reduced to $275 billion. Because the Korean War was mostly financed a pay-as-you-go basis rather than by increased debt, the limit remained at $275 billion until 1954. The Eisenhower Administration had requested an increase in the 1953 State of the Union address, but Congress declined to raise the limit until it approved a temporary increase in August 1954. Two more temporary increases followed, but the limit reverted to $275 billion in July 1957. Congress declined to raise the limit until the following February, in part to "compel more economy of efficiency, better management of money and manpower in the defense program."

In March 1962, the debt limit reached $300 billion, its level at the end of World War II. Since then, Congress has enacted 78 separate measures that have altered the limit on federal debt. Most debt limit changes were relatively small compared to changes adopted in wartime or during the Great Depression. Some recent increases in the debt limit, however, were large in dollar terms. For instance, the debt limit was increased by $1.9 trillion ( P.L. 111-139 ) in February 2010.

The Debt Ceiling in the Past Decade

During the four years (FY1998-FY2001) the government ran surpluses, federal debt held by intergovernmental accounts grew by $855 billion and debt held by the public fell by almost $450 billion. Since FY2001, however, debt held by the public has grown due to persistent and substantial budget deficits. Debt held in government accounts also has grown, in large part because Social Security payroll taxes have exceeded payments of beneficiaries. Table 1 shows components of debt in current dollars and as percentages of gross domestic product (GDP) since FY1996. Figure 1 shows the components of federal debt as shares of gross domestic product (GDP) from FY1940 through FY2014, along with Administration projections through FY2019. Table 2 provides information on debt limit increases from 1993 to 2014.

Federal debt held by government accounts has grown steadily since 1982, in part due to increases in Social Security taxes passed following recommendations of the 1983 Greenspan Commission, and reflecting the transition of the baby boom generation into its peak earnings years.

Debt held by the public, which changes in response to total surpluses or deficits, grew as a share of GDP through the mid-1990s. After FY1992, deficits shrank, and from FY1998 through FY2001 the federal government ran surpluses. Those surpluses, along with rapid GDP growth, reduced debt held by the public as a percentage of GDP. When large deficits returned and GDP growth slowed in the early 2000s, debt held by the public as a share of GDP again increased.

The Debt Limit Issue in 2002

Accumulating debt in government accounts produced most of the pressure on the debt limit that occurred early in 2002. As deficits reemerged in FY2002, increases in debt held by the public added to the pressure on the debt limit in the spring of 2002. During the four fiscal years with surpluses (FY1998-FY2001), the increases in federally held debt and decreases in debt held by the public produced a net increase of $405 billion in total debt subject to limit. At the beginning of FY2002 (October 1, 2001), debt subject to limit was within $217 billion of the existing $5,950 billion debt limit. Between then and the end of May 2002, debt subject to limit increased by another $217 billion, divided between a $117 billion increase in debt held by government accounts and a $100 billion increase in debt held by the public, putting the debt close to the $5,950 billion limit.

In the fall of 2001, the Administration recognized that a deteriorating budget outlook and continued growth in debt held by government accounts were likely to lead to the debt limit soon being reached. In early December 2001, it asked Congress to raise the debt limit by $750 billion to $6,700 billion. As the debt moved closer to and reached the debt limit over the first six months of FY2002, the Administration asked Congress repeatedly to increase the debt limit, warning of adverse financial consequences were the limit not raised.

On April 4, 2002, the Treasury held debt below the limit by invoking its legislatively mandated authority to suspend reinvestment of government securities in the G-Fund of the federal employees' Thrift Savings Plan (TSP). This allowed the Treasury to issue new debt and meet the government's obligations. On April 15, debt subject to limit stood at $5,949,975 million, just $25 million below the limit. Once April 15 tax revenues flowed in, the Treasury "made whole" the G-Fund by restoring all of the debt that had not been issued to the TSP over this period and crediting the fund with interest it would have earned on that debt. By the end of April, debt subject to limit had fallen back $35 billion below the limit.

Resolving the Debt Limit Issue in 2002

By the middle of May 2002, debt subject to limit had again risen to within $15 million of the statutory limit. At the FY2002 average spending rate, $15 million equaled about five minutes of federal outlays. The Treasury, for the second time in 2002, used its statutory authority to avoid a default. The Treasury's financing problems, however, would persist without an increase in the debt limit. On May 14, the Treasury asked Congress to raise the debt limit or enact other statutory changes allowing the Treasury to issue new debt. A Treasury news release stated "absent extraordinary actions, the government will exceed the statutory debt ceiling no later than May 16," and that

a "debt issuance suspension period" will begin no later than May 16 [2002].... [This] allows the Treasury to suspend or redeem investments in two trust funds, which will provide flexibility to fund the operations of the government during this period.

