United States debt ceiling

Bowles–Simpson Commission 2007–2008 financial crisis 2013 budget sequestration Related events In the United States, the debt ceiling is a law limiting the total amount of money the federal government can borrow.

[3] On June 3, 2023, the debt ceiling was suspended when U.S. president Joe Biden signed the Fiscal Responsibility Act of 2023 into law.

[4] This ended the debt-ceiling crisis that began on January 19, 2023; the debt ceiling suspension remained in effect until December 31, 2024.

[16] To provide more flexibility to finance the United States' involvement in World War I, Congress modified the method by which it authorized debt in the Second Liberty Bond Act of 1917.

The delay in raising the debt ceiling resulted in the first downgrade in the United States credit rating, a sharp drop in the stock market, and an increase in borrowing costs.

Congress raised the debt limit with the Budget Control Act of 2011, which added to the fiscal cliff when the new ceiling was reached on December 31, 2012.

The budget details projected tax collections and expenditures and, therefore, specifies the estimated amount of borrowing the government would have to do in that fiscal year.

As a result, the president asked federal agencies to reduce how much they spent, plus the Treasury Department used its cash balances with banks to stay under the debt ceiling.

During spring and summer 1954, the Senate and the executive branch negotiated on a debt ceiling increase, and a $6 billion one was passed on August 28, 1954.

As of 1993[update] the debt ceiling had not historically been a political issue that would make the elected government fail to pass a yearly budget.

[31] But Democrats, using the Gephardt Rule, joined with Republicans to increase the debt ceiling eighteen separate times.

[40] On August 5, 2011, Standard & Poors issued the first ever downgrade in the federal government's credit rating, citing their April warnings, the difficulty of bridging the parties and that the resulting agreement fell well short of the hoped-for comprehensive 'grand bargain'.

[41] The credit downgrade and debt ceiling debacle contributed to the Dow Jones Industrial Average (DJIA) falling nearly 2,000 points in late July and August.

[44] The fiscal cliff was resolved with the passage of the American Taxpayer Relief Act of 2012 (ATRA), but no action was taken on the debt ceiling.

Following the tax cuts from ATRA, the government needed to raise the debt ceiling by $700 billion to finance operations for the rest of the 2013 fiscal year.

[46] The 2013 crisis was temporarily resolved on February 4, 2013, when President Barack Obama signed the No Budget, No Pay Act of 2013 which suspended the debt ceiling until May 19, 2013.

Although Republicans were a minority in the Senate, they threatened for the first time in American history to use the filibuster to stop the debt ceiling increase.

According to his letter to Congress, this period could "last until August 2, 2011, when the Department of the Treasury projects that the borrowing authority of the United States will be exhausted".

[69] The measures were again implemented on December 31, 2012, the start of the debt ceiling crisis of 2013 with the default trigger date ticking to February 2013.

As of 2012, the U.S. defaulted on its financial obligations once in 1979, due to a computer backlog, but the periodic crises relating to the debt ceiling have led several rating agencies to United States federal government credit-rating downgrades.

[71] The Bipartisan Policy Center extended the GAO's estimates and found that the delay raised borrowing costs by $18.9 billion over ten years.

The writers have argued that the executive branch can choose to prioritize interest payments on bonds, which would avoid an immediate, direct default on sovereign debt.

In this view, when extraordinary measures are exhausted, no payments could be made except when money (such as tax receipts) is in the treasury, at all and the U.S. would be in default on all of its obligations.

Harvard University legal scholar Laurence Tribe argues that "using the ceiling to make us default on our debts clearly would be unconstitutional.

[77] In 2023, a group of lawmakers from the Senate and House of Representatives sent a letter to President Biden encouraging him to consider invoking the 14th Amendment to pay government debts.

[77] In practice, the administrations of Presidents Barack Obama and Joe Biden have rejected relying on legal arguments against the constitutionality of the debt ceiling.

[80][81] In May 2023, the National Association of Government Employees filed a lawsuit in federal court alleging that the debt ceiling law is unconstitutional.

The proposal found support from some economists such as Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics.

In January 2013, a survey of 38 highly regarded economists found that 84 percent agreed that, since Congress already approves spending and taxation, "a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes."

As of 2019, MMT theorists believed that governments have the power to create and spend money within a limit of reason without creating hyperinflation, as well as the ability to forgive its debt or repay itself;[88] in contrast, as of 2020, orthodox economic theorists tended to focus on national deficit as a debt that needs to be repaid eventually.