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 reduce debt held by the public, while deficits raise it. Total federal debt outstanding was $14,308 billion on May 12, 2011, of which $14,256 billion was subject to the debt limit. The U.S. Treasury Secretary Timothy Geithner announced that the federal debt reached its statutory limit on May 16, 2011 and that he had declared a debt issuance suspension period, which would allow certain extraordinary measures to extend Treasury’s borrowing capacity until early August 2011. Funding federal operations could soon become complicated without a debt limit increase.

Congress has always placed restrictions on federal debt. The form of debt restrictions, structured as amendments to the Second Liberty Bond Act of 1917, evolved into a general debt limit in 1939. Congress has voted to raise the debt limit 10 times since 2001, as federal debt has nearly reached the debt limit several times due to persistent deficits and additions to federal trust funds. Congress raised the limit in June 2002, and by December 2002 the U.S. Treasury asked Congress for another increase, which passed in May 2003. In June 2004, the U.S. Treasury asked for another debt limit increase. After Congress recessed in mid-October 2004 without acting, the Treasury Secretary told Congress he could keep debt below its limit only through mid-November. Congress increased the debt limit in a post-election session, which the President signed on November 19, 2004. In 2005, reconciliation instructions in the FY2006 budget resolution (H.Con.Res. 95) included a debt limit increase. The Treasury Secretary sent letters warning Congress that the Treasury would exhaust its options to avoid default by mid-March 2006. Congress passed an increase that the President signed on March 20. The House indirectly approved legislation (H.J.Res. 43) to raise the debt limit by $850 billion to $9,815 billion. The Senate approved the resolution on September 27, 2007, and the President signed it two days later.

The recent economic slowdown led to sharply higher deficits in recent years, which led to a series of debt limit increases. The Housing and Economic Recovery Act of 2008 (H.R. 3221), signed into law (P.L. 110-289) on July 30, 2008, included a debt limit increase. 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 rose a third time in less than a year to $12,104 billion with the passage of the 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).

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 H.J.Res. 45 to raise the debt limit to $13,029 billion. In August 2009, Treasury reportedly said that the debt limit would be reached in mid-October, although it later stated that the limit would not be reached until December 2009. H.R. 4314, passed by the House on December 16, 2009, and by the Senate on December 24, raised the debt limit to $12,394 billion when the President signed the measure (P.L. 111-123) on December 28. On January 28, the Senate passed an amended version of H.J.Res. 45, which the House passed on February 4 and the President signed on February 12 (P.L. 111-139), raising the limit to $14,294 billion.


Date of Report: May 16, 2011
Number of Pages: 30
Order Number: RL31967
Price: $29.95

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Defining Small Business: A Historical Analysis of Contemporary Issues

Robert Jay Dilger
Senior Specialist in American National Government

Small business size standards are of congressional interest because the definition used determines eligibility for Small Business Administration (SBA) loans and management training assistance as well as federal contracting and tax preferences.

Although there is bipartisan agreement that the nation’s small businesses play an important role in the American economy, there are differences of opinion concerning how to define them. The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA to establish size standards for determining eligibility for federal small business assistance. The SBA currently uses two size standards to determine program eligibility: industry-specific size standards and an alternative size standard based the applicant’s maximum tangible net worth and average net income after federal taxes.

The industry-specific size standards determine program eligibility for firms in 1,158 industrial classifications described in the North American Industry Classification System (NAICS). They are based on one of the following four criteria: (1) number of employees; (2) average annual receipts in the previous three years; (3) asset size; or (4) for electrical power industries, the extent of power generation. Overall, the SBA currently classifies about 99.7% of all employer firms as small.

Since issuing its initial small business size standards in 1956, the SBA has based its industry size standards on economic analysis of each industry’s overall competitiveness and the competitiveness of firms within each industry. However, in the absence of precise statutory guidance and consensus on how to define small, the SBA’s size standards have often been challenged, typically by industry representatives advocating a broadening of the size standards to allow more firms in their industry to be eligible for assistance and by Members of Congress concerned that the size standards may not adequately target the SBA’s assistance to firms that they consider to be truly small.

P.L. 111-240, the Small Business Jobs Act of 2010, authorizes the most recent changes to the SBA’s size standards. The act authorizes the SBA to establish an alternative size standard using maximum tangible net worth and average net income after federal taxes for both the 7(a) and 504/CDC loan guaranty programs. The act also establishes, until the date on which the alternative size standard is established, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application. It also requires the SBA to conduct a detailed review of not less than one-third of the SBA’s industry size standards every 18 months beginning on the date of enactment (September 27, 2010).

