The federal debt limit, also known as the debt ceiling, is the legal limit, set by Congress, on the total amount that the US Treasury can borrow. See 31 U.S.C. 3101(b). As a result of passage of the Balanced Budget Act of 2015 (Public Law 114-74), the federal debt limit has been suspended since November 2, 2015, and is set to be reinstated on March 16, 2017, at roughly $20.1 trillion, the amount required to cover all borrowing that has occurred to fund government obligations since the debt limit’s last suspension. After March 15, 2017, if lawmakers fail to take action to once again increase or suspend the debt limit, the federal government will, eventually, be unable to meet its existing financial obligations in full and on time.
Because the federal government’s accumulated debt will immediately equal the new debt ceiling, unless the Congress acts by passing legislation for President Trump’s signature, the Treasury will once again have to employ extraordinary measures to ensure that the federal government continues to pay its obligations in full and on time. (According to current estimates, the federal government can continue to meet all of its current obligations through midsummer 2017 through the use of extraordinary measures. However, significant changes in the broader economy or in federal spending or tax policy could materially alter this estimate.)
If the level of federal debt hits the debt ceiling (and so-called extraordinary measures, usually involving a reduction in the amount of intragovernmental debt invested by the Treasury, have been exhausted by the Treasury), the federal government cannot legally borrow additional funds until Congress raises or suspends the debt ceiling, and the federal government would be unable to pay in full the bills for existing financial obligations (i.e., spending that has already been authorized and incurred). Thus, a debt ceiling increase or suspension eventually will become necessary to prevent the United States from defaulting on its debt, something the federal government has never done and that could have disastrous consequences for the federal government’s borrowing costs.
Periodically, Congress considers and passes legislation to increase or suspend the debt limit. While any annual budget resolution is required to include appropriate levels of the public debt covered by the resolution, legislation is required to make changes to the statutory limit on the public debt because the budget resolution does not become a law. Moreover, at some point, Treasury’s extraordinary measures will be exhausted; so if the debt limit is not increased or suspended, it will have only cash on hand plus daily revenue collections with which to make payments. (Once the debt limit is increased or suspended, the law requires the unwinding of any extraordinary measures that the Treasury has employed.)
Since the first overall debt ceiling was adopted in 1939, it has been raised more than 100 times, including more than a dozen times since 2000. Many, indeed most, of the decisions by Congress to raise the debt ceiling have not been particularly controversial. However, in recent years, Congressional partisanship and the concerns of many about the size of both the federal budget and the deficit have made the subject of increasing the debt limit a highly controversial one.
Many Congressional Republicans have used the need for a debt ceiling increase as a platform to argue for reduced domestic discretionary spending and lower taxes, while some Congressional Democrats have used the debt ceiling platform to make the case for a reduction in deficit spending and greater fiscal responsibility through higher taxes and less defense spending. Far fewer members of the House and Senate seem willing to make the case for deficit reduction and balanced budgets as a matter of fiscal responsibility and intergenerational fairness. Thus, when the debt ceiling fight finally arrives, in March 2017, it may provide an early indication of whether the public has a greater interest in maintaining the creditworthiness of the federal government than do those the public has elected to represent them.