CRS Reviews Effects of Reaching Debt Limit

The gross federal debt, which represents the federal government's total outstanding debt, consists of two types of debt: (1) debt held by the public and (2) debt held in government accounts, also known as intragovernmental debt. Federal government borrowing increases for two primary reasons: (1) budget deficits and (2) investments of any federal government account surpluses in Treasury securities, as required by law. Nearly all of this debt is subject to the statutory limit. The federal debt limit currently stands at $14,294 billion. Following current policy, Treasury has estimated that the debt limit will be reached in spring 2011.

Treasury has yet to face a situation in which it was unable to pay its obligations as a result of reaching the debt limit. In the past, the debt limit has always been raised before the debt reached the limit. However, on several occasions Treasury took extraordinary actions to avoid reaching the limit and, as a result, affected the operations of certain programs. If the Secretary of the Treasury determines that the issuance of obligations of the United States may not be made without exceeding the public debt limit, a debt issuance suspension period can be authorized. This gives Treasury the authority to utilize nontraditional methods to finance obligations.

Treasury Secretary Geithner issued a letter to Congress on January 6, 2011, stating that Treasury has an ability to delay for several weeks the date by which the debt limit would be reached by taking certain actions. However, if these financing options are also exhausted and Treasury is no longer able to pay the bills, serious financial and economic implications could result that could have a lasting impact on federal programs and the U.S.'s ability to borrow in the future. According to Treasury, if the debt limit is not raised after that point, payment of other obligations and benefits would be discontinued, limited, or adversely affected. The letter also provided Treasury's views on the consequences of a default by the United States on its debt obligations.

Under current estimates, the federal government will have to issue an additional $738 billion in debt above the current statutory limit to finance obligations for the remainder of FY2011. If the debt limit is reached and Treasury is no longer able to issue federal debt, federal spending would have to be decreased or federal revenues would have to be increased by a corresponding amount to cover the gap in what cannot be borrowed. To put this into context, the federal government would have to eliminate all spending on discretionary programs, cut nearly 70% of outlays for mandatory programs, increase revenue collection by nearly two-thirds, or take some combination of those actions in the second half of FY2011(April through September 30, 2011) in order to avoid increasing the debt limit. Additional spending cuts and/or revenue increases would be required, under current policy, in FY2012 and beyond to avoid increasing the debt limit.

It is extremely difficult for Congress to effectively influence short-term fiscal and budgetary policy through action on legislation adjusting the debt limit. The need to raise (or lower) the limit during a session of Congress is driven by previous decisions regarding revenues and spending stemming from legislation enacted earlier in the session or in prior years. Nevertheless, the consideration of debt-limit legislation often is viewed as an opportunity to reexamine fiscal and budgetary policy. Consequently, House and Senate action on legislation adjusting the debt limit often is complicated, hindered by policy disagreements, and subject to delay. Which spending and revenue policies are enacted and how often Congress wishes to reconsider statutory debt limit legislation typically affects the level at which the debt limit is set.

                         Contents

If the debt nears the legal limit and the debt limit is not increased, the Department of the Treasury (Treasury) would likely take actions outside of its typical cash management practices to pay federal obligations. Similar actions have been taken previously. If these financing options are exhausted and Treasury is no longer able to pay for all federal obligations, some federal payments to creditors, vendors, contractors, state and local governments, beneficiaries, and other entities would be delayed or limited. This could result in significant economic and financial consequences that may have a lasting impact on federal programs and the federal government's ability to borrow in the future.

This report examines the possibility of the federal government reaching its statutory debt limit and not raising it, with a particular focus on government operations. First, the report explains the nature of the federal government's debt, the processes associated with federal borrowing, and historical events that may influence prospective actions. It also includes an analysis of what could happen if the federal government may no longer issue debt, has exhausted alternative sources of cash, and, therefore, depends on incoming receipts or other sources of funds to provide any cash needed to liquidate federal obligations.³ Finally this report lays out considerations for increasing the debt limit under current policy and what impact fiscal policy could have on the debt limit going forward.

Federal Government Debt and the Debt Limit⁴

The gross federal debt, which represents the federal government's total outstanding debt, consists of two types of debt:

• the debt held by the public and

• the debt held in government accounts, also known as intragovernmental debt.

