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Summary

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. The government's surpluses during FY1998-FY2001 reduced debt held by the public by $448 billion. The debt holdings of government accounts grew by $853 billion over the same period. The total net change raised total federal debt by $405 billion. A statutory limit has restricted total federal debt since 1917 when Congress passed the Second Liberty Bond Act. Congress has raised the debt limit five 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 Administration asked Congress for another increase. As the debt neared the limit in February 2003, the Treasury resorted to accounting measures at its disposal to avoid exceeding the limit. Congress passed a debt limit increase in May 2003. In the spring of 2004, the Treasury had asked for another increase in the debt limit. After Congress recessed in mid-October 2004 without acting, the Treasury Secretary notified 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). Approval of the budget resolution in April 2005 triggered the automatic passage of a debt limit increase in the House. 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 adoption of the conference report on the FY2008 budget resolution in the spring of 2007 automatically (in the House) created and deemed passed legislation (H.J.Res. 43) raising the debt limit by $850 billion to $9,815 billion. The Senate Finance Committee approved the resolution on September 12, 2007, which was passed by the Senate September 27 and signed by the President September 29. The 2008 economic slowdown has led to sharply higher estimates of the FY2008 deficit spending has raising the prospect of another debt limit increase. The House and Senate budget resolutions (H.Con.Res. 312, S.Con.Res. 70), as well as the conference agreement (H.Rept. 110-659) recommend spending levels that would require an increased debt limit in FY2009. This report will be updated as events warrant.

Related Legislation:
• S.95
• H.J.RES.43
• S.312
• S.CON.RES.70

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