Debt Limit 101

What is federal debt?

The U.S. government borrows money from private sources, local governments, and other countries to finance its yearly deficits. It can also borrow money from its own accounts, such as the Social Security Trust Fund. When there is more spending than revenue (such as revenue from taxes), the government incurs debt. The gap between revenue and spending in a given year is the budget deficit, while the overall amount of money owed by the government is the debt. When all outstanding obligations are combined, it is called gross public debt. It is currently more than $14.2 trillion.1
$16 $14 $12 $10 $8 $6 $4 $2 $0
1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: United States Budget Historical Tables, Office of Management and Budget.

Gross Public Debt

(in trillions)

What is the federal debt limit?

Most of the debt the government may owe is limited by law. When that limit is reached, Congress must vote to increase it. This has happened 10 times since 2001.2 The current debt limit is set at nearly $14.3 trillion.3 The Treasury announced that the limit was reached on May 16, 2011, but it can shift government finances to stretch that date to August 2, 2011.4

What if Congress does not increase the debt limit?

For the first time, the full faith and credit of the United States would be compromised. The government would not be able to meet its financial obligations and would be forced to significantly reduce payments for operations or to end many programs.5 Global markets and businesses that rely on a stable U.S. dollar would face great uncertainty, retirement and insurance funds would be imperiled, and interest rates would likely increase dramatically, forcing greater spending in the future.6

What does this mean for hungry and poor people?

Many in Congress do not want to raise the debt limit. Others would tie their vote to budget process changes that will lead to massive spending cuts, disproportionately hurting needy families. Failure to increase the debt limit puts at risk the governments ability to operate programs that meet the needs of hungry and poor people in the United States and abroad. Congress must take a holistic approach to the federal budget that includes revenue raisers, such as closing tax loopholes and eliminating tax breaks, in addition to spending cuts. We should reduce our debt and deficit without sacrificing programs for hungry and poor people.
To reduce our nations deficit, the federal budget must be considered in its entirety. Congress must create a circle of protection around funding for programs that are vital to hungry and poor people in the United States and abroad.
Endnotes
March 2011 Treasury Debt Position and Activity Report, http://treasurydirect.gov/govt/reports/pd/pd_debtposactrpt_1103.pdf Congressional Research Service. The Debt Limit: History and Recent Increases 3 March 2011 Treasury Debt Position and Activity Report, http://treasurydirect.gov/govt/reports/pd/pd_debtposactrpt_1103.pdf 4 April 4, 2011, letter from the Treasury secretary to Congress, http://www.treasury.gov/connect/blog/Documents/FINAL%20Letter%2004-04-2011%20Reid%20Debt%20 Limit.pdf 5 January 6, 2011, letter from the Treasury secretary to Congress, http://www.treasury.gov/connect/blog/Documents/Letter.pdf 6 Ibid.
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