The debt held by the public represents the total net amount borrowed from the public to cover the federal government's accumulated budget deficits. Annual budget deficits increase the debt held by the public by requiring the federal government to borrow additional funds to fulfill its commitments.

The debt held in government accounts represents the federal debt issued to certain accounts, primarily trust funds, such as those associated with Social Security, Medicare, and Unemployment Compensation. Generally, government account surpluses, which include trust fund surpluses, by law must be invested in special non-marketable federal government securities and thus are held in the form of federal debt.⁶ Treasury periodically pays interest on the special securities held in a government account. Interest payments are typically paid in the form of additional special securities issued by Treasury to the trust funds, which also increases the amount of intragovernmental debt and federal debt subject to limit.

When a trust fund invests in U.S. Treasury securities, it effectively lends money to the rest of the government. The loan either reduces what the federal government must borrow from the public, if the budget is in deficit, or reduces the amount of publicly held debt, if the budget is in surplus. At the same time, the loan increases intragovernmental debt. The revenues exchanged for these securities then go into the General Fund of the Treasury and are indistinguishable from other cash in the General Fund. This cash may be used for any government spending purpose.⁷

Congress created a statutory debt limit in the Second Liberty Bond Act of 1917.⁸ This development changed Treasury's borrowing process and assisted Congress in its efforts to exercise its constitutional prerogatives to control the federal government's fiscal outcomes. The debt limit also imposes a form of fiscal accountability that compels Congress and the President to take deliberate action to allow further federal borrowing if necessary.

Almost all of the federal government's borrowing is subject to a statutory limit.⁹ From time to time, Congress has considered and adopted legislation to change this limit. Because the statutory limit applies to both debt held by the public and intragovernmental debt, both budget deficits and government account surpluses may contribute to the federal government reaching the existing debt limit.

The Debt Limit and the Treasury

Treasury's standard methods for financing federal activities can be disrupted when the level of federal debt nears its legal limit. If the limit prevents Treasury from issuing new debt to manage short-term cash flows or to finance an annual deficit, the government may be unable to obtain the cash needed to pay its bills. The limit may also prevent the government from issuing new debt in order to invest the surpluses of designated government accounts, such as federal trust funds. Treasury is caught between two requirements: the law that requires Treasury to pay the government's legal obligations or invest trust fund surpluses, on one hand, and the statutory debt limit which may prevent Treasury from issuing the debt to raise cash to pay obligations or make trust fund investments, on the other.¹⁰

The level of federal debt changes throughout the year due to fluctuations in income and outlays, whether or not the government has an annual surplus or deficit. Seasonal fluctuations could still require Treasury to sell debt even if the annual level of federal debt subject to limit does not increase (i.e., if the budget were balanced and trust funds were not in surplus). Even on a day-today basis, the level of federal debt can vary significantly. For example, Treasury issues large volumes of individual income tax refunds in February and March, because taxpayers expecting refunds tend to file early. On the other hand, Treasury tends to collect more revenue in April because taxpayers making payments tend to file closer to April 15.

Past Treasury Secretaries, when faced with a nearly binding debt ceiling, have used special strategies to handle cash and debt management responsibilities.¹¹ Since 1985, these measures have included

• suspending sales of nonmarketable debt (savings bonds, state and local government series, and other nonmarketable debt);

• trimming or delaying auctions of marketable securities;

• under-investing certain government funds (Social Security, Government Securities Investment Fund of the Federal Thrift Savings Plan, Exchange Stabilization Fund); and

• exchanging Treasury securities for non-Treasury securities held by the Federal Financing Bank (FFB).

