Summary
As Congress considers how to reconcile rising federal debt levels and the debt limit, discussions about the role of the debt limit among Members of Congress, researchers, and the media promise to become more frequent. During debt limit episodes in the last decade, misleading or inaccurate claims have, at times, surfaced. This report clarifies five issues commonly raised in debt limit debates and explores some open questions. Some of those points in need of clarification relate to the congressional power of the purse, which stems from three closely related constitutional provisions that charge Congress with deciding how the federal government spends, taxes, and borrows.
The Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37), enacted in August 2019, had suspended the debt limit through July 31, 2021. The limit was then raised to just over $28.4 trillion to accommodate debt accumulated during the suspension, as specified in BBA 2019.
The statutory debt limit represents one way that Congress has exerted control over federal borrowing and debt, as it has since the beginning of the U.S. government—despite claims that limits on debt began in 1917. Before 1917, Congress typically specified the interest rates, maturities, call options, and other aspects of debt issuances. The Second Liberty Bond Act of 1917 (P.L. 65-43, 40 Stat. 288) marked a turning point in federal debt policy. The modern debt limit—meaning an overall limit on federal debt without sublimits—was established in 1939.
Some claim the U.S. government suffered technical defaults in the late 1970s. In October 1977 and April 1979, a lapse in temporary debt limit increases left federal debt above its limit for a few days. Payments continued and thus no default occurred in the ordinary sense of that term. A month after the April 1979 episode, payments to some small investors holding Treasury securities were delayed. Computer problems, rather than the debt limit, seem the proximate cause of those delays. Anticipation of changes in Federal Reserve monetary policies seems to be a more plausible explanation of market interest rate increases on the date of the first payment delay.
Others have claimed that debt limit increases were once less contentious or that debt limit modifications were typically “clean”—that is, not attached to other legislative provisions. Assessing trends in the contentiousness of the debt limit may be challenging, and even “clean” measures may have been preceded by sharp negotiations. Debt policy has often been a divisive issue since the beginning of American government. Many of the debt limit measures enacted in past decades engendered substantial division and debate. Debt, by its nature, allows government to shift the fiscal burden of current expenditures or lessen the burden of current taxes by transferring obligations to future taxpayers. Moreover, debt limit measures have been informally or formally linked with other issues for many decades.
Some commentators have pointed to a statutory provision that allows minting of platinum coins as a purported solution to the prospect of a binding debt limit. Proponents of the platinum coin strategy have encouraged the U.S. Treasury to consider minting a high denomination coin, which—according to proponents—could be deposited at the Federal Reserve and exchanged for cash for the U.S. Treasury’s general fund. The platinum coin strategy, however, would present several major policy challenges. Treasury officials have consistently rejected such proposals.
Other commentators have questioned the constitutionality of the statutory debt limit under the Public Debt Clause of the Fourteenth Amendment. The Supreme Court has examined the Public Debt Clause only once, and questions remain concerning its effect on Congress’s decision to set a dollar limit on certain debts.