The debt limit—or the “debt ceiling”—is the legal maximum on how much debt the federal government can accumulate. It is set by Congress and requires periodic increases to accommodate the government's borrowing needs.

Before 1917, Congress was required to authorize all loans issued by the US Treasury in separate pieces of legislation. The debt limit was originally established to give the Treasury additional flexibility to borrow money for wartime national priorities. In 1939, it was extended to cover nearly all government debt, with a limit originally set at about $45 billion. The debt limit has been raised more than 75 times since 1960 but continues to act as a legally binding constraint on the amount of debt issued by the federal government. Over the past decades, the debt limit has become an increasingly contentious issue in American politics, with debates over whether to raise it often leading to political brinksmanship and the risk of a default.

Contrary to common assumptions, raising the debt limit is not related to approving new spending—it is about paying for previous choices legislated by policymakers. The processes to approve new spending and raise the debt limit are entirely separate; raising the debt limit only allows the government to borrow the funds it needs to spend money already allocated during the federal budget process. Nonetheless, politicians who want to cut deficits or reduce the size of government have increasingly used the debt limit to negotiate for budget restrictions or spending caps, including those in the recent 2023 debt limit deal.

If government debt reaches the debt limit, the Treasury can use a series of accounting maneuvers often referred to as “extraordinary measures” to fund the government temporarily. Once these maneuvers have been exhausted, sometimes called the “X-date,” the federal government would default on its debt obligations. The economic consequences of a large-scale, intentional default are unknown, but predictions range from bad to catastrophic. In 1979, an inadvertent temporary partial debt default occurred because of an administrative error; it raised US borrowing costs by $40 billion (in 2019 dollars). This was an accidental default on a small batch of Treasury securities, but it alarmed investors enough to raise interest payments significantly.

An intentional, large-scale default has never happened but would risk the US’s standing in global credit markets, raising interest rates on Treasury securities and putting the entire market for Treasury securities at risk. It would increase costs for future borrowing, restricting the government’s options in future budgets. And it would cause disorder in global financial markets, which depend on the relative stability of US debt to function.

Updated January 2024