Past Treasury Actions to Postpone Reaching the Debt Limit

Treasury has yet to face a situation in which it was unable to pay its obligations as a result of reaching the debt limit. However, during debt limit impasses in 1985, 1995-1996, 2002, and 2003, Treasury took extraordinary actions to avoid reaching the debt limit and to meet the federal government's other obligations. Some of the actions Treasury took during these periods are briefly discussed below, along with additional actions taken from 2009 to present.¹³

In September 1985, the Treasury Department informed Congress that it had reached the statutory debt limit. As a result, Treasury had to take extraordinary measures to meet the government's cash requirements. Treasury used various internal transactions involving the Federal Financing Bank (FFB) and delayed public auctions of government debt. It also was unable to issue, or had to delay issuing, new short-term government securities to the Civil Service Retirement and Disability Trust Fund, the Social Security Trust Funds, and several smaller trust funds. In particular, new Treasury obligations could not be issued to the trust funds because doing so would have exceeded the debt limit. Treasury took the additional step of "disinvesting" the Civil Service Retirement and Disability Trust Fund, the Social Security Trust Funds, and several smaller trust funds by redeeming some trust fund securities earlier than usual. Premature redemption of these securities created room under the debt ceiling for Treasury to borrow sufficient cash from the public to pay other obligations, including November Social Security benefits.¹⁴ The debt limit was subsequently temporarily increased on November 14, 1985 (P.L. 99-155) and permanently increased on December 12, 1985 (P.L. 99-177) from $1,824 billion to $2,079 billion.

As a result of the 1985 debt limit crisis, Congress subsequently authorized the Treasury to alter its normal investment and redemption procedures for certain trust funds during a debt limit crisis. Such authority was not provided with respect to the Social Security trust funds. In addition, both P.L. 99-155 and P.L. 99-177 included provisions to require the Treasury to restore any interest income lost to the trust funds as a result of delayed investments and early redemptions.

During the debt limit crisis of 1995-1996, Treasury, once again, used nontraditional methods of financing, including some of the methods used during the 1985 crisis as well as not reinvesting some of the maturing Treasury securities held by the Exchange Stabilization Fund.¹⁵ In early 1996, Treasury announced that it had insufficient cash to pay Social Security benefits for March 1996 because it was unable to issue new public debt.¹⁶ To allow benefits to be paid in March 1996, Congress authorized the Treasury to issue securities to the public in the amount needed to make the March 1996 benefit payments and specified that, on a temporary basis, those securities would not count against the debt limit (P.L. 104-103 and P.L. 104-115). In 1996, Congress passed P.L. 104-121 to increase the debt limit and, among other provisions, to codify Congress's understanding that the Secretary of the Treasury and other federal officials are not authorized to use Social Security and Medicare funds for debt management purposes, except when necessary to provide for the payment of benefits or administrative expenses of the programs.

In addition, during periods in 2002 and 2003 (from April 4 through April 16, 2002; from May 16 through June 28, 2002; and from February 20 through May 27, 2003), Treasury again took actions to avoid reaching the debt limit, including utilizing certain trust fund assets and suspending the sale of securities to certain trust funds. The debt limit was permanently increased on June 28, 2002 (P.L. 107-199) from $5,950 billion to $6,400 billion and on May 27, 2003 (P.L. 108-24) from $6,400 billion to $7,384 billion.

Treasury used another tool in 2009 to cope with the debt limit without declaring a debt issuance suspension period. Specifically, Treasury used a program that was originally established as an alternative method for the Federal Reserve (Fed) to increase its assistance to the financial sector during the financial downturn, the Supplementary Financing Program (SFP), which was announced on September 17, 2008. Under the SFP, Treasury temporarily auctioned more new securities than were needed to finance government operations and deposited the proceeds at the Fed. Since January 2009, the Treasury has generally held $200 billion at the Fed under this program. When debt subject to limit approached the statutory debt limit around October 2009, however, Treasury withdrew all but $5 billion from the Fed to create room under the debt ceiling. Once the debt limit was raised on February 12, 2010, from $12,394 billion to $14,294 billion (P.L. 111-139), Treasury began increasing the balances held at the Fed back to $200 billion by issuing new debt to the public.

As discussed above, short delays in increasing the debt limit have caused the Treasury Secretary to take extraordinary actions to avoid disrupting the payments of federal obligations. Though the federal government incurred additional costs during these periods, such as disruption of government borrowing and trust fund investment programs, the payment of benefits and other outlays occurred largely on schedule and trust funds were made whole once these crises ended. However, if the budget continues to be in deficit and policy makers wish to avoid a default on federal obligations, such methods cannot avoid the eventual necessity of raising the debt limit.

