Historical Overview of the Debt Ceiling

The debt ceiling is a limit set by the United States Congress on the amount of national debt that can be issued by the Treasury Department. The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past. The concept of a debt ceiling has been a part of American politics since the early 20th century, but its history is more complex than many people realize.

Origins of the Debt Ceiling

In 1917, Congress passed the Second Liberty Bond Act, which authorized the Treasury Department to issue bonds to help fund World War I. This law also introduced the concept of a debt ceiling, which was set at $11.5 billion. The idea was to give Congress some control over the amount of debt the government could take on.

At the time, the debt ceiling was largely a symbolic gesture, as the government rarely came close to reaching it. However, this changed in the 1930s, when the Great Depression led to significant increases in government spending. In response, Congress raised the debt ceiling several times, eventually reaching $45 billion in 1940.

The Modern Debt Ceiling

Since 1960, Congress has raised, extended, or revised the debt limit 78 separate times with periodic increases to accommodate new spending programs and economic crises. However, it wasn’t until the 1980s that the debt ceiling became a major political issue.

In 1985, Congress passed the Gramm-Rudman-Hollings Act, which established deficit reduction targets and automatic spending cuts if those targets were not met. This law also raised the debt ceiling to $2.08 trillion. Over the next three decades, the debt ceiling was raised numerous times to accommodate new spending and tax policies.

In 2019, the debt ceiling was suspended until July 31, 2021. The ongoing political debates over the debt ceiling reflect deeper disagreements about the role of government spending in the economy and the appropriate level of taxation.

Current State

As of June 2023, the U.S. national debt was more than $31.4 trillion. Although the debt ceiling was reached in January 2023, the limit was temporarily suspended in a deal that capped spending for two years and placed additional limits on some federal poverty assistance programs.

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Sources: U.S. Department of Treasury, Investopedia, The Time The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Blake Flood and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the professionals at Consolidated Planning Corp and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. CFP® | Certified Financial Planner™ - Certified Financial Planner Board of Standards, Inc., owns the certification marks above, which it awards to individuals who successfully complete initial and ongoing certification requirements.

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