Two Ways Congress Can Raise the Debt Limit

The federal government’s outstanding debt hit its statutory limit on August 1. The so-called debt limit restricts how much money the government can borrow to pay for its operations. As a result, the Treasury Department is currently taking a series of “extraordinary measures” to ensure that the government can continue to pay for its obligations under current law without exceeding the debt limit.

But the Treasury Department cannot use extraordinary measures to pay the government’s bills forever. Secretary of the Treasury Janet Yellen recently informed Congress that she would exhaust her actions under current law by mid-October. At that point, the government must pay off some of its outstanding debt before borrowing more money if Congress does not first pass new legislation to increase the debt limit or suspend it temporarily.

Background

In 1917, Congress created the debt limit – in part – by passing legislation that empowered the government to borrow the money needed to pay for America’s involvement in the First World War and domestic defense. Before that year, the House and Senate approved the government’s requests to borrow money for a specific purpose on a case-by-case basis. However, Congress altered this system over time by passing a series of new laws - starting with the First Liberty Loan Act of 1917 (Public Law 65-3) - that ultimately replaced the case-by-case approach to approving new debt with an overall - or aggregate - limit on the government’s total outstanding debt. Under the new system, the government does not need prior approval to borrow money if its outstanding debt does not exceed the debt limit.

Increase vs. Suspension

Lawmakers have used two general approaches since 1917 to authorize the government to borrow more money by changing the debt limit. First, lawmakers may increase – but not eliminate - the statutory limit on the government’s debt. For example, Congress increased the debt limit in 2002 by approving legislation (Public Law 107-199), striking the dollar amount of allowable debt specified in law - $5,950,000,000,000 – and replacing it with a different amount - $6,400,000,000,000.

Alternatively, lawmakers may authorize the government to borrow more money by eliminating – or suspending – the debt limit altogether. In recent years, lawmakers have opted for this approach as an alternative to approving dollar-specific increases in the debt limit. For example, Congress explicitly empowered the government to borrow an unlimited amount of money when it passed the Bipartisan Budget Act of 2015 (Public Law 114-74). Among its provisions, section 901 of the law stipulated that the debt limit “shall not apply for the period beginning on the debate of the enactment of this Act and ending on March 15, 2017.” The law stipulated that the debt limit would be reinstated on March 16, 2017, at an amount equal to the size of the government’s debt on that date. 

Implications

Since 2015, lawmakers have opted to suspend the debt limit rather than increase it. Whatever their motives for doing so, lawmakers’ present preference for debt-limit suspensions has implications for how the House and Senate are likely to adjust the debt limit in the coming weeks.

Senate Republicans want Democrats to use the budget reconciliation process to increase the debt limit over their opposition. But Democrats want to pass a debt-limit bill via regular order. In the Senate, reconciliation bills are privileged; senators cannot filibuster them. Moreover, suspending the debt limit would change the current law in non-budgetary ways. It would therefore violate the Byrd Rule’s prohibition against including extraneous measures in reconciliation bills. Consequently, Democrats cannot pass a debt-limit suspension bill via the reconciliation process under the current rules and practices of the congressional budget process.