Current Treasury Actions in 2011 Surrounding the Debt Limit

Treasury Secretary Geithner's letter to Congress of January 6, 2011, states that Treasury has an ability to delay the date by which the current debt limit would be reached by utilizing similar methods used during past crises, including declaring a debt issuance suspension period, if necessary. According to Treasury, these actions could delay the date that the debt limit would be reached by several weeks. However, if the debt limit is not raised after that point, payment of other obligations and benefits would be "discontinued, limited, or adversely affected."¹⁷

Potential Implications of Reaching and Not Raising the Debt Limit

If the federal government were to reach the debt limit and Treasury were to exhaust its alternative strategies for remaining under the debt limit, then the federal government would need to rely solely on incoming revenues to finance obligations. If this occurred during a period when the federal government was running a deficit, the dollar amount of newly incurred federal obligations would continually exceed the dollar amount of newly incoming revenues.

It is not possible for CRS to specifically predict what Congress, the President, the Office of Management and Budget (OMB), Treasury, federal agencies, and financial markets would do in certain situations. Nevertheless, it is possible to scope out some aspects of what could happen under a specific scenario, in which the federal government no longer may issue debt, has exhausted alternative sources of cash, and therefore is dependent upon incoming receipts or other sources of funds to provide any cash that is necessary to pay federal obligations. That said, CRS cannot state the full range of events that may occur if the described scenario were to actually take place.

Possible Options for Treasury and OMB

In this scenario, the federal government implicitly would be required to use some sort of decision-making rule about whether to pay obligations in the order they are received, or, alternatively, to prioritize which obligations to pay, while other obligations would go into an unpaid queue. In other words, the federal government's inability to borrow or use other means of financing implies that payment of some or all bills or obligations would be delayed.

Treasury officials have maintained that the Department lacks formal legal authority to establish priorities to pay obligations, asserting, in effect, that each law obligating funds and authorizing expenditures stands on an equal footing.¹⁸ In other words, Treasury would have to make payments on obligations as they came due. With regard to this view, Treasury recently noted that an attempt to prioritize payments was "unworkable" because adopting a policy that would require certain types of payments taking precedence over other U.S. legal obligations would merely be "a failure by the U.S. to stand behind its commitments."¹⁹

In contrast to this view, GAO wrote to then-Chairman Bob Packwood of the Senate Finance Committee in 1985 that it was aware of no requirement that Treasury must pay outstanding obligations in the order in which they are received.²⁰ GAO concluded that "Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States." In any case, if Treasury were to prioritize, it is not clear what the priorities might be among the different types of spending.²¹

It also is possible that OMB may use statutory authority to apportion or reapportion budget authority (i.e., the authority to incur obligations) that Congress has granted in appropriations, contract, and borrowing authority to delay expenditures and effectively establish priorities for liquidating obligations. OMB is required by statute to "apportion" these funds (e.g., quarterly) to prevent agencies from spending at a rate that would exhaust their appropriations before the end of the fiscal year.²² If OMB were to use statutory apportionment authority to affect the rate of federal spending, its ability to do so would be constrained by the Impoundment Control Act of 1974, title X of the Congressional Budget and Impoundment Control Act of 1974 (P.L. 93-344).²³ The Impoundment Control Act does not prohibit the President from withholding funds, but establishes procedures for the President to submit formal requests to Congress either to defer (i.e., delay) spending until later or rescind (i.e., cancel) the budget authority that Congress previously had granted.²⁴ Although the use of OMB's apportionment authority in the event of a debt limit crisis might delay the need to pay some obligations, use of the authority would not prevent obligations from remaining unpaid.

Potential Impacts on Government Operations

If the debt limit is reached and not increased, federal spending would be affected. Under normal circumstances, Treasury has sufficient financial resources to liquidate all obligations arising from discretionary and mandatory (direct) spending, the latter of which includes interest payments on the debt.²⁵ If a lapse in raising the debt limit should prevent Treasury from being able to liquidate all obligations on time, it is not clear whether the distinction between different types of spending would be significant or whether the need to establish priorities would disproportionately impact one type of spending or another. It is also not clear whether the distinctions among different types of obligations, such as contract, grant, benefit, and interest payments, would prove to be significant.

