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![handle is hein.crs/govejmi0001 and id is 1 raw text is: Updated November 22, 2022
The Debt Limit
Overview
The debt limit places a s tatutory constraint on the amount of
money that Treasury may borrow to fund federal
operations. Federal debt is projected to reach the current
debt limit, set at $31.385 trillion, sometime in 2023.
Congress may debate the merits of various debt limit
modifications in advance of reaching the limit, or later if
Treasury implements extraordinary measures to prevent a
binding debt limit before the limit is reached. This In Focus
provides background information and discusses recent
legislative activity.
More information on the debt limit can be found in CRS
Report R41633, Reaching the DebtLimit: Backgroundand
Potential Effects on Government Operations; CRS Report
R43389, The Debt Limit Since 2011; CRS Report R45011,
Clearing the Airon the Debt Limit; and CRS Report
R44383, Deficits, Debt, andthe Economy: An Introduction.
Rat
. and Role of the Debt Lin
The Constitution grants Congress the power of the purse,
which allows Congress to restrict the amount of federal
debt. Undercurrent law Congress exercises this power
through the federal debt limit, which is codified at 31
U.S.C. §3101. Debt subjectto limit is more than 99% of
total federaldebt, and includes debt held by thepublic
(which is used to finance budget deficits) and debt is sued to
federal government accounts (which is used to meet federal
obligations).
Federal debt increases when total expenditures exceed total
receipts (producing a budget deficit). Expansionofthe
federal lending portfolio, through programs like college
studentloans, also increases federal debt levels. Periods of
sustained debtincreases bring debtlevels near the debt
limit. CBO's May 2022 baseline projected that the debt
subject to limit will be $36.9 trillion at the end of FY2027
and $45.4 trillion by the end of FY2032; debt held by the
public is forecast to equal $30.3 trillion and $40.2 trillion in
those respective years.
The federaldebt limit acts as a check to ensure that recent
revenue and expenditure trends meet the approvalof
Congress. However, the federal collection and spending
decisions affectingdebt levels may havebeen agreed to by
Congres s and the Administration wellin advance of debt
limit deliberations. Some past debt limit legislation has
linked debt limit increases with fiscalpolicy proposals such
as budget enforcement measures.
Options for Congress
When debt levels approach the statutory debt limit,
Congress can choose to (1) leave the debt limit in place; (2)
increase the debtlimit to allow for further federal
borrowing; or (3) temporarily suspend or abolish the debt
limit. Maintainingthecurrent debt limit could lead
Treasury to implement extraordinary measures to
postpone abindingdebt limit, but suchmeasures donot
prevent a binding debt limit indefinitely. Some have
suggested that the Fourteenth Amendment may grant the
President authority to ignore the statutory debt limit.
Previous Administrations and many representatives of the
leg alcommunity have rejected that argument as an
alternative to debtlimit legislation.
Inaction or Delayed Action: Potential
Consequences
The combination of a binding debt limit and continued
budget deficits would leave Treasury with conflicting
directives. As with anyborrower, the government is obliged
to pay its bills, and yet a binding debt limit would prevent
Treasury fromdoing so in a timely fashion. Possible
consequences of a binding debt limit include, but are not
limited to, the following:
* reduced ability of Treasury to borrow funds on
advantageous terms, thereby further increasing federal
debt;
* substantialneg ative outcomes in global economies and
financial markets caus ed by anticipated default on
Treasury securities or failure to meet other legal
obligations;
* acquisition ofinterestpenalties fromdelay on certain
federalpayments and transfers; and
* downgrades ofU.S. credit ratings, which could
negatively impact capital markets.
Possible economic and fiscal consequences of the debtlimit
are not confined to scenarios where the debt limit is
binding. Protracted deliberation over rais ing the debt limit
may also affect the U.S. financial outlook if it changes
household and business behavior. Some research suggests
that debate over the debt limit in August 2011 reduced
economic expansion in the second half of that year.
Because the debt ceiling impasse contributed to the
financial market disruptions, reduced confidence and
increased uncertainty, the economic expansion [in
20 I I ] was no doubt weaker than it otherwise would
have been.-U.S. Treasury, The Potential
Macroeconomic Effect of Debt Ceiling Brinkmanship,
October 20 13.
Increasing the Debt Limit
Increasing the debtlimit to accommodate further borrowing
allows federal operations to continue as they otherwise
would have. Increasing the debtlimit reduces the likelihood
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