The Treasury reduced federal debt held by these government accounts by replacing it with non-interest-bearing, non-debt instruments, which enabled it to issue new debt to meet the government's obligations. The Treasury claimed these extraordinary actions would suffice, at the latest, through June 28, 2002. Without a debt limit increase by that date, the Treasury indicated it would need to take other actions to avoid breaching the ceiling. By June 21, the Treasury had postponed a regular securities auction, but took no other actions. With large payments and other obligations due at the end of June and at the beginning of July, the Treasury stated it would soon exhaust all options to issue debt and fulfill government obligations, putting the government on the verge of a default.

During May and June 2002, Congress took steps to increase the debt limit. The FY2002 supplemental appropriations bill ( H.R. 4775 ) passed by the House on May 24 included, after extended debate, language allowing any eventual House-Senate conference on the legislation to increase the debt limit. However, the Senate's supplemental appropriations bill ( S. 2551 ; incorporated as an amendment to H.R. 4775 , June 3, 2002) omitted debt-limit-increasing language. The Senate leadership expressed strong reluctance to include a debt limit increase in the supplemental appropriation bill. Instead, on June 11, the Senate adopted a bill ( S. 2578 ), without debate, to raise the debt limit by $450 billion to $6,400 billion. At that time, a $450 billion debt limit increase was thought to provide enough borrowing authority for government operations through the rest of calendar year 2002, if not through the summer of 2003. With the possibility of default looming over it, the House passed the $450 billion debt limit increase by a single vote on June 27. The President signed the bill into law on June 28 ( P.L. 107-199 , 116 Stat. 734), ending the 2002 debt limit crisis.

The Debt Limit Issue in 2003

On Christmas Eve, 2002, Kenneth Dam, Deputy Secretary of the Treasury, sent a letter to Congress requesting an unspecified increase in the debt limit by late February 2003, signaling that the $6,400 billion debt limit would then be reached. The 108 th Congress, still in the process of organizing itself, did not immediately respond. Through the winter and into the spring, the Treasury repeatedly requested that the debt limit be raised to avoid serious financial problems. By February 20, 2003, the Treasury, as in 2002, used legislatively mandated measures to manage debt holdings of certain government accounts to avoid reaching the debt limit. These actions included the replacement of internally held government debt with non-debt instruments in certain government accounts and not issuing new debt to these accounts. These actions allowed the Treasury to issue additional debt to the public to acquire the cash needed to pay for the government's commitments or to issue new debt to other federal accounts.

Through the rest of February and into May, the Treasury held debt subject to limit $15 million below the debt ceiling. The adoption of the conference report on the FY2004 budget resolution ( H.Con.Res. 95 ; H.Rept. 108-71 ) on April 11, 2003, in the House triggered the "Gephardt rule" (House Rule XXVII) that deems to have passed legislation (in this case, H.J.Res. 51 ) raising the debt limit to accommodate the spending and revenue levels approved in the adopted budget resolution.

The Senate received the debt-limit legislation on April 11, but did not act until May 23, after receiving further Treasury warnings of imminent default. On that day, debt subject to limit was $25 million (or 0.0004%) below the existing $6,400 billion limit. The Senate adopted the legislation, after rejecting eight amendments and sent it to the President, who signed it on May 27. This legislation raised the debt limit to $7,384 billion ( P.L. 108-24 , 117 Stat. 710).

The Debt Limit Issue in 2004

In January 2004, CBO estimated that the debt limit, then set at $7,384 billion, would be reached the following summer. In June 2004, the Treasury asked Congress to raise the debt limit in order to avoid the disruptions to government finances experienced in the previous two years. In August, and again in September, the Treasury declared that the debt limit would be reached in the first half of October. On October 14, debt subject to limit reached $7,383,975 million, just $25 million below the existing limit. The Treasury employed methods used in the previous two years to keep debt under the legal limit. On October 14, Secretary of the Treasury John Snow informed Congress, just before the election recess, that available measures to avoid breaching the debt limit would be exhausted by mid-November. Without an increase in the debt limit, the Treasury would be unable to meet all of the government's existing obligations, which could undermine the U.S. government's reputation in capital markets and raise costs of federal borrowing.

Although the House passed a budget resolution for FY2005 in the spring of 2004, it did not reach final agreement with the Senate on the measure. Without a budget resolution passed by Congress, no resolution to raise the debt limit could be deemed passed by the House automatically under the Gephardt rule. Consequently, no measure was available to send to the Senate. As the debt approached the limit through the summer and into the fall, no legislation was moved to raise the debt limit.