Potential Impacts on Programs Generally

A government that delays paying its obligations in effect borrows from vendors, contractors, beneficiaries, other governments,²⁶ or employees who are not paid on time. Moreover, a backlog of unpaid bills would continue to grow until the government collects more revenues or other sources of cash than its outlays. In some cases, delaying federal payments incurs interest penalties under some statutes such as the Prompt Payment Act, which directs the government to pay interest penalties to contractors if it does not pay them by the required payment date,²⁷ and the Internal Revenue Code, which requires the government to pay interest penalties if tax refunds are delayed beyond a certain date.²⁸ The specific impacts of delayed payment would depend upon the nature of the federal program or activity for which funds are to be paid.

Potential Impacts on Programs with Trust Funds

If Treasury delays investing a federal trust fund's revenues in government securities, or redeems prematurely a federal trust fund's holdings of government securities, the result would be a loss of interest to the affected trust fund. This could potentially worsen the financial situation of the affected trust fund(s) and accelerate insolvency dates.²⁹ As noted earlier, Congress passed P.L. 104-121 to prevent federal officials from using the Social Security and Medicare Trust Funds for debt management purposes, except when necessary to provide for the payment of benefits and administrative expenses of the programs. Under P.L. 99-509, Treasury is permitted to delay investment in the TSP's G-Fund and the Civil Service Retirement and Disability Trust Fund, and also to redeem prematurely assets of the Civil Service Retirement and Disability Trust Fund. However, the law also requires Treasury to make these funds whole after a debt limit impasse is resolved. The government maintains a number of other trust funds whose finances could potentially be harmed by delayed investment or early redemption in the absence of similar actions to make the trust funds whole after a debt limit impasse has ended.

Distinction Between a Debt Limit Crisis and a Government Shutdown

In 1995, the Congressional Budget Office (CBO) contrasted this sort of scenario, under which the debt limit is reached and not raised, with a substantially different situation, in which the government must shut down due to lack of appropriations.

Potential Economic and Financial Effects

In addition to the potential impact on federal programs and activities if the debt limit is not increased, there may also be economic and financial consequences. A 1979 GAO report described the consequences of failing to increase the debt ceiling. GAO said the government had never defaulted on any of its securities, because cash has been available to pay interest and redeem them upon maturity or demand.³² Further, GAO said a default on the securities could have adverse effects on the economy, the public welfare, and the government's ability to market future securities.

Considerations for the Current Debt Limit Debate

There are various viewpoints about how to deal with the current debt limit issues. The debt subject to limit will generally continue to rise as long as the budget remains in deficit or trust funds remain in surplus. To avoid raising the debt limit and continue normal government operations, significant spending cuts and/or revenue increases would be required.

Illustrations of Contrasting Perspectives³⁵

Various members of the Obama Administration have stated that the consequences of a federal default would be serious. Treasury Secretary Geithner's letter of January 6, 2011, provided Treasury's views on the "consequences of default by the United States," describing, among other things, payments that would be "discontinued, limited, or adversely affected."³⁶ The letter also said a short-term or limited default on legal obligations would cause "catastrophic damage to the economy."³⁷ Chairman of the White House Council of Economic Advisers Austan Goolsbee elaborated, saying that a default would cause "a worse financial economic crisis than anything we saw in 2008."³⁸ Secretary Geithner, in his letter to Congress added, "Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasuries and the dollar's dominant role in the international financial system, causing further increases in interest rates and reducing the willingness of investors here and around the world to invest in the United States. . . ."³⁹ In a later online posting, Treasury Deputy Secretary Neal Wolin wrote that proposals to prioritize payments on the national debt above other legal obligations would not prevent default and would bring the same economic consequences Secretary Geithner described.⁴⁰ Looking forward, Secretary Geithner said in his letter that in addition to addressing the debt limit, the President wants to work with Congress to address the federal government's fiscal position with particular attention to addressing "medium- and long-term fiscal challenges."⁴¹

