The Debt Limit: The Ongoing Need for Increases

Publication Date: March 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

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Abstract:

Two actions by the federal government drive up total federal debt. The first is the sale of government debt to the public (increasing debt held by the public) to finance budget deficits and acquire the financial resources needed to meet its obligations. The second is the issuing of debt to debt-holding government accounts (such as the Social Security, Medicare, Transportation, and Civil Service trust funds) in exchange for their reported surpluses (increasing debt held by government accounts). The combined change produces the change in total federal debt.

Surpluses generally reduce debt held by the public while deficits raise it. The government's surpluses during FY1998-FY2001 reduced debt held by the public by $448 billion. The debt-holding government accounts increased their holdings by $853 billion over the same period. The combination ($853 billion minus $448 billion) raised total federal debt by $405 billion. During 2002, debt subject to limit increased enough to reach the then current statutory debt limit, $5.95 trillion. Legislation increased the limit to $6.4 trillion in June 2002.

In December 2002, the Administration asked Congress for another increase in the debt limit. As the limit was approached in February 2003, the Treasury resorted to accounting measures at its disposal to avoid exceeding the limit. The adoption of the FY2004 budget resolution conference report by Congress in early April 2003 triggered legislation in the House increasing the debt limit by $984 billion, deemed passed by the House, and sent to the Senate. In May, the Senate passed the increase, which the President signed on May 27, 2003. (For a discussion of congressional procedures to raise the debt limit, see CRS Report RS21519, Legislative Procedures for Adjusting the Public Debt Limit, by Robert Keith and Bill Heniff Jr.)

By the spring of 2004, the Treasury began asking for another increase in the debt limit. Congress did not act to raise the debt limit before recessing in mid-October 2004. The Secretary of the Treasury soon notified Congress that he was taking allowed actions to avoid exceeding the debt limit. He also stated that these actions would suffice only through mid-November when the Treasury would exhaust its ability to finance all federal activities. In an after-election session, Congress passed and the President signed legislation raising the debt limit by $800 billion.

In 2005, Congress included debt limit raising reconciliation instructions in the FY2006 budget resolution (H.Con.Res. 95). The adoption of the budget resolution also triggered the automatic passage in the House of a debt limit increase (H.J.Res. 47). No action on raising the limit was taken during calendar year 2005. The Secretary of the Treasury sent letters to Congress on December 22, 2005, and February 16 and March 6, 2006, asking for a debt limit increase and warning that the Treasury would exhaust its options to avoid reaching the debt limit by mid-March. The Senate passed H.J.Res. 47 on March 16, after rejecting several amendments. The President signed it into law (P.L. 109-182) on March 20. The law increased the debt limit by $781 billion to $8.965 trillion.

This report will be updated as events warrant.