Earlier, in September 2004, the House had added an amendment to the FY2005 Transportation-Treasury appropriations ( H.R. 5025 ) in an effort to remove the Treasury's flexibility in financing the government as federal debt approached and reached the existing limit. Without that flexibility, the government would be unable to meet its financial obligations as the amount of debt neared the limit. The legislation cleared the House, but the Senate did not act on it.

After the elections, Senator Frist, on November 16, 2004, introduced legislation ( S. 2986 ) to raise the debt limit by $800 billion, from $7,384 billion to $8,184 billion. The Senate approved the increase on November 17, 2004. The House considered and approved the increase on November 18. The President signed the legislation into law ( P.L. 108-415 , 118 Stat. 2337) on November 19, 2004. Estimates made at that time anticipated the new limit would be reached between August and December 2005.

Shortly before the increase in the debt limit, the Treasury delayed a debt auction and informed Congress that it would invoke a "debt limit suspension period" as it had in previous years. The increase in the debt limit in mid-November allowed the Treasury to reschedule the debt auction and cancel, before it began, the "debt limit suspension period."

The Debt Limit Issue in 2005, 2006, and 2007

Debt limit increases in 2005, 2006, and 2007 took a less dramatic path than those in President Bush's first term. In 2005, Congress included three reconciliation instructions in the FY2006 budget resolution ( H.Con.Res. 95 , 109 th Congress; April 28, 2005), the third of which directed the House Committee on Ways and Means and the Senate Finance Committee to report bills raising the debt limit. The instructions specified a $781 billion debt limit increase, to $8,965 billion, with a reporting date of no later than September 30, 2005. Neither committee reported a bill to raise the debt limit.

The adoption of the conference report on the FY2006 budget resolution in late April 2005 also triggered the Gephardt rule (House Rule XXVII), producing a House Joint Resolution ( H.J.Res. 47 ) that also would raise the debt limit by $781 billion to $8,965 billion. Under the rule, the resolution was automatically deemed passed by the House and sent to the Senate. Through the end of the first session of the 109 th Congress, the Senate had not considered H.J.Res. 47 , nor had Congress considered a reconciliation bill raising the debt limit as called for in the budget resolution.

At the end of December 2005, Secretary of the Treasury Snow wrote Congress that the debt limit would probably be reached in mid-February 2006, although the Treasury could take actions that maintain the debt below its limit until mid-March. He therefore requested an increase in the debt limit. In two more letters, sent on February 19 and March 6, Secretary Snow advised Congress that the Treasury was taking measures within its legal discretion to avoid reaching the limit and that these measures would suffice only until the middle of March 2006. Secretary Snow authorized actions used previously by the Treasury, including declaring a debt issuance suspension period. As March began, the government was again close to becoming unable to meet its obligations. During the week of March 13 the Senate took up H.J.Res. 47 . On March 16, the Senate passed a debt limit increase after rejecting several amendments. The President's signature on March 20, 2006, then raised the debt limit ( P.L. 109-182 ) to $8,965 billion.

In mid-May 2007, Congress passed the conference report ( H.Rept. 110-153 ) on the FY2008 budget resolution. The House's Gephardt rule, triggered by the adoption of the conference report on the budget resolution, resulted in the automatic engrossment of a joint resolution (in this case, H.J.Res. 43 , 110 th Congress) raising the debt limit by $850 billion to $9,815 billion, and sending it to the Senate. At the end of July 2007, the Treasury asked Congress to raise the debt limit, stating the limit would be reached in early October 2007. In August, the CBO Director said that projections suggested that the limit would be reached in late October or early November. Without an increase, the Treasury indicated that it would take steps within its legal authority to avoid exceeding the debt limit. The Senate Finance Committee approved the House resolution ( H.J.Res. 43 ) without changes on September 12, 2007. The Senate then passed the measure on September 27, which the President signed on September 29, 2007 ( P.L. 110-91 ).

The Economic Slowdown and Federal Debt

Fiscal Policy Considerations

Financial markets started showing signs of turmoil in mid-2007 and experienced a serious crisis in 2008. By late 2007, a serious recession had begun, which lasted until 2009. The financial crisis and recession led to federal actions taken to stabilize the housing and financial markets. The economic slowdown began with a rapid deceleration of housing prices and a rise in interest rate spreads between private lending rates and benchmark Federal Reserve rates, indicating an increasing reluctance of major financial institutions to lend to each other as well as to firms and individuals. This spurred several major actions to unfreeze credit markets, boost consumption, and increase spending.

The recession also reduced federal revenues and increased federal spending, which led to large deficits and a series of debt limit increases. The federal deficit spending spiked to 9.8% of GDP. While federal deficits have been declining since FY2009, the economic recovery has been weak compared to recoveries following other post-World War II recessions.

