What is the debt limit?
The debt limit places a legal ceiling on the Treasury's authority to borrow but does not restrict Congress's and the President’s ability to enact spending and revenue legislation that affect the level of debt or otherwise constrain fiscal policy.
Congress and the President created the debt limit by enacting laws to restrict the total amount of federal debt,The total amount of outstanding federal debt, whether issued by the Treasury or other federal agencies, and held by the public or federal government accounts. excluding some minor adjustments, that can be outstanding at one time.
As a result, when the government nears the debt limit, Treasury often deviates from its normal cash and debt management operations. In the past, Treasury has taken a number of extraordinary actions (such as temporarily suspending investments to the Government securities Investment Fund of the Federal Employees' Retirement System to meet the government's obligations as they came due without exceeding the debt limit) until the debt limit was raised. Congress and the President may also enact laws that temporarily suspend the statutory debt limit, which they have done four times since 2013 through provisions in the No Budget, No Pay Act of 2013 (Public Law 113-3, section 2), the Default Prevention Act of 2013 (Public Law 113-46, section 1002), the Temporary Debt Limit Extension Act (Public Law 113-83, section 2), and the Bipartisan Budget Act of 2015 (Public Law 114-74, section 901) which suspended the debt limit until March 15, 2017.
While debates surrounding the debt limit may raise awareness about the trajectory of the federal debt and the fiscal policies driving it, these debates generally occur after the enactment of the tax and spending laws that resulted in current debt levels. Consequently, Congress is left with a narrower range of options to immediately change fiscal policy decisions and, hence, federal debt. For more information on the debt limit and extraordinary actions, see:
- FINANCIAL AUDIT: Bureau of the Fiscal Service's Fiscal Years 2016 and 2015 Schedules of Federal Debt
- Market Response to Recent Impasses Underscores Need to Consider Alternative Approaches
- Debt Limit Alternative Approaches
- Debt Limit: Analysis of 2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs
- Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market
- Debt Ceiling: Analysis of Actions During the 2002 Debt Issuance Suspension Periods
- Debt Ceiling: Analysis of Actions During the 1995-1996 Crisis