Redefining the Debt Ceiling Poses Unnecessary Risks

Publication Date: June 2004

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Richard Kogan

Research Area: Banking and finance

Keywords: Federal budget; National debt; Fiscal future; Economic projections

Type: Report

Abstract:

Since 1917, federal law has placed a limit on the size of the federal debt. The limit applies to gross Treasury debt — the amount the Treasury has borrowed from the public plus the amount the Treasury has borrowed from federal trust funds, such as the Social Security trust fund and the Civil Service Retirement trust fund. Two recent proposals to alter the budget process include redefining the debt to which the debt limit applies to be the net debt rather than the gross debt, and reducing the statutory debt limit accordingly so that it is consistent with the new definition. The amount that the Treasury borrows from federal trust funds would no longer be subject to the debt limit. Only the debt held by the public — the amount of money the government has borrowed from banks, states, foreign governments, and private and institutional investors — would be subject to the limit.