The Congress is granted the sole authority to borrow on behalf of the United States by the Constitution. As per Kavan Choksi, it is the responsibility of its Executive Branch to execute that borrowing. The Debt Ceiling refers to the limit the Congress has set up, to which the Treasury may borrow. It is a limit up to which Treasury can pay bills and honour commitments already made by the Congress.
Kavan Choksi briefly sheds light on the United States debt ceiling
The debt ceiling is a restriction on the sum of money the federal government may borrow for the purpose of paying off its bills and allocating funds for future investments. As the Congress appropriates or directs government money to be spent, the government shall be obligated to pay those funds, creating a bill it needs to pay. This bill is also known as the national debt. It is the amount of money the federal government has already borrowed for the purpose of covering outstanding expenses in past fiscal years. The national debt comprises of intragovernmental debt and the debt held by the public in the form of government securities.
Subsequent to being suspended by the Fiscal Responsibility Act through January 1st, 2025 the debt ceiling has been reinstated. It was set to the level of obligations accrued during the suspension on 2nd January. On January 17th, 2025, the Treasury announced it would shall start extraordinary measures on January 21st in order to avoid default. When the debt limit is reached, the Treasury Department depends on cash on hand and uses a variety of accounting manoeuvre, known as extraordinary measures, in order to avoid defaulting on the obligations of the government.
Before the debt ceiling was established, the Congress had to approve each issuance of debt in a separate piece of legislation. It was in 1917 that the ceiling was first enacted through the Second Liberty Bond Act and was set at $11.5 billion with the goal of enhancing borrowing flexibility. The Congress created the first aggregate debt limit in 1939, which covered almost all government debt and set it at $45 billion. This was around 10% above total debt at the time. The Congress and the President have modified the debt ceiling more than 100 times since the end of World War II.
In the opinion of Kavan Choksi, increasing the debt ceiling requires often contentious legislative action. Even though multiple increases have been used for enacting fiscal reforms, they are not necessarily tied to fiscal health. Debates in regard to the debt ceiling very often take place after the policies producing debt have been put in place already. Even though policymakers have enacted “clean” debt ceiling increases often, Congress has also coupled increases with other legislative priorities. There have been multiple instances where the Congress has attached debt ceiling increases to budget reconciliation legislation as well as other deficit reduction policies or processes. The majority of important deficit reduction agreements made since 1980 have been accompanied by a debt ceiling increase, even though causality has moved in both directions.
Kathie