This report provides a historical examination of the SBA’s size standards, assesses competing views concerning how to define a small business, and discusses how the alternative size standards adopted under the Small Business Jobs Act of 2010 might affect program eligibility.


Date of Report: May 16, 2011
Number of Pages: 30
Order Number: R40860
Price: $29.95

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FY2012 Budget Highlights for the Human Resources “Superfunction”: Education, Training, Social Services, Health, Income Security, and Veterans

Karen Spar
Specialist in Domestic Social Policy and Division Research Coordinator

Gene Falk
Specialist in Social Policy

The 112th Congress is focusing attention on short- and long-term efforts to reduce the federal deficit and stabilize the national debt, including proposals to alter the overall size and composition of total federal spending. Components of the federal budget categorized as “human resources” account for the majority of federal outlays (70% in FY2010) and would be affected by these proposals. Six functional categories comprise the human resources “superfunction”: education, training, employment, and social services; health (primarily Medicaid); Medicare; income security; Social Security; and veterans benefits and services.

President Obama submitted a detailed FY2012 budget request to Congress on February 14, and in April, he released a set of deficit reduction policies intended to build on the February proposal called the President’s Framework for Shared Prosperity and Shared Fiscal Responsibility. On April 15, the House passed a concurrent resolution on the FY2012 budget (H.Con.Res. 34) that was based on a document called Path to Prosperity, released by Budget Committee Chairman Paul Ryan on April 5. The Senate has not yet acted on a budget resolution for FY2012.

As a share of the national economy, spending for human resources is expected to have peaked at 16.4% of Gross Domestic Product (GDP) in FY2010 and, according to the Congressional Budget Office (CBO), will fall to 14.8% in FY2014. This decline reflects the assumed economic recovery, lower spending for programs that respond automatically to economic conditions (e.g., Unemployment Insurance, Supplemental Nutrition Assistance Program), and expiration of stimulus funding under the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). However, CBO estimates that, with no changes in current law, human resources spending will rise again as a share of GDP and reach 15.7% by FY2021 due to the continuing effects of the baby boom generation’s retirement and increased enrollment in Medicare and Social Security, real growth in initial Social Security benefits, medical cost inflation in excess of general inflation, and new spending related to the health care reform law of 2010.

Reflecting these trends, all projected growth in the human resources budget will occur in three functional categories: health (primarily Medicaid), Medicare, and Social Security. CBO estimates that spending for income security will contract as a share of GDP over the next decade, as will spending for the two smallest human resources categories (i.e., education, training, employment, and social services; and veterans benefits and services).

Both the President’s budget and H.Con.Res. 34 include provisions intended to reduce spending overall. However, the President’s February proposals would result in spending for human resources that would closely follow, and slightly exceed, the CBO current law baseline, while the House resolution sets spending targets that are significantly lower. Specifically, human resources spending would equal 15.9% of GDP in FY2021 under the Administration’s February budget and 13.5% under the House resolution, compared to CBO’s baseline estimate of 15.7%. The most significant reductions from the CBO baseline, if all provisions assumed in the House resolution were enacted, would occur in three categories: education, training, employment, and social services (the smallest human resources category); Medicaid; and income security. As widely reported, the House resolution assumes enactment of legislation to convert Medicare into a “premium subsidy” program; however, this change would not occur until FY2022, which is after the resolution’s 10-year budget window. Thus, the House resolution sets spending targets for the next 10 years that are relatively close to CBO’s baseline projections for Medicare, Social Security, and veterans benefits and services.


Date of Report: May 17, 2011
Number of Pages: 36
Order Number: R41827
Price: $29.95

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Low-Income Assistance Programs: Trends in Federal Spending

Gene Falk
Specialist in Social Policy

This report examines the spending trends of 10 major need-tested benefit programs or groups of programs: (1) health care from Medicaid and the Children’s Health Insurance Program (CHIP); (2) the refundable portion of the health insurance tax credit enacted in the 2010 health care reform law; (3) the Supplemental Nutrition Assistance Program (SNAP); (4) assisted housing; (5) financial assistance for post-secondary students (Pell Grants); (6) compensatory education grants to school districts; (7) the Earned Income Tax Credit (EITC); (8) the Additional Child Tax Credit (ACTC); (9) Supplemental Security Income (SSI); and (10) Family Support Payments. The common feature of need-tested programs is that they provide benefits, services, or funding based on a measure of limited financial resources (income and sometimes assets). However, other than that common feature, the programs differ considerably in their target populations, services, and focus.

