What is Statutory Debt Limit
The statutory debt limit often referred to as the debt ceiling, is the limit to the amount of debt that the U.S. government can take on to meet its legal obligations. These obligations include things like paying for Social Security, military salaries, Medicare and tax refunds. It also includes interest payments on existing debt. Once the government reaches the statutory debt limit, it cannot take on new obligations.
BREAKING DOWN Statutory Debt Limit
Only the U.S. Congress has the authority to raise the statutory debt limit. Raising the statutory debt limit has occurred 78 times since 1960. Raising the threshold has taken several different forms, such as redefining the debt limit, allowing a temporary extension to the ceiling and permanently raising the limit. The debt limit has been raised 49 times under Republican presidents and 29 times under Democratic presidents.
Though some politicians known as deficit hawks, along with many citizens, disapprove of raising the debt limit, Congress has historically recognized the necessity of raising the ceiling to avoid defaulting on required government payments. In most cases, refusing to raise the debt limit would be catastrophic for the U.S. economy.
Those living on Social Security would not receive their monthly payments. Members of the military would go unpaid, and the U.S. Government would default on many of its debt obligations. Large segments of the U.S. economy would experience great upheaval, and an unprecedented national economic crisis would ensue. Due to this crisis state, many lawmakers still vote for raising the debt limit when the U.S. faces the potential of defaulting on payments.
The Rising Debt Limit
The first statutory debt limit set in the U.S. was at $45 billion in 1939. However, Congress raised the ceiling annually during the duration of World War II. By 1946, the limit had reached $300 billion. After the war, Congress eventually lowered the debt limit to its amount pre-World War II. However, over the following decades, it continued to rise, reaching $20.5 trillion in December of 2017.
When Congress opts to raise the debt limit, the Congressional Budget Office (CBO) calculates an “X-date.” X-date refers to the day that the government will likely exhaust its debt extension and need to extend the limit further, assuming that it has not increased its income and paid off debts.
The government gets income through taxes, so raising taxes would be one way to improve revenue to pay off debts. Alternatively, the government may choose to cut spending—restricting the funds it spends on infrastructure, the military, etc. The money saved through these cuts can also help prevent raising the debt ceiling. While raising the debt ceiling when necessary tends to be a bipartisan action, theories on ways to avoid it tend to fall more starkly along partisan lines.