LegiStorm

Summary:

The statutory debt limit, currently suspended through December 8, 2017, provides Congress a means of controlling federal borrowing. As the date when that suspension will lapse approaches, discussions about the role of the debt limit among the media, researchers, and Members of Congress promise to become more frequent. In recent discussions, misleading or less than fully accurate claims have, at times, surfaced. This report provides clarifications on five common debt limit contentions. Some of those points in need of clarification relate to the congressional power of the purse, which stems from three closely related constitutional provisions that charge Congress with deciding how the federal government spends, taxes, and borrows. The statutory debt limit represents one way that Congress exerts control over federal borrowing and debt, as it has since the beginning of the U.S. government—despite claims that limits on debt began in 1917. Before 1917, Congress typically specified the interest rates, maturities, call options, and other aspects of debt issuances. While the Second Liberty Bond Act of 1917 (P.L. 65-43, 40 Stat. 288) marked a turning point in federal debt policy, the modern debt limit— meaning an overall limit on federal debt without sublimits—might be more properly said to have been established in 1939. Another claim is that the federal government suffered technical defaults in the late 1970s, which raised federal borrowing costs. In certain past episodes, lapses in temporary debt limit increases caused breaches of the limit, although no payment delays resulted and thus no default occurred in the ordinary sense of that term. In another 1979 episode some interest and principal payments to some small investors holding Treasury securities were delayed. Those delays appeared to stem from problems in updating the U.S. Treasury’s computer and accounting systems, rather than the debt limit. Market interest rate movements on the date of the first payment delay were more plausibly affected by significant Federal Reserve announcements made that day rather than payment delays that were not reported until a week and a half later. Others have claimed that debt limit increases were once less contentious or that debt limit modifications were typically “clean”—that is, not attached to other legislative provisions. Debt policy, however, has often been a divisive issue since the beginning of American government. Many of the debt limit measures enacted in past decades engendered substantial division and debate. Debt, by its nature, allows government to shift the fiscal burden of current expenditures or lessen the burden of current taxes by transferring obligations to future taxpayers. Moreover, debt limit measures have been informally or formally linked with other issues for many decades. Some commentators have pointed to a statutory provision that allows minting of platinum coins as a purported solution to the prospect of a binding debt limit. Proponents of the platinum coin strategy have encouraged the U.S. Treasury to consider minting a high denomination coin, which—according to proponents—could be deposited at the Federal Reserve and exchanged for cash for the U.S. Treasury’s general fund. The platinum coin strategy, however, would present several major policy challenges. Other commentators have claimed that the Public Debt Clause of the Fourteenth Amendment would allow the executive branch to take actions to address debt policy that would bypass Congress. Although predicting how Justices might weigh different factors in interpreting legislative and executive powers is difficult, were the issue to come before the Supreme Court, neither case law associated with this clause, nor the text, structure, or operation of the clause, support this contention.