Everyone understands that the federal government debt ceiling will eventually be increased, but much of the policy discussion in the past week has focused on the harm from a default that could be triggered by a delayed increase in the ceiling. Few journalists are asking by how much the debt ceiling will be increased and when Congress is likely to confront this problem again. The debt ceiling was increased 50 times between June 1965 and 2002 and ten times in the past decade. The following chart plots the number of years between each increase in the debt limit.
Debt ceiling increases have become larger in magnitude and less frequent. From 1965 to 2002 the average debt ceiling increase was effective for 277 days, on average. Over the past decade the average debt ceiling increase was effective for 380 days, an increase of 37% over the prior four decades. Overall, 78% of increases in the debt ceiling were effective for one year or less, 50% required a subsequent increase in less than 8 months, and 25% required another increase within four months. Only four increases in the debt ceiling were effective for at least two years. If this Congress were to raise the debt limit comparably to the median previous Congress, it will need to address the question of another debt increase on about June 10 of next year.
Debt ceiling increases in the past decade have been more than twice as large, relative to GDP, as they were between 1965 and 2003. The following chart plots the magnitude of each increase in the debt ceiling from 1965 to the present.
From 1965 to 2002 the average debt ceiling increase was equivalent to about 3.46% of GDP. The past ten increases raised the debt ceiling by an average of 7.09% of GDP. The distribution of previous debt increases is skewed; about half raised the debt limit by less than 2% of GDP and one-quarter by less than 1.2% of GDP. If this Congress were to increase the debt limit comparably to the median previous Congress, in terms of the share of GDP, expect a $325 billion increase or enough to cover the deficit for about six months.
Many taxpayers and voters would like to avoid another government shutdown knowing that a shutdown means that monuments will be barricaded, citizens will be inconvenienced, and furloughed federal workers will receive back pay for days that they didn’t work. While default on federal debt obligations is not an option, it may make sense for conservatives who prefer smaller government to link a larger than typical increase in the debt ceiling to tax and entitlement reform. Half of debt ceiling increases since 1965 were effective for less than 8 months and many only covered the federal deficit for about four months. A larger than typical increase in the ceiling would mean that another government shutdown wouldn’t occur for at least a few years. Taxpayers should support such a large increase in the debt ceiling if it is accompanied by entitlement reform and tax reform that promotes economic growth. If future tax and spending reform is not linked to the increase in the debt limit, expect another debate over debt, spending and taxes in 4 to 8 months when the Congress will need to raise the debt limit once again.