The Debt Limit: History and Recent Increases

Total debt of the federal government can increase in two ways. First, debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it. Total federal debt outstanding was 14,183 billion on March 4, 2011. The U.S. Treasury projects the federal debt will reach its statutory limit in April or May 2011, although tax policy, spending changes, and economic trends could affect that timing. Without a debt limit increase, funding federal operations after the middle of 2011 may be complicated. A statutory limit has restricted total federal debt since 1917, when Congress passed the Second Liberty Bond Act. Congress has voted to raise the debt limit 10 times since 2001. Deficits each year since 2001 and the persistent increases in debt held by government accounts repeatedly raised the debt to or near the limit in place at the time. Congress raised the limit in June 2002, and by December 2002 the U.S. Department of the Treasury asked Congress for another increase, which was passed in May 2003. In June 2004, the Treasury asked for another debt limit increase. After Congress recessed in mid-October 2004 without acting, the Secretary of the Treasury told Congress that the actions he was taking to avoid exceeding the debt limit would suffice only through mid-November. Congress approved a debt limit increase in a post-election session, which the President signed on November 19, 2004. In 2005, reconciliation instructions in the FY2006 budget