The statutory debt limit limits the total amount of U.S. debt that can be outstanding at any point in time. It can only be changed by a law enacted by Congress. If Congress did not raise the debt limit at a time when cash on hand is insufficient to pay all our bills and our bondholders, the United States would be in default, for the first time in its history. In our nation’s history, we have never failed to pay all our bills, which is why U.S. Treasury bonds are commonly considered the safest investment in the world.
The debt limit does not affect our annual budget deficit (or surplus), and it does not in any way limit Congress’s ability to increase our national debt by authorizing higher spending or cutting revenue below levels needed to pay the bills. It only limits the Treasury Department’s authority to issue debt in order to finance expenditures already authorized by Congress.
Since the debt limit was created in 1939, Congress has modified the law many times (18 times just since 2001) to prevent a default on the full faith and credit of the United States. But in recent years, House Republicans have increasingly chosen to flirt with default, rather than acting quickly and responsibly to ensure that all our bills are paid. We have learned that just threatening to default has serious economic consequences and, of course, an actual default would be catastrophic.