The Debt Limit: Why It Rose After Four Years of Surpluses and the Debt Changes Since

Publication Date: May 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

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Abstract:

Increases in total federal debt are driven by government deficits (which increase debt held by the public) and by the surpluses credited to (and the accounting for) debtholding federal accounts, mostly federal trust funds such as the Social Security, Medicare, Transportation, and Civil Service trust funds, which increase debt held by government accounts.

Surpluses generally reduce debt held by the public. The surpluses over the four fiscal years (1998-2001) reduced debt held by the public by $448 billion. The surpluses credited to debt-holding government accounts (which generally must invest the surpluses in federal debt), increased their holdings by $853 billion over the same period. The combination ($853 billion minus $448 billion) raised total federal debt by $405 billion.

In December 2002, the Administration began warning Congress that the debt limit ($6.4 trillion) would be reached in the first half of 2002. As the limit was approached in February 2003, the Administration resorted to suspension of certain internal fund investments to avoid a default. The adoption of the budget resolution (H.Con.Res. 95; April 11, 2003) for FY2004 generated legislation (H.J.Res. 51) -- deemed passed by the House -- that would increase the debt limit to $7.4 trillion. (This report will be updated as events warrant.)