Economic recession affects the federal deficit in several ways. First, falling prices of many assets and equities can sharply reduce federal revenues from capital gains taxes and from the corporate tax. Second, individual income taxes, the largest component of federal revenues, may also fall if jobs are cut and unemployment increases due to economic conditions. Third, "automatic stabilizers" such as unemployment insurance and income support programs pay out more money as unemployment rises and the number of households eligible for means-tested benefits rises, thus increasing federal spending.

Boosting the economy through deficit spending provides a fiscal stimulus if the output levels of goods and services produced in the nation are below their potential levels. Deficit spending, however, can help accelerate inflation if output levels are near or at potential levels, and in addition, exacerbates long-term fiscal challenges.

Raising the Debt Ceiling in 2008, 2009, and 2010

In a March 2008 report, CBO estimated the President's budget would lead to a $396 billion deficit in FY2008 and a $342 billion deficit in FY2009. The actual deficit for FY2008 reached $455 billion. In August 2009, CBO estimated the deficit would total $1,587 billion in FY2009 and $1,381 billion in FY2010. As a result of the current economic conditions and the actions of the federal government to bring the economy out of recession, the federal debt limit was raised twice in the second half of 2008 and twice in 2009.

The House Concurrent Resolution on the Budget ( H.Con.Res. 312 ) recommended policies that would result in a $10,200 billion debt in FY2009. The Senate Concurrent Resolution on the Budget ( S.Con.Res. 70 ) recommended policies that would result in a total debt of $10,278 billion in FY2009. Implementing either set of policies would require an increase in the federal debt limit. The conference agreement ( H.Rept. 110-659 ) also recommended spending levels that would lead to a debt subject to limit of $10,207 billion in FY2009, a level that would require an increase in the statutory debt limit. The budget conference report passed the Senate on a 48-45 vote on June 4, 2008. The House passed the measure on the next day by a 214-210 vote. Agreement on the FY2009 budget resolution automatically created and deemed passed in the House legislation ( H.J.Res. 92 ) that would increase the debt limit from its current level of $9,815 billion to $10,615 billion. Because the Senate did not take up H.J.Res. 92 , the debt limit remained at $9,815 billion.

Subsequently, the House passed an amended version of the Housing and Economic Recovery Act of 2008 ( H.R. 3221 ) by a vote of 272-152 that included a debt limit increase to $10,615 billion on July 23, 2008. The Senate then passed the measure on July 26 on a 72-13 vote. The President signed the bill on July 30 ( P.L. 110-289 ), increasing the debt limit. In addition to increasing the debt limit, the act also contained provisions that would temporarily authorize the Secretary of the Treasury to extend a line of credit to mortgage guarantee agencies Freddie Mac and Fannie Mae. The act also created the a new independent agency called the Federal Housing Finance Agency (FHFA), which replaced the Department of Housing and Urban Development Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB).

While CBO indicated that it was more likely than not that such intervention would not be needed, it also estimated a 5% chance of a cost to taxpayers of more than $100 billion. Because debt subject to limit was just $339 billion less than the debt ceiling of $9,815 billion when the Senate passed H.R. 3221 , some financial market participants may have worried that the debt limit, without an increase, might have hindered the Treasury Secretary's ability to intervene to support Freddie Mac and Fannie Mae. On September 7, 2008, the FHFA placed Fannie Mae and Freddie Mac in conservatorship, providing FHFA with the full powers to control the assets and operations of the firms.

Since the deprivatization of Fannie Mae and Freddie Mac, the federal government has acted to provide stability to financial markets. On September 20, 2008, the U.S. Treasury submitted a proposal to Congress to authorize the Treasury Secretary to buy mortgage-related assets in order to stabilize financial markets. The Treasury proposal would allow Treasury holdings of mortgage-related securities up to $700 billion and would raise the debt limit to $11,315 billion.

Representative Barney Frank proposed an amendment (Emergency Economic Stabilization Act of 2008) to a vehicle measure ( H.R. 3997 ) that incorporated the main tenets of the Treasury proposal including raising the debt limit to $11,315 billion. On September 29, 2008, however, the House rejected that amendment.

On October 1, 2008, the Senate voted on, and passed, a different version of the Emergency Economic Stabilization Act of 2008 ( H.R. 1424 ) that included the same debt limit increase. The House passed H.R. 1424 on October 3, 2008, and it was signed into law by the President ( P.L. 110-343 ) on the same day, raising the debt limit to $11,315 billion.