Other policy makers have expressed some contrasting perspectives focusing on the need to tie proposals to raise the debt limit to spending cuts, changes to the budget process, or instructions on how to deal with the payment of obligations if the debt limit is reached. For example, Senator Jim DeMint wrote in an op-ed that a vote to raise the debt limit should be opposed "unless Congress first passes a balanced-budget amendment that requires a two-thirds majority to raise taxes."⁴² Other proposals also have emerged. Senator Pat Toomey and Representative Tom McClintock introduced legislation that, in the event of a debt limit crisis, would require Treasury to make payment of principal and interest on debt held by the public a higher priority than all other federal government obligations (S. 163/H.R. 421; 112^th Congress). In a letter to Secretary Geithner, Senator Toomey said "This legislation is designed to maintain orderly financial markets by reassuring investors in U.S. Treasury securities that their investments are perfectly safe even in the unlikely event that the debt limit is temporarily reached."⁴³ Similarly, Senator David Vitter introduced legislation that would require priority be given to payment of all obligations on the debt held by the public and Social Security benefits in the event that the debt limit is reached (S. 259; 112^th Congress).

Economists have expressed concern regarding the current level of federal debt. However, they maintain that there would be significant consequences if the debt limit is not raised. Federal Reserve Chairman Ben Bernanke has stated that Congress must work to put a plan in to place that would lower the nation's federal debt. He also stated that not raising the debt limit could ultimately lead the nation to default on its debt with catastrophic implications for the financial system and the economy.⁴⁴ Mark Zandi, chief economist for Moody's Analytics, expressed similar sentiments regarding the debt limit and the potential impact on the economy. He stated, "Global investors are already anxious regarding our ability to come to a political consensus to address the nation's fiscal challenges; a protracted debate over the debt ceiling would be very counterproductive."⁴⁵ Donald Marron, the director of the Urban-Brookings Tax Policy Center and a former acting director of the Congressional Budget Office, recently expressed similar views. He stated, "Geithner is correct that the debt limit must increase. With monthly deficits running more than $100 billion, it's simply unthinkable that Congress could cut spending or increase revenue enough to avoid borrowing more. . . . Still, I am troubled by any suggestion that the United States might willingly default on its public debt. Doing so would have absolutely no upside."⁴⁶

Can an Increase in the Current Debt Limit be Avoided?

Under current estimates, the federal government will have to issue an additional $738 billion in debt on net above the current statutory limit to finance all obligations for the remainder of FY2011.⁴⁷ If the debt limit is reached and Treasury is no longer able to issue federal debt, federal spending would have to be decreased or federal revenues would have to be increased by a corresponding amount to cover the gap in what cannot be borrowed. To put this into context, the federal government is expected to spend roughly $688 billion on discretionary programs and $1,054 billion on mandatory programs in the second half of FY2011. If the debt limit were not raised and all discretionary spending in the second half of the fiscal year were eliminated, the federal government would still have to find further savings to cover its borrowing needs. Alternatively, the federal government would be able to cover its borrowing needs by cutting nearly 70% of outlays for mandatory programs in the second half of FY2011 (April through September 30, 2011).

In terms of revenues, the federal government is expected to collect roughly $1,114 billion in the second half of FY2011 (April through September 30, 2011). To cover the $738 billion in borrowing needs solely by increasing revenues, the government would have to raise taxes by about two-thirds. These spending cuts and revenue increases provide an approximation of what would be required to cover the borrowing need for the remainder of FY2011under current policy. They do not address what would be required in FY2012 and beyond to avoid having to raise the debt limit.

How Much Should the Debt Limit Be Raised?

Under current policy, the debt subject to limit is projected to increase throughout the remainder of the decade. The debt subject to limit is projected to reach $15,032 billion at the end of FY2011.⁴⁸ Under President Obama's FY2011 budget proposals, it is projected to reach $26,200 billion at the end of FY2020.⁴⁹ This represents an increase of over $1 trillion in each fiscal year during the FY2011 to FY2020 period. Increases in debt subject to limit at this level occur even as the budget deficit is projected to decline, in nominal dollars, between FY2011 and FY2014. Between FY2015 and FY2018, the budget deficit is projected to remain roughly stable, before rising thereafter.⁵⁰ In other words, the debt subject to limit increases even if the budget deficit declines in nominal terms as issuing debt would still be required to finance federal spending in excess of federal revenues (i.e., budget deficits).