In total and in inflation-adjusted terms, federal outlays for major need-tested programs increased in each decade examined in this report, from the 1960s to the present. There have been particularly large increases in need-tested outlays during recent years, attributable to the effects of the recession (which increased the number of people eligible for aid) and policy responses to it that increased federal funding and benefits for certain programs. The Congressional Budget Office (CBO) forecasts that under current law, federal outlays for need-tested programs would continue to increase, even in inflation-adjusted terms, in the upcoming decade. However, that increase is attributable to health care programs. For programs other than health care, total inflation-adjusted spending is projected to decrease over the period FY2011 through FY2021. CBO forecasts that with the economic recovery, caseload increases in certain programs will abate. Additionally, most of the policy responses to the recession were temporary in nature.

Different programs also have different spending trends. Cash benefits—to needy families with dependent children and the aged, blind, and disabled—comprised most aid to low-income families in the early 1960s. However, over the period from the 1960s through the end of the 1980s, most of the growth in aid was for non-cash benefits in the form of education, food, housing, and medical assistance.

The 1990s was the decade of “welfare reform.” The policies affecting low-income families with children, in particular, were substantially altered, with less emphasis on providing a “safety net” for families without a worker and more emphasis on aiding low-income workers in a system geared to “make work pay.” Spending on need-tested aid, even excluding health care, increased in the decade of the 1990s. Federal funding for cash assistance for needy families with children fell, but this was far more than offset by increases in the EITC, which supplements the earnings of lower-income families, as well as federal funding for other programs that support lower-earning families (e.g., child care subsidies).

Relative to the size of the economy, aggregate need-tested aid has generally increased since the 1960s. The 4.1% of the Gross Domestic Product (GDP) accounted for by these programs in FY2010 compares with 2.9% of GDP in FY2007, 2.6% of GDP in FY2000, and 1.9% of GDP in FY1990. CBO projects that, under current law, total need-tested aid will first fall but then increase as a share of GDP, reaching about 4.0% of GDP in 2016. However, all projected growth in spending as a share of GDP is from the health programs. Under current policies, CBO projects spending for the major need-tested programs other than health will fall as a percent of GDP.


Date of Report: May 17, 2011
Number of Pages: 22
Order Number: R41823
Price: $29.95

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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

N. Eric Weiss
Specialist in Financial Economics

As households and taxpayers, Americans have a large stake in the future of Fannie Mae and Freddie Mac. Homeowners and potential homeowners indirectly depend on Fannie Mae and Freddie Mac, which at the end of 2010 backed and guaranteed home loans accounting for nearly half of the outstanding home mortgages in the nation.

Taxpayers have a large investment in Fannie Mae and Freddie Mac. Through the end of 2010, the Department of the Treasury kept the two insolvent companies in business by providing more than $150 billion in support. Based on past performance, it is not clear how the enterprises will be able to repay Treasury out of future earnings. In addition to the $150 billion in direct support, Treasury and the Federal Reserve (the Fed) purchased nearly $1.4 trillion in GSE-issued and guaranteed mortgage-backed securities (MBS).

These two entities are stockholder-owned, congressionally chartered companies that purchase home mortgages, commonly called government-sponsored enterprises (GSEs). In 2008, increasing mortgage delinquencies and the general financial crisis weakened the two enterprises to the point that they agreed to a voluntary takeover by the federal government known as conservatorship.

This report summarizes and analyzes bills introduced in the 112th Congress that seek to enhance the public accountability of the two enterprises. The bills covered are H.R. 31, H.R. 408, H.R. 463, H.R. 1182, H.R. 1221, H.R. 1222, H.R. 1223, H.R. 1224, H.R. 1225, H.R. 1226, H.R. 1227, S. 178, and S. 693. Some seek to reduce the cost to the government, while others seek to change the enterprises’ charters if or when they leave conservatorship. None of the bills introduced proposes government actions to replace the two enterprises.

Because Fannie Mae and Freddie Mac are under conservatorship, Congress has unusual leverage to direct the Federal Housing Finance Agency (FHFA), which is both their regulator and conservator, to implement policy changes. Currently, FHFA has unusual control in that it both regulates and manages Fannie Mae and Freddie Mac.


Date of Report: May 18, 2011
Number of Pages: 16
Order Number: R41822
Price: $29.95

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