Current economic conditions led Congress to consider another economic stimulus measure. This measure contains both tax cuts and spending increases, which will increase the deficit by reducing revenues and increasing outlays. The American Recovery and Reinvestment Act of 2009 (ARRA) as passed by the Senate on February 10, 2009 (Division B of the Senate Substitute amendment to H.R. 1 and S. 350 ), contained a provision which would raise the debt limit to $12,140 billion. The version of this legislation originally passed by the House omitted this provision. The final conference agreement on ARRA was passed by the House and Senate on February 13, 2009, and signed by the President on February 17, 2009 ( P.L. 111-5 ). This measure contained a provision increasing the debt limit to $12,104 billion.

The conference report on the Concurrent Resolution on the Budget for FY2010 ( S.Con.Res. 13 ) recommended policies that would lead to a debt subject to limit of $13,233 billion in FY2010, a level that would require an increase in the statutory debt limit. The budget resolution also contained a revised estimate of debt subject to limit of $12,016 billion for FY2009. The adoption of this conference report on April 29, 2009, triggered the Gephardt rule (House Rule XXVII), producing a House Joint Resolution ( H.J.Res. 45 ) that would raise the debt limit by $925 billion to $13,029 billion. Under the rule, the resolution was automatically deemed passed by the House and sent to the Senate.

In August 2009, according to media reports, Secretary of the Treasury Timothy Geithner notified Congress that the debt limit would be reached in mid-October. On November 4, the U.S. Treasury announced that it could postpone the time when federal debt would reach its statutory limit until the middle or the end of December. Treasury dropped nearly $185 billion from its balance sheet by reducing the amount of loans available through the Supplemental Financing Program, an emergency loan program created in the days following Lehman Brothers' bankruptcy, from $200 billion to $15 billion, which extended the time until the debt limit would be reached. According to media reports, the Obama Administration also contemplated scaling back the Troubled Asset Relief Program (TARP), which could also lower federal debt subject to statutory limit. Repayments of TARP funds by major financial institutions could also lower the amount of debt subject to limit. Other measures, such as those taken in 2003 during a "debt issuance suspension period" (described above), could also have extended the U.S. Treasury's ability to operate within the debt limit. On the other hand, the U.S. Treasury was scheduled to issue $48 billion of nonmarketable securities to the FDIC on December 30 and to make interest payments to various federal trust funds on December 31 totaling about $100 billion, according to Wall Street analysts, which in the absence of a debt limit increase, could have challenged Treasury's debt management activities in the absence of special accounting measures.

In mid-December, according to media reports, senior Members of the House chose to forgo a larger increase in the debt limit in favor of a smaller increase in the debt limit that would allow the U.S. Department of the Treasury to continue normal debt management operations for two months or so. H.R. 4314 , a measure to raise the debt limit to $12,394 billion, was introduced on December 15, 2009, and passed by the House the next day on a 218-214 vote. The Senate passed it on December 24 by a 60-39 vote, and the President signed the measure on December 28. On January 28, the Senate passed an amended version of H.J.Res. 45 on a 60-39 vote. The measure would raise the debt ceiling by $1,900 billion, to $14,294 billion. In addition, one amendment to impose certain pay-as-you-go (PAYGO) restrictions was approved on a 60-40 vote.

Some Members of Congress have called for the creation of a national commission to address federal debt and the government's fiscal situation, which could be enabled through a measure linked to an increase in the debt limit. An amendment (to S.Amdt. 3299) to H.J.Res. 45 that would have established a "Bipartisan Task Force for Responsible Fiscal Action" was not approved on a 53-46 vote, having failed to reach 60 votes, on January 26, 2010. President Obama then charged a National Commission on Fiscal Responsibility and Reform (Fiscal Commission) with identifying "policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run." The Fiscal Commission issued a report on December 1, 2010, and several commissioners issued their own fiscal proposals as well.

The House approved H.J.Res. 45 on a 233-187 vote on February 4, forwarding the measure to the President. The Obama Administration had previously voiced its strong support for a debt limit increase. The President signed the measure ( P.L. 111-139 ) on February 12, 2010.

Raising the Debt Ceiling in 2011

The 2011 debt limit episode was longer and more contentious compared to those that preceded it. The 2011 episode was resolved by passage of the Budget Control Act of 2011, which reinstated statutory caps on discretionary spending and created other means of constraining federal spending.

Secretary Geithner Invokes Extraordinary Measures in May 2011

On May 16, 2011, U.S. Treasury Secretary Timothy Geithner announced that the federal debt had reached its statutory limit and declared a debt issuance suspension period, which would allow certain extraordinary measures to extend Treasury's borrowing capacity until about August 2, 2011. On July 1, 2011, the U.S. Treasury confirmed its view that its borrowing authority would be exhausted on that day.

While many of the extraordinary measures have been used by previous Treasury Secretaries, the funding provided by those measures may buy much less time than in previous debt limit episodes. Given the size of the FY2011 federal deficit, projected to reach $1,399 billion according to the latest Congressional Budget Office (CBO) baseline estimates, those extraordinary measures may provide limited additional time before the federal government becomes unable to meet its financial obligations.

