Reaching the Debt Limit: Background and Potential Effects on Government Operations Page: 4 of 33
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Reaching the Debt Limit: Background and Potential Effects on Government Operations
T he federal government's statutory debt limit was reinstated on March 16, 2015, at a level
that accommodated the borrowing incurred during the suspension period, which ended on
March 15, 2015 (PL. 113-83).' Treasury immediately began using its authority outside of
its typical cash management practices to pay federal obligations to delay the date by which the
debt limit would impede the federal government's ability to make timely payments on all of its
obligations (through a debt issuance suspension period as well as other methods discussed in
more detail later in this report). Similar actions have been taken previously. If these financing
options are exhausted and Treasury is no longer able to pay for all federal obligations, some
federal payments to creditors, vendors, contractors, state and local governments, beneficiaries,
and other entities would be delayed or limited. This could result in significant economic and
financial consequences that may have a lasting impact on federal programs and the federal
government's ability to borrow in the future.
This report examines the possibility of the federal government reaching its statutory debt limit
and not raising it, with a particular focus on government operations. First, the report explains the
nature of the federal government's debt, the processes associated with federal borrowing, and
historical events that may influence prospective actions. It also includes an analysis of what could
happen if the federal government may no longer issue debt, has exhausted alternative sources of
cash, and, therefore, depends on incoming receipts or other sources of funds to provide any cash
needed to liquidate federal obligations.2 A discussion of the effects that prior debt limit impasses
have had on the economy is also included. Finally, this report lays out considerations for
increasing the debt limit under current policy and what impact fiscal policy could have on the
debt limit going forward.
Federal Government Debt and the Debt Limit3
The gross federal debt, which represents the federal government's total outstanding debt, consists
"*the debt held by the public and
" the debt held in government accounts, also known as intragovernmental debt.
Federal government borrowing increases for two primary reasons: (1) budget deficits and
(2) investments of any federal government account surpluses in Treasury securities as required by
1 The current level of federal debt can be found in the U.S. Department of the Treasury, Daily Treasury Statement,
Table III-C, available at http://fiiis.treas.gov/dts/index.html.
2 The possible scenario sometimes has been referred to generically as a debt limit crisis. U.S. General Accounting
Office (now the Government Accountability Office and hereinafter GAO), Debt Ceiling: Analysis ofActions During
the 2003 Debt Issuance Suspension Periods, GAO-04-526, May 2004.
3~ This section draws on CRS Report 98-453, Debt-Limit Legislation in the Congressional Budget Process, by Bill
Heniff Jr., and CRS Report RL3 1967, The Debt Limit: History and Recent Increases, by D. Andrew Austin and Mindy
4 If the budget is in surplus and intergovernmental debt rises by an amount that is less than the budget surplus, the total
debt would not increase. See the later discussion in the section titled "Implications of Future Federal Debt on the
Congressional Research Service
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Reaching the Debt Limit: Background and Potential Effects on Government Operations, report, March 27, 2015; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc807780/m1/4/: accessed January 19, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.