Given the borrowing requirements discussed above, the current estimates stipulate the increases in the debt limit that would be required. However, depending on the spending and revenue proposals that may be subsequently enacted, borrowing requirements could change going forward. These borrowing requirements will dictate the level of debt and subsequent future increases in the debt limit. How often Congress wishes to reconsider statutory debt limit legislation typically affects the level at which the debt limit is set.

Temporary increases in the debt limit have been used in the past to provide additional time for Congress to consider debt limit increases. However, past temporary debt limit increases were eventually followed by permanent increases. If a temporary increase were to expire and the debt limit were to revert to a prior lower level, Congress may want to enact legislation that would result in a budget surplus in excess of the intragovernmental surplus in order to lower the level of debt subject to limit. If this legislation is not enacted and fully realized prior to the expiration of the temporary limit, then the level of debt would exceed the lowered debt limit.

Implications of Future Federal Debt on the Debt Limit

It is extremely difficult for Congress to effectively influence short-term fiscal and budgetary policy through action on legislation adjusting the debt limit. For example, the debt is projected to reach the current limit after spending and revenue decisions for half of the current fiscal year have already been made. The need to raise (or lower) the limit during a session of Congress is driven by previous decisions regarding revenues and spending. These decisions stem from legislation enacted earlier in the session or in prior years. Nevertheless, the consideration of debt limit legislation often is viewed as an opportunity to reexamine fiscal and budgetary policy. Consequently, House and Senate action on legislation adjusting the debt limit often is complicated, hindered by policy disagreements, and subject to delay.⁵¹

Generally, the following scenarios dictate whether or not an increase in the debt limit would be necessary, all else constant:

• If the federal budget is in deficit and intragovernmental debt is rising, an increase in the debt limit would be necessary.

• If the federal budget is in deficit and intragovernmental debt falls by an amount that is smaller than the budget deficit, an increase in the debt limit would be necessary.

• If the federal budget is balanced or in surplus and intragovernmental debt rises by an amount that is larger than the budget surplus, an increase in the debt limit would be necessary.

• If the federal budget is balanced or in surplus and intragovernmental debt is falling, an increase in the debt limit would not be required.

Appendix. Detailed History on Past Treasury Actions During Previous Debt Limit Crises

Selected Actions in 1985

In September 1985, the Treasury Department informed Congress that it had reached the statutory debt limit. As a result, Treasury had to take extraordinary measures to meet the government's cash requirements. Treasury used various internal transactions involving the Federal Financing Bank (FFB) and delayed public auctions of government debt. It also was unable to issue, or had to delay issuing, new short-term government securities to the Civil Service Retirement and Disability Trust Fund, the Social Security Trust Funds, and several smaller trust funds. Issuing new government securities to the trust funds would have caused the federal debt to exceed the debt limit. During this period, the bulk of Social Security payroll tax revenues were kept in a non-interest bearing account.

Treasury took the additional step of "disinvesting" the Civil Service Retirement and Disability Trust Fund, the Social Security Trust Funds, and several smaller trust funds by redeeming some trust fund securities earlier than usual. Premature redemption of these securities created room under the debt ceiling for Treasury to borrow sufficient cash from the public to pay other obligations, including November Social Security benefits.⁵³

As a result of these various actions, Social Security benefit payments and other federal payments were not jeopardized. The debt limit was subsequently temporarily increased on November 14, 1985 (P.L. 99-155) and permanently increased on December 12, 1985 (P.L. 99-177) from $1,824 billion to $2,079 billion. Both P.L. 99-155 and P.L. 99-177 included provisions to require the Treasury to restore any interest income lost to the trust funds as a result of delayed investments and early redemptions.