Slowing the growth in federal debt by cutting spending had been suggested by some commentators as a means of avoiding an increase in the debt limit. The scale of required spending reductions, as of late spring 2011, would likely have approximately equaled total discretionary spending for the last five months of FY2011, which ended on September 30, 2011.

On July 15, the U.S. Treasury announced that it had suspended reinvestment in the Exchange Stabilization Fund, one of the last available extraordinary measures before its borrowing authority (according to Treasury projections) would be exhausted on August 2. One analyst, who had not expected this step to be taken until August 1, stated that the U.S. Treasury may have less headroom for cash management than previously anticipated. Thus, funding federal operations could soon become increasingly complicated without a debt limit increase. An independent analysis of Treasury cash flows, based on imputations from past Treasury reports, projects that from August 3 through the end of the month, cash inflows would total $174.4 billion, about $134.3 billion less than projected outflows of $306.7 billion. Cash flow projections are subject to significant uncertainties.

Treasury estimates of when the debt limit would begin to bind and how long extraordinary measures would suffice to meet federal obligations have shifted since the Treasury Secretary's January 6, 2011, letter to Congress requesting a debt limit increase. Higher individual income tax revenues helped expand the headroom between the federal debt and its limit in late April. Sales of mortgage-backed securities (MBSs) also provided a relatively small amount of additional headroom. Estimates calculated by others of when Treasury would reach the debt limit and how long extraordinary measures would extend federal borrowing capacity have typically been close to Treasury's estimates. Such estimates require analysis of federal spending patterns, the pace of federal debt redemptions and refinancings, and the inflow of receipts, each of which is subject to uncertainties.

The Treasury Secretary, in a letter to Congress dated May 2, 2011, had indicated that he would declare a debt issuance suspension period on May 16, unless Congress acted beforehand, which would allow certain extraordinary measures to extend Treasury's borrowing capacity until early August 2011. Certain measures that rely on the Treasury Secretary's existing authority, such as the draw-down of the Supplementary Financing Program (SFP), have already taken place. The SFP, an initiative intended to help manage monetary policy, had been drawn down from $200 billion to $5 billion to provide additional headroom under the limit. New issues of State and Local Government Series (SLGS) Treasury securities were suspended on May 6, 2011.

On January 6, 2011, Treasury Secretary Geithner sent a letter to Senate Majority Leader Harry Reid requesting an increase in the debt limit. At that time, Secretary Geithner stated that federal debt would likely reach its statutory limit between March 31 and May 16, 2011. On April 4, the Treasury Secretary wrote Congress that estimates indicated that federal debt would reach its limit between April 15 and May 31, 2011. The U.S. Treasury had also previously projected that its borrowing capacity, even using extraordinary measures, would be exhausted about July 8, 2011.

A bill (H.R. 1954) to raise the debt limit to $16,700 billion was introduced on May 24 and was defeated in a May 31, 2011, House vote of 97 to 318. The House passed the Cut, Cap, and Balance Act of 2011 (H.R. 2560; 234-190 vote) on July 19, 2011. On July 22, the Senate tabled the bill on a 51-46 vote. The measure would have increased the statutory limit on federal debt from $14,294 billion to $16,700 billion once a proposal for a constitutional amendment requiring a balanced federal budget was transmitted to the states.

The Budget Control Act of 2011

On July 25, 2011, legislation entitled the Budget Control Act of 2011 was introduced in different forms by both House Speaker Boehner (House Substitute Amendment to S. 627 ) and Majority Leader Reid (S.Amdt. 581 to S. 1323). Subsequently, on August 2, 2011, President Obama signed into law a revised compromise measure (Budget Control Act; BCA; P.L. 112-25), following House approval by a vote of 269-161 on August 1, 2011, and Senate approval by a vote of 74-26 on August 2, 2011, which eliminated the need for further increases in the debt limit until early 2013.

The BCA included numerous provisions aimed at deficit reduction in tandem with provisions allowing a series of increases in the debt limit of up to $2,400 billion ($2.4 trillion) subject to certain conditions. Major provisions of the BCA

imposed discretionary spending caps, enforced by automatic spending reductions, referred to as a sequester; established a Joint Select Committee on Deficit Reduction, whose recommendations would be eligible for expedited consideration; required a vote on a joint resolution on a proposed constitutional amendment to mandate a balanced federal budget; and instituted a mechanism allowing for the President and the Treasury Secretary to raise the debt ceiling, subject to congressional disapproval.

