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Wednesday, January 6, 2010

The Debt Limit: History and Recent Increases

D. Andrew Austin
Analyst in Economic Policy

Mindy R. Levit
Analyst in Public Finance

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 generally reduce debt held by the public, while deficits raise it.

A statutory limit has restricted total federal debt since 1917 when Congress passed the Second Liberty Bond Act. Congress has raised the debt limit eight 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, Congress included debt limit raising reconciliation instructions in the FY2006 budget resolution (H.Con.Res. 95). With no action having been taken by December 2005, the Secretary of the Treasury sent several letters warning Congress that the Treasury would exhaust its options to avoid default by mid-March 2006. Congress passed an increase in mid-March, which the President signed on March 20. The House’s adoption of the conference report on the FY2008 budget resolution in the spring of 2007 automatically created and deemed passed legislation (H.J.Res. 43) raising the debt limit by $850 billion to $9,815 billion. The Senate approved the resolution on September 27, 2007, and it was signed by the President two days later. The current economic slowdown led to sharply higher estimates of the FY2008 and FY2009 deficits, which led to a series of debt limit increases. A debt limit increase was included in the Housing and Economic Recovery Act of 2008 (H.R. 3221) and signed into law (P.L. 110-289) on July 30. The Emergency Economic Stabilization Act of 2008 (H.R. 1424), signed into law on October 3 (P.L. 110-343), raised the debt limit again. The debt limit was increased for the third time in less than a year with the passage of American Recovery and Reinvestment Act of 2009 on February 13, 2009 (ARRA; H.R. 1), which was signed into law on February 17, 2009 (P.L. 111- 5), which raised the debt limit to $12,104 billion.

The House’s adoption of the conference report on the FY2010 budget resolution (S.Con.Res. 13) on April 29, 2009 triggered the automatic passage of a separate measure (H.J.Res. 45) to raise the debt limit to $13.029 trillion that was then sent to the Senate. In August 2009, according to media reports, Secretary of Treasury Timothy Geithner notified Congress that the debt limit would be reached in mid-October, although the Treasury later stated that the limit would not be reached until mid or late December 2009. H.R. 3414, passed by the House on December 16, 2009, and by the Senate on December 24, raised the debt limit to $12.394 trillion when the President signed the measure on December 28. This report, written with the assistance of Joseph McCormack, will be updated as events warrant.

Date of Report: December 30, 2009
Number of Pages: 24
Order Number: RL31967
Price: $29.95

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