What Is the Debt Ceiling?

Quick Answer

The debt ceiling is the maximum amount of debt the U.S. federal government can carry at a given time. Currently, the debt ceiling is suspended through January 1, 2025, allowing the national debt to exceed the existing limit.
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The debt ceiling, also known as the debt limit, dictates the maximum amount the United States can borrow. With just five budget surpluses in the past five decades, Congress has repeatedly raised or suspended the debt ceiling to accommodate new government spending.

Reaching the debt limit without taking action to raise it could cause the U.S. to default. While that has yet to happen, understanding how the debt ceiling works can give you a better idea of how it might impact you.

What Is the Debt Ceiling?

The U.S. debt ceiling is the total amount of money that the federal government can borrow through Treasury bills, notes, bonds and other securities at any one time.

The government uses proceeds from selling these securities to help meet its financial obligations, which include:

  • Social Security and Medicare benefits
  • Salaries for members of the military and civilian workers
  • Interest payments on existing debts
  • Funding for national parks
  • All other programs the federal government supports

When the government's spending for a year is less than its revenue from taxes, duties and other sources, it has a budget surplus for that year and doesn't need to borrow money. When its spending exceeds its revenue, it has a budget deficit and must borrow to meet existing obligations.

Keep in mind, though, that the debt ceiling doesn't authorize new spending, just budget obligations that have already been authorized.

The debt ceiling was instituted in 1917 to provide the U.S. Treasury Department with more borrowing flexibility—previously, Congress needed to approve each issuance of debt with separate legislation.

However, the U.S. is currently the only democratic country in the world that has a nominal debt ceiling that must be regularly raised.

What's the Difference Between the Debt Ceiling and the National Debt?

The U.S. national debt is the current balance of obligations the federal government has currently, while the debt ceiling is the maximum amount it can borrow.

How High Is the U.S. Debt Ceiling Right Now?

In 2021, Congress raised the debt ceiling to $31.4 trillion. But when the government hit that limit in early 2023, legislators and the Biden administration agreed to a deal to suspend the ceiling temporarily through January 1, 2025.

As a result, the nation's debt, which was at $33.89 trillion in December 2023, is higher than the previously set limit.

What Happens if the Debt Ceiling Is Reached?

Once the federal government has reached the debt ceiling, the Treasury Department can't issue new debt to help cover its obligations.

At this point, Congress can increase the debt limit, temporarily suspend or abolish it or do nothing. If Congress doesn't take immediate action, the Treasury Department has two options to avoid defaulting, at least temporarily:

  • Use incoming revenue and cash on hand: If the agency has current revenue and cash to pay its obligations, it can use these funds. However, since the government has gone more than two decades without a surplus, this option won't go far.
  • Utilize accounting techniques: The department can suspend new investments or redeem existing investments prematurely, temporarily reducing the amount of U.S. Treasury securities issued to government accounts. In other words, it cuts the amount of outstanding Treasury securities, temporarily lowering the total amount of outstanding debt.

If the federal government has exhausted these extraordinary measures, it can no longer fund operations.

What Happens if the Government Defaults?

The good news is that, despite disagreements over budget proposals and how to manage the national debt, Congress has never let the government default. That's because legislators understand that letting that happen would be catastrophic for the U.S. economy.

Here are some examples of what could happen:

  • Those who receive benefits via social programs, such as Social Security or food or housing assistance, could see their payments be delayed or even stopped.
  • The country's gross domestic product (GDP), which is the total value of all finished goods and services produced within the country's borders, would decrease.
  • Unemployment would increase.
  • Interest rates on mortgage loans, credit cards and other credit products would rise.
  • The government could be hampered in its ability to maintain its national defense.
  • Funding for national parks, air traffic controllers and other programs would be under threat.
  • The public health system would no longer be able to function at the highest level.
  • The value of the U.S. dollar would fall as global markets lose faith in the government.
  • The stock market would be thrown into a crisis.

What's more, because the U.S. Treasury's debt securities are used globally as a benchmark "risk-free" asset, a default would send shockwaves throughout the global economy, likely causing a ripple effect.

How Many Times Has the Debt Ceiling Been Raised?

The modern debt ceiling was put in place in 1941. Since the end of World War II, Congress has modified the debt ceiling 103 times, including permanent raises, temporary suspensions and revised definitions of the ceiling.

Is the Debt Ceiling Effective?

Some have likened the debt ceiling to a credit card's credit limit, which limits how much a consumer can borrow. But unlike the federal government, consumers can't raise their own credit limits at will.

Critics argue that policymakers give little consideration to the limit when passing spending initiatives, resulting in budget deficits year after year.

There's no serious discussion in Congress about whether to abolish the debt ceiling. But to minimize the political drama and economic threats surrounding the limit, the U.S. Government Accountability Office, a nonpartisan government agency within the legislative branch, has called for reforms to the debt ceiling. Examples include linking changes to the limit to certain fiscal targets or the country's GDP or replacing the ceiling—which only applies to previously authorized spending—with a limit on future spending.