Debt Limit Increases Under the BCA

The legislation provides a three-step procedure by which the debt limit can be increased. First, the debt limit was raised by $400 billion, to $14,694 billion on August 2, 2011, following a certification of the President that the debt was within $100 billion of its legal limit.

A second increase of $500 billion occurred on September 22, 2011, which was also triggered by the President's certification of August 2. The second increase, scheduled for 50 days after that certification, was subject to a joint resolution of disapproval. Because such a resolution could be vetoed, blocking a debt limit increase would be challenging. The Senate rejected a disapproval measure (S.J.Res. 25) on September 8, 2011, on a 45-52 vote. The House passed a disapproval measure (H.J.Res. 77) on a 232-186 vote, although the Senate declined to act on that measure.

In late December 2011, the debt limit came within $100 billion of its statutory limit, which triggered a provision allowing the President to issue a certification that would lead to a third increase of $1.2 trillion. That increase was also subject to a joint resolution of disapproval. The President reportedly delayed that request to allow Congress to consider a disapproval measure.

The third increase could also have been triggered in two other ways. A debt limit increase of $1.5 trillion would have been permitted if the states had received a balanced budget amendment for ratification. A measure (H.J.Res. 2) to accomplish that, however, failed to reach the constitutionally mandated two-thirds threshold in the House in a 261–165 vote held on November 18, 2011. The debt limit could also have been increased by between $1.2 trillion and $1.5 trillion had recommendations from the Joint Select Committee on Deficit Reduction, popularly known as the Super Committee, been reported to and passed by each chamber. If those recommendations had been estimated to achieve an amount between $1.2 trillion and $1.5 trillion, the debt limit increase would be matched to that figure. The Joint Select Committee, however, was unable to agree on a set of recommendations. As neither of these two other options apply, the third increase in the debt limit was $1.2 trillion, matching budget reductions slated to be made through sequestration and related mechanisms over the FY2013-FY2021 period.

The Debt Limit After 2011

This section provides a brief summary of debt limit policy developments after 2011. A more extensive analysis of recent debt limit developments since 2012 can be found in CRS Report R43389, The Debt Limit Since 2011 , by [author name scrubbed].

Debt Limit Suspended in Early 2012

The debt limit increases permitted through the BCA were sufficient to meet federal obligations until the last day of 2012. Treasury Secretary Geithner again invoked extraordinary measures that were expected to last until mid-February to mid-March. On January 23, 2013, the House passed H.R. 325, a measure to suspend the debt limit until May 19, 2013, on a 285-144 vote. A new debt limit would then be set on May 19. The Senate passed the measure on January 31 on a 64-34 vote; it was then signed into law (P.L. 113-3) on February 4. Enactment of that law allowed the U.S. Treasury to replenish funds that had been used to meet federal payments, thus resetting its ability to use extraordinary measures.

Debt Limit Suspension Expires in May 2013

Once the debt limit suspension lapsed after May 18, 2013, the U.S. Treasury reset the debt limit at $16,699 billion, or $305 billion above the previous statutory limit. On May 20, 2013, the first business day after the expiration of the suspension, debt subject to limit was just $25 million below the limit. Treasury Secretary Jacob Lew, who succeeded Timothy Geithner, notified Congress on that day that he had declared a new debt issuance suspension period (DISP), triggering authorities that allow the Treasury Secretary to use extraordinary measures. Secretary Lew sent several other notices to Congress that included updated forecasts of the expected date when the U.S. Treasury's borrowing capacity would be exhausted. That date was pushed back due to stronger than expected revenue collections along with special dividends from mortgage giants Fannie Mae and Freddie Mac. Secretary Lew's September 25, 2013, letter to Congress stated the U.S. Treasury expected that it would exhaust its borrowing capacity no later than October 17.

Debt Limit Suspended Again as Part of Package to End Government Shutdown in October 2013

The evening before October 17, 2013, when the U.S. Treasury's borrowing capacity was projected to be exhausted, Congress passed a continuing resolution (Continuing Appropriations Act, 2014; H.R. 2775; P.L. 113-46), which ended the shutdown of the federal government that had commenced at the start of the federal fiscal year on October 1 and included a provision to suspend the debt limit until February 8, 2014.

Debt Limit Reinstated in March 2015

After the suspension ended on February 7, 2014, the U.S. Treasury reset the debt limit to $17,212 billion and the Treasury Secretary invoked authorities to use various extraordinary measures. Congress, however, moved quickly in the following week to address the debt limit issue. On February 11, the House approved a measure to suspend the debt limit until March 15, 2015. The Senate concurred the next day and the President signed the measure ( P.L. 113-83 ) on February 15, 2014.

