History of the United States debt ceiling facts for kids

The history of the United States debt ceiling is all about how the United States debt ceiling has changed since it was first created in 1917. The debt ceiling is a rule that limits how much money the U.S. government can borrow. Managing the country's debt is a big part of how the U.S. economy works. The debt ceiling also limits how the government can pay for its daily operations. When Congress doesn't agree to raise the debt ceiling, it can cause big problems, especially in recent years.

What is the Debt Ceiling?

A special rule called the debt ceiling has been in place since 1917. That's when the U.S. Congress passed a law called the Second Liberty Bond Act. Before 1917, there wasn't a debt ceiling. But there were other rules that limited how much money the government could borrow.

The United States has almost always had a public debt since March 4, 1789. This debt started because of the American Revolutionary War and other early government needs. The first report on the debt showed it was about $75 million in 1791. The total national debt has grown under every president since Herbert Hoover.

How the Debt Ceiling Started

Before 1917, the U.S. didn't have one big debt ceiling. Instead, Congress had to approve each time the government wanted to borrow money. They would pass a law for each loan, saying how much could be borrowed.

During World War I in 1917, Congress created the debt ceiling. The Second Liberty Bond Act of 1917 allowed the Treasury (the government's money department) to borrow money without asking Congress for approval every single time. But there was a catch: the total amount of debt had to stay under a set limit, which was the debt ceiling.

Laws That Shaped the Debt Ceiling

In 1939, Congress set the first limit on the total amount of debt the government could have, no matter how it was borrowed. This new way of setting a total debt limit was mainly set up by laws called Public Debt Acts in 1939 and 1941. These laws were changed later on.

The Public Debt Act of 1939 removed separate limits for different types of debt. The Public Debt Act of 1941 raised the total debt limit to $65 billion. It also put almost all government borrowing under the U.S. Treasury.

Later Public Debt Acts kept changing the total debt limit. For example, laws in 1942, 1943, 1944, and 1945 raised the limit to $125 billion, $210 billion, $260 billion, and $300 billion. In 1946, the limit was lowered to $275 billion. It stayed that way until 1954. The Korean War was paid for with taxes, not more borrowing. The U.S. Treasury almost hit the debt ceiling in 1953. Congress didn't raise it until 1954. The government avoided hitting the limit by using different methods, like selling off gold.

A key thing about these Public Debt Acts was that the new debt ceiling was usually set about 10% higher than the actual debt at that time.

Changes in the 1970s

Before a law called the Budget and Impoundment Control Act of 1974, the debt ceiling was very important. Congress didn't have many chances to talk about the budget. After these budget changes, some people thought the debt ceiling became less useful.

In 1979, Dick Gephardt, a representative from Missouri, created a special rule. This "Gephardt Rule" meant that if Congress passed a budget, the debt ceiling was automatically considered raised. This helped avoid a problem where Congress would approve spending money but then not approve borrowing to pay for it. This rule was used until Congress got rid of it in 1995.

How Often the Debt Ceiling is Raised

Experts say the U.S. has raised its debt ceiling at least 90 times in the 20th century.

From March 1962 to May 2011, the debt ceiling was raised 74 times. This included 18 times under Ronald Reagan, eight times under Bill Clinton, and seven times under George W. Bush.

Between 2001 and 2016, Congress raised the debt ceiling 14 times. It was raised 7 times during President Bush's eight years, adding $5.3 trillion to the limit. It was raised 11 times during President Obama's eight years, adding $6.4 trillion to the limit by March 2015.

Past Debt Ceiling Crises

1995 Debt Ceiling Problem

In 1995, a request to raise the debt ceiling caused a big debate in Congress. Lawmakers argued about reducing the size of the federal government. This disagreement led to the federal budget not being passed, which caused the United States federal government shutdown of 1995–96. Eventually, the debt ceiling was raised, and the government shutdown ended.

2011 Debt Ceiling Problem

In 2011, Republicans in Congress used the debt ceiling as a way to push for less government spending. This was because the usual process for approving the yearly budget wasn't happening. The problems with the debt ceiling, along with a lowering of the country's credit rating, caused the Dow Jones Industrial Average (a stock market index) to drop by 2,000 points in July and August. On August 8, the Dow had one of its worst days ever, falling 635 points.

A government report estimated that the delay in raising the debt ceiling cost the government about $1.3 billion in 2011. Other groups said the delay would cost even more over ten years, around $18.9 billion.

2013 Debt Ceiling Problem

After the debt ceiling was raised to $16.394 trillion in 2011, the U.S. hit the limit again on December 31, 2012. The Treasury Department started taking "extraordinary measures" to keep paying the bills. These are special accounting tricks to avoid hitting the limit right away.

A big budget problem called the fiscal cliff was solved with a new tax law, but nothing was done about the debt ceiling. The government said the debt ceiling needed to be raised by $700 billion to keep paying for things in 2013. They expected the "extraordinary measures" to run out by February 15.

The Treasury Department has said it can't choose which bills to pay if the debt ceiling isn't raised. If they couldn't borrow more money, they would simply have to delay payments. This would stop payments for things like Social Security benefits and government contracts. This could shrink the U.S. economy by 7%, which is even worse than the Great Recession.

A law called the No Budget, No Pay Act of 2013 temporarily stopped the debt ceiling from February 4, 2013, until May 19, 2013. On May 19, the debt ceiling was officially raised to about $16.699 trillion. However, the limit was only raised to the actual debt at that time, so the Treasury still had to use "extraordinary measures" to avoid a default. These measures were expected to last until October 17, 2013. During this crisis, public approval for the Republican Party went down.

2021 Debt Ceiling Problem

In July 2021, the temporary pause on the debt ceiling ended. The U.S. Treasury again started using "extraordinary measures." These were expected to run out around October 18. Some senators tried to block efforts to raise the ceiling, saying that the other party should do it on their own. On October 7, 2021, the Senate voted to raise the debt ceiling, but only enough to let the Treasury borrow money until December. That month, Congress voted to increase it by $2.5 trillion. President Biden signed this into law on December 16, 2021. At that point, the debt ceiling was set at about $31.4 trillion.

2023 Debt Ceiling Problem

On January 19, 2023, the United States reached the debt ceiling again. President Biden initially refused to negotiate, asking for a simple increase to the debt ceiling. Many news reports and experts talked about a big risk of the U.S. not being able to pay its bills. However, not raising the debt ceiling doesn't only mean not paying bills; it could also mean shutting down parts of the government. The Treasury has said that it would be impossible to choose which bills to pay.

Many news outlets also said that the federal government had never failed to pay its financial obligations before. President Biden even called such a situation "unprecedented." However, it's more accurate to say that the U.S. has failed to pay bills several times in history, but never because of the debt ceiling. For example, there were late interest payments in 1814 because of money problems during the War of 1812. There was also a brief problem in 1979 due to technical issues.

Historical Debt Ceiling Levels

Note that this table does not go back to 1917 when the debt ceiling started.

Reference for values between 1993 and 2015:

Keep in mind:

• The numbers in the table don't account for things like inflation or the size of the economy at the time.
• The debt ceiling includes all government debt, both money owed to the public and money owed between different government accounts.
• The debt ceiling number doesn't always show the exact amount of debt at that moment.
• From March 15 to October 30, 2015, there was a "de facto" (meaning "in practice") debt limit of $18.153 trillion. This was because the government used special accounting tricks to avoid hitting the official limit.