The Debt Limit

Every couple of years, the debt limit shows up to wreak havoc in American law and public finance. By capping the face value of government securities that can be “outstanding at one time,” the statutory limit threatens Treasury’s ability to raise the revenue needed to fund required government spending. And yet, despite its importance, much of the conventional wisdom surrounding the limit is wrong. Debt limits—authorities for the Executive Branch to borrow that come with limits attached—have existed since 1790, and flow naturally from the Constitution’s reservation of the borrowing power to Congress. I provide a corrective account of those early limits, and draw on public laws and Treasury borrowing records to provide an overview of the Executive Branch’s borrowing authority between 1790 and 1910. That historical excavation has important doctrinal and policy implications for how we think about public finance today, and helps clear the myth and confusion surrounding the debt limit. Under current doctrine, the limit is lawful: It is a form of statutory direction and commitment that was common at the ratification of both the Constitution and the Fourteenth Amendment. The limit is binding: When the limit conflicts with spending provisions, longstanding practice suggests that it is spending—and not the limit—that must yield. And, finally, the implications of the modern limit remain woefully misunderstood. There is no good reason to think that a “default” follows from a binding limit: tax revenue is more than sufficient to cover debt service. But there is excellent reason to think that the modern limit has become so divorced from its original appropriations purpose—which was to make spending cheaper, not harder—that the case for reform is ripe