Extraordinary Measures Projected to Last Until Early November 2015

Once the debt limit suspension expired on March 16, 2015, the limit was reestablished at $18,113 billion. On that day, Treasury Secretary Lew invoked authorities to employ the same set of extraordinary measures that have been used in recent years. Those authorities were invoked for a debt issuance suspension period set to extend until July 30, 2015. On July 30, 2015, Treasury Secretary Lew sent congressional leaders a letter to invoke extraordinary powers until the end of October. Secretary Lew indicated in a separate letter, sent the previous day, that those extraordinary measures would enable the U.S. Treasury to meet federal financial obligations "for at least a brief additional period of time" after the end of October.

On October 15, 2015, Secretary Lew stated that extraordinary measures would be exhausted "no later than" November 3, 2015, although a relatively small cash reserve—projected at less than $30 billion—would be on hand. Secretary Lew had previously stated that extraordinary measures would be exhausted about November 5, 2015. Lower tax collections and higher trust fund investments, however, reduced Treasury's headroom more than had been previously expected. Early in the year, independent analysts expected those measures to suffice to meet federal obligations until November or even early December 2015. More recent estimates in September 2015 put that date closer to mid-November 2015. Such projections are subject to uncertainties related to fiscal policy changes and economic conditions.

Bipartisan Budget Act of 2015 and Another Debt Limit Suspension

On October 26, 2015, text of a "Bipartisan Budget Agreement" was released, which addressed several outstanding fiscal issues, including the debt limit. Under terms of the agreement, the debt limit would then be reset on March 16, 2017, at a level reflecting payment of federal obligations during the suspension period. As with previous debt limit suspensions, the measure prohibits the U.S. Treasury from creating a cash reserve beyond amounts necessary to meet federal obligations during the suspension period. The agreement would also increase statutory caps on discretionary spending for FY2016 and FY2017, along with measures aimed at offsetting those increases.

On October 28, 2015, the House concurred with a modified version of Senate amendments to H.R. 1314 , which became known as the Bipartisan Budget Act of 2015 (BBA 2015). The Senate approved that modified version on October 30, 2015, sending the measure to the President, who signed it ( P.L. 114-74 ) on November 2, 2015.

Concluding Comments

From FY1998 through FY2001, the federal government ran budget surpluses that reduced its debt. In early 2001, the 10-year budget forecasts projected large and growing surpluses, indicating rapid reduction in debt held by the public. Some experts had even expressed concern about consequences of retiring all federal debt held by the public. Had such projections been fulfilled, the debt limit issue would have been mooted for the rest of the decade.

The short span of surpluses again turned to a longer string of deficits due to the combined effects of higher military and security spending following the attacks of September 11, 2001; rising nondefense outlays in areas such as education, veterans' care and benefits, and tax reductions in 2001 and 2003; as well as the expiration of statutory caps on discretionary spending in 2002.

The financial crisis of 2007-2009 and the subsequent economic recession led to large federal deficits that accelerated the growth of total debt, which necessitated a series of debt limit increases. Past experience suggests that direct fiscal costs of a financial crisis, such as costs of bailing out financial institutions, are dwarfed by the effects of diminished tax revenues and elevated social safety net benefits.

While the 2011 debt limit episode reflected a growing concern with the fiscal sustainability, fiscal issues have since become less prominent. Since then, the scale of federal deficits has diminished as economic recovery has progressed. For instance, the FY2015 federal deficit was 2.5% of GDP, while the FY2009 deficit was 9.8% of GDP. In addition, federal health program costs and net interest expenses have risen less rapidly than previously expected. Nonetheless, over the next decade, without major changes in federal policies, persistent and possibly growing deficits, would substantially increase federal debt. CBO has been warning for several years that the current trajectory of federal borrowing is unsustainable and could lead to slower economic growth in the long run as debt rises as a percentage of GDP. Unless federal policies change, Congress would repeatedly face demands to raise the debt limit to accommodate the growing federal debt in order to provide the government with the means to meet its financial obligations.

Debt Subject to Limit by Month Since September 2001

Table A-1 provides data on the dollar amount, in current dollars, of federal debt and the changes in these amounts by month between the end of September 2001 (the end of FY2001) and the end of September 2015. The table shows outstanding monthly balances, subject to the debt limit, of total federal debt, debt held by government accounts, and debt held by the public.

All three measures of debt subject to limit have increased since the end of FY2001, the last year in which the federal government ran a budget surplus. From the end of September 2001 (the end of FY2001) to the end of September 2015, total federal debt increased by $12,380 billion, debt held in government accounts increased by $2,566 billion, and debt held by the public increased by $9,813 billion.

All three measures experienced periodic reductions in some months. Because federal receipts and outlays are spread unevenly over the fiscal year, debt may rise or fall in a given month, even if debt measures follow an overall increasing trend.

Major Debt Measures Before the Entry of United States into World War II