Key Facts on the U.S. Debt Limit

by Gary Varvel

Key Facts

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The US is expected to reach its statutory debt limit of $14.3 trillion on or before May 16.

• The Debt limit was last raised in early February 2010
  - Senate vote: 60-39 (Late January)
  - House vote: 27-212 (Early February)
• To avoid default, Congress must pay $207 billion in debt interest.
  - Federal revenue: $2.2 trillion
  - Federal spending: $3.3 trillion ($1.1 trillion more than revenue)

FY11 can be fully funded without raising the debt ceiling.

• Congress shouldn’t be rushed or bullied into raising the debt limit.
• No one is asking the US to default on its debt.
• All that is needed to avoid a default is to make payments on the interest.
• The Treasury is able to delay a default date by selling assets, shifting cash around, and borrowing money from the Fed that does not count to the debt ceiling.

Historical Context

• Congress has never failed to increase the debt limit.
• In the last 10 years, the debt ceiling has been raised 10 times.
• Since 1940, the debt limit has been raised 100 times.
• Geithner has changed the default date 4 times in 2011 alone, the latest projection being August 2.[1]

Institutional reform is needed to fix a broken system.

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• The debt ceiling does not effectively restrain spending, yet is simply raised at Washington’s whim, at a historic average of 1.5 times per year.

Cutting spending is not something to be delayed.

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In the end, we are at greater risk to default under Washington’s charge card and excessive spending.

• American families cannot just increase their credit limit when their credit card debts become too burdensom, and Congress should not either.
• Excessive government spending has economic consequences for all Americans: higher cost of living, higher interest rates, and higher taxes.
• Interest and mandatory spending, such as Social Security and Medicare, will consume 90 percent of the budget by 2020; leaving 10% for everything from defense to education and infrastructure.
• Our heavy debt load is a bipartisan issue; spending doubled under President George W. Bush and is expected to double again under President Obama.
• We have seen Washington come together to make significant cuts to spending. The debt ceiling must be handled with the same sobriety and focus.

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[1] Treasury Department’s Predictions:
January 6, 2011 Debt ceiling: between March 31 and May 16, 2011.
March 1, 2011 Debt ceiling: between April 15, 2011 and May 31, 2011.
April 4, 2011 Debt ceiling: no later than May 16, 2011.
May 2, 2011 Debt ceiling: still May 16; default August 8.

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