Concerning the Treasury's management of the Social Security Trust Funds during the 1985 debt limit impasse, the General Accounting Office (GAO, now the Government Accountability Office) wrote: "We conclude that, although some of the Secretary's actions appear in retrospect to have been in violation of the requirements of the Social Security Act, we cannot say that the Secretary acted unreasonably given the extraordinary situation in which he was operating."⁵⁴ In particular, GAO found that not all the delayed investment and securities redemptions during the period from September through November 1985 were necessary to meet Social Security benefit payments, and the excess was used to finance general government operations.⁵⁵

Following the 1985 debt limit crisis, Congress formally authorized the Secretary of the Treasury to declare a debt issuance suspension period and, during such periods, to depart from normal trust fund investment practices with respect to certain funds such as the Civil Service Retirement and Disability Fund and the TSP's G Fund (P.L. 99-509, the Omnibus Budget Reconciliation Act of 1986). Funds raised by procedures authorized during a debt issuance suspension period can only be used to the extent necessary to prevent the public debt from exceeding the debt limit. After the debt issuance suspension period has ended, P.L. 99-509 requires Treasury to make the trust funds whole by issuing the appropriate amount of securities and crediting any interest lost due to non-investment or early disinvestment of these funds.⁵⁶ Such authority to depart from normal trust fund investment practices was not provided with respect to the Social Security Trust Funds. A provision to allow such authority was dropped from P.L. 99-509 during conference.

Selected Actions in 1995-1996

Following the enactment of this additional authority, the first debt issuance suspension period was announced on November 15, 1995. Treasury, once again, used non-traditional methods of financing, including some of the methods used during the 1985 crisis as well as not reinvesting some of the maturing Treasury securities held by the Exchange Stabilization Fund.⁵⁷ In addition, Treasury utilized the new authority that was enacted under P.L. 99-509 to declare a debt issuance suspension period.

In early 1996, Treasury announced that it had insufficient cash to pay Social Security benefits for March 1996.⁵⁸ Congress responded on February 1, 1996, by passing P.L. 104-103, which provided the Treasury with temporary authority to issue securities to the public in an amount equal to the March 1996 Social Security benefit payments. Treasury issued about $29 billion of securities on February 23, 1996, and, under P.L. 104-103, these new securities were not to count against the debt limit until March 15, 1996. On March 7, 1996, Congress passed P.L. 104-115, which amended P.L. 104-103 to permit Treasury to continue investing payroll tax revenues in government securities and also to extend the exemption of the securities issued under P.L. 104103 from counting against the debt limit until March 30, 1996.

The debt limit was permanently increased on March 29, 1996 (P.L. 104-121) from $4,900 billion to $5,500 billion. P.L. 104-121 also codified Congress's understanding that the Secretary of the Treasury and other Federal officials are not authorized to use Social Security and Medicare funds for debt management purposes.⁵⁹ SSA states the following:

Social Security Trust Fund Cash and Investment Management Practices Under Normal Procedures and When Approaching the Debt Limit

By law, the Social Security Trust Funds must be invested in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States (42 U.S.C. § 401(d) and 42 U.S.C. § 1320b-15).⁶¹ The securities that the Treasury issues to the Social Security Trust Funds count toward the federal debt limit.

Under normal procedures, Social Security revenues (Social Security payroll taxes and individual income taxes) are immediately credited to the Social Security Trust Funds in the form of short-term, non-marketable Treasury securities called certificates of indebtedness (CIs). Under the terms of this exchange, when Treasury credits payroll tax and other revenues to Social Security in the form of CIs, the revenues themselves become available in the General Fund for other government operations.

CIs generally mature on the following June 30. Each June 30, any surplus for the year is converted from short-term Treasury securities to long-term, non-marketable Treasury securities called "special-issue obligations" or "specials."⁶² In addition, other special issues that have just matured and that are not needed to pay near-term benefits are reinvested in special-issue obligations. Interest income is credited to the trust funds semi-annually (on June 30 and December 31) in the form of additional special-issue obligations.⁶³

Social Security benefits are paid by the Treasury from the General Fund. When Treasury pays Social Security benefits, it redeems an equivalent amount of Treasury securities held by the trust funds in order to reimburse the General Fund.

In 2011, when the federal government is expected to reach the current debt ceiling, the Social Security program is projected to run a cash deficit. That is, Social Security's tax revenues are projected to be less than outlays for benefit payments and administration.⁶⁴ In a year when Social Security runs a cash flow deficit, the Treasury redeems some