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Congressional Research Serv c
Informing the legislativ'e debate sice 1914
The Debt Limit
Overview
The debt limit places a statutory constraint on the amount of
money that Treasury may borrow to fund federal
operations. The statutory debt limit is currently suspended
through January 1, 2025. Congress may debate the merits of
various debt limit modifications in advance of the debt
limit's reinstatement. 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 Debt Limit: Background and
Potential Effects on Government Operations; CRS Report
R43389, The Debt Limit Since 2011; CRS Report R4501 1,
Clearing the Air on the Debt Limit: Platinum Coins, the
Fourteenth Amendment, and More; and CRS Report
R44383, Deficits, Debt, and the Economy: An Introduction.
Rationale and Role of the Debt Limit
The Constitution grants Congress the power of the purse,
which allows Congress to restrict the amount of federal
debt. Under current law, Congress exercises this power
through the federal debt limit, which is codified at 31
U.S.C. §3101. Debt subject to limit is more than 99% of
total federal debt, and includes debt held by the public
(which is used to finance budget deficits) and debt issued to
federal government accounts (which is used to meet federal
obligations).
Federal debt increases when total expenditures exceed total
receipts (producing a budget deficit). Expansion of the
federal lending portfolio, through programs like college
student loans, also increases federal debt levels. Periods of
sustained debt increases bring debt levels near the debt
limit. CBO's May 2023 baseline projected that the debt
subject to limit will be $41.5 trillion at the end of FY2028
and $52.4 trillion by the end of FY2033; debt held by the
public was forecast to equal $34.9 trillion and $46.7 trillion
in those respective years.
The federal debt limit may be viewed as a check to ensure
that recent revenue and expenditure trends meet the
approval of Congress. However, the federal collection and
spending decisions affecting debt levels may have been
agreed to by Congress and the Administration well in
advance of debt limit deliberations. Some past debt limit
legislation has linked debt limit increases with fiscal policy
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 debt limit to allow for further federal
borrowing; or (3) temporarily suspend or abolish the debt
limit. Maintaining the current debt limit could lead
Treasury to implement extraordinary measures to
Updated September 15, 2023
postpone a binding debt limit, but such measures do not
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
legal community have rejected that argument as an
alternative to debt limit 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 any borrower, the government is obliged
to pay its bills, and yet a binding debt limit would prevent
Treasury from doing 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;
* substantial negative outcomes in global economies and
financial markets caused by anticipated default on
Treasury securities or failure to meet other legal
obligations;
* acquisition of interest penalties from delay on certain
federal payments and transfers; and
* downgrades of U.S. credit ratings, which could
negatively affect capital markets.
Possible economic and fiscal consequences of the debt limit
are not confined to scenarios where the debt limit is
binding. Protracted deliberation over raising 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
2011 ] 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 debt limit to accommodate further borrowing
allows federal operations to continue as they otherwise
would have. Increasing the debt limit reduces the likelihood
of experiencing potential consequences associated with a
binding and near-binding debt limit.](ViewImageLocal?handle=hein.crs/govemvz0001&div=1&collection=&method=preview&ext=.png&size=3)