The debt limit—commonly referred to as the debt ceiling—is the maximum amount of debt that the Department of the Treasury can issue to the public and to other federal agencies. That amount is set by law and has been increased over the years in order to finance the government’s operations. Currently, there is no statutory limit on the issuance of new federal debt because the Bipartisan Budget Act of 2015 (Public Law 114-74), enacted in November 2015, suspended the debt ceiling through March 15, 2017. On March 16, the limit will be reset to reflect cumulative borrowing through the period of suspension.
Absent additional legislation that further suspended or increased the debt limit, existing statutes allow the Trea-sury to declare a “debt issuance suspension period” on March 16, 2017, and take a number of “extraordinary measures” to borrow additional funds without breaching the new debt ceiling. The Congressional Budget Office projects that if the debt limit remains unchanged, those measures will probably be exhausted and the Treasury will probably run out of cash sometime in the fall of 2017. (The timing and magnitude of revenues and outlays over the next several months could vary noticeably from CBO’s projections, so those measures could be exhausted and the Treasury could run out of cash earlier or later.) At such time, the government would be unable to fully pay its obligations, a development that would lead to delays of payments for government activities, a default on the government’s debt obligations, or both.
What Makes Up the Debt Subject to Limit?
Debt subject to the statutory limit comprises two main components: debt held by the public and debt held by government accounts. Debt held by the public consists mainly of securities that the Treasury issues to raise cash to fund the federal government’s operations that revenues are insufficient to cover. Such debt is held by outside investors, including the Federal Reserve System. Debt held by government accounts is debt issued to the federal government’s trust funds and other federal accounts for internal transactions of the government; it is not traded in capital markets. Trust funds for Social Security, Medicare, military retirement, and civil service retirement and disability hold most of that debt.
Of the $19.9 trillion in outstanding debt subject to limit, $14.4 trillion is held by the public and $5.5 trillion is held by government accounts.
Congressional Budget Office