The Debt Limit Since 2011. D. Andrew Austin, Analyst in Economic Policy. February 12, 2014.

“The Constitution grants Congress the power to borrow money on the credit of the United States—one part of its power of the purse—and thus mandates that Congress exercise control over federal debt. Control of debt policy has at times provided Congress with a means of expressing views on appropriate fiscal policies. Before 1917 Congress typically controlled individual issues of debt. In September 1917, while raising funds for the United States’ entry into World War I, Congress also imposed an aggregate limit on federal debt in addition to individual issuance limits. Over time, Congress granted Treasury Secretaries more leeway in debt management. In 1939, Congress agreed to impose an aggregate limit that gave the U.S. Treasury authority to manage the structure of federal debt. The statutory debt limit applies to almost all federal debt. The limit applies to federal debt held by the public (that is, debt held outside the federal government itself) and to federal debt held by the government’s own accounts. Federal trust funds, such as Social Security, Medicare, Transportation, and Civil Service Retirement accounts, hold most of this internally held debt. For most federal trust funds, net inflows by law must be invested in special federal government securities. When holdings of those trust funds increase, federal debt subject to limit will therefore increase as well. The government’s on-budget fiscal balance, which excludes the net surplus or deficit of the U.S. Postal Service and the Social Security program, does not directly affect debt held in government accounts. The change in debt held by the public is mostly determined by the government’s surpluses or deficits. The net expansion of the federal government’s balance sheet through loan programs also increases the government’s borrowing requirements. Under federal budgetary rules, however, only the net subsidy cost of those loans is included in the calculation of deficits.”