What is the Debt Limit?
The federal government runs a deficit of more than $2 trillion a year and has borrowed more than $40 trillion to date. The statutory debt limit caps that borrowing. But where did the limit come from, and what does raising it actually do?
Senior Fellow Matthew Dickerson explains how the debt limit works and why it exists.
Because outlays exceed revenues, Treasury has to borrow to meet the government’s spending obligations. As debt subject to the limit grows, Congress has to raise the limit. Raising it doesn’t authorize any new spending. It gives Treasury the borrowing authority it needs to pay for obligations that laws already on the books have created. In recent years, Congress has sometimes suspended the limit for a set period instead. When a suspension ends, the limit is reset to cover the debt that built up in the meantime.
The history is a bit surprising: the modern debt limit grew partly out of an effort to make federal borrowing more flexible. Before World War I, Congress usually authorized individual debt issues one at a time. In 1917, as wartime borrowing exploded, Congress started letting Treasury issue debt within broader limits. In 1939, it set up the modern aggregate debt limit.
The result is a trade-off. Congress handed day-to-day management of federal borrowing to Treasury but kept an overall statutory cap on how much debt can be issued.
In this video:
- Why deficits require Treasury to borrow
- What raising or suspending the debt limit does, and what it doesn’t do
- How borrowing authority moved from individual debt issues to an aggregate cap
- The trade-off between Treasury flexibility and congressional control
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