The federal debt limit is once again on autopilot. Facing the dilemma of raising the debt limit so that the federal government can borrow more money or allowing the government to default on its obligations and possibly shut down, Congress passed in February, and, while on a weekend golf vacation in Southern California, President Obama signed into law, a stand-alone bill (S. 540) to suspend the debit limit through March 15, 2015 — that is, after a new Congress has settled in following the upcoming November election.
The debt limit or debt ceiling is the maximum amount of money the government is legally allowed to borrow. Beginning in 1917, Congress established statutory limits on federal debt. According to the Government Accountability Office (GAO): “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.” And as stated by the Treasury Department: “The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.”
The debt ceiling was “only” $49 billion in 1940. Surprisingly, it was actually lowered five times, in 1946, 1956, 1960, and twice in 1963, before growing to $1 trillion by September of 1981. The last time the debt limit was actually set by statute — January 28, 2012 — the limit was $16.394 trillion.
Federal debt can increase in two ways, as explained in The Debt Limit: History and Recent Increases, issued by the Congressional Research Service:
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. [Emphasis in original.]
The federal debt is currently over $17.3 trillion — well above the last statutory debt limit of $16.394 trillion — and increasing by over $2 billion every day.
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