The Exchange

A Brief History of the Debt Limit

The Exchange

By Gordon Gray, Director of Fiscal Policy at the American Action Forum

“What happened in 2011 is that Republicans in Congress demanded –  said they would let America default for the first time in its history if they did not get the items on their agenda.  That was consequential and it was unprecedented, and the result was bad for everyone.”

-- White House Press Secretary Jay Carney

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It has been asserted as fact that the negotiations that produced the 2011 Budget Control Act, which increased the debt limit in exchange for spending reduction, were unique. This assertion has been deployed by the administration to paint Republicans as irresponsible and to advance an argument that Congress should cede its authority over the debt limit. But history has shown that debt limit debates produce a legislative rarity – bipartisan deficit reduction.

A review of past debt limit increases suggests that the August 2011 debate was neither unprecedented nor irresponsible, but rather it shared key characteristics with the debt limit debate of the mid-1990s. This debate equaled, if not exceeded the rancor and stretched the technical capacity of the Treasury’s ability to avoid default. Of note, it also preceded a period of fiscal surplus that saw a $450 billion increase in borrowing authority suffice without increase for 59 months.

A Legislative History of Debt Limit Increases

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The Debt Limit In Context

There are several unique aspects of this legislative experience. The first of which is the April 6, 1993 temporary increase in the limit, which would have seen the Treasury’s borrowing authority snap back to $4,145 billion after September 30th of that year. It is unclear how such a reversion would have been resolved if it had been allowed to transpire, but such an eventuality certainly would have threatened potential default on tranches of debt coming due after September 30th. The April 6th measure is the last time the United States enacted a temporary increase in Treasury’s overall borrowing authority.

Another key feature, and one also not seen since, is the pair of temporary exemptions in borrowing needed to liquidate Social Security obligations. These measures reflect the degree to which the United States had reached its technical borrowing limit. If these measures had not been put in place the United States could have missed the timely payment of Social Security benefits or risked default on other elements of Treasury’s debt portfolio.

During this same period, the Secretary of the Treasury exercised extraordinary powers to operate under the debt ceiling without breach. Outside observers were also noted the great uncertainty that attached to this episode of executive-legislative tug of war. Both Fitch and Moody’s placed certain tranches of Treasury debt on review for downgrade – a significant precedent at the time. The adversarial dynamic that existed between the Republican Congress and the Clinton administration at the time equaled or perhaps exceeded the degree of hostility that currently prevails. In addition to the two well-known government shutdowns, President Clinton vetoed 10 bills sent by the Congress, including a debt limit bill. Several distinctions emerged from the resolution of the debt-limit confrontation of the mid to late 1990s that should inform any assessment of current and looming debt limit negotiations. These debates are messy, but should serve as rare catalysts for policymakers to acknowledge minority views and establish a framework for the difficult task of deficit reduction.

The 2011 debate reflects these characteristics. President Obama had super-majorities in both chambers of Congress for two years of his presidency. But once that partisan advantage was gone in 2011, he could not expect to sign into law a clean debt-limit increase passed along near pure party lines (George Voinovich and Evan Bayh essentially swapped votes) as he did after the Congress increased the debt limit on Christmas Eve in 2009. Rather, the debt limit debate of 2011 required the president to acknowledge the opposition party – and the debt crisis – in a way that he had not since taking office. The result, while certainly produced through an imperfect process, was the first meaningful deficit reduction discussion of the Obama presidency.

Gordon Gray currently serves as the Director of Fiscal Policy at the American Action Forum (AAF). Prior to joining AAF, Gray served as senior policy advisor to Senator Rob Portman and as policy director on the Senator's campaign. Gray has also worked for the Senate Budget Committee as professional staff and before that was deputy director of domestic and economic policy for Senator John McCain's presidential campaign. Gray also spent several years with the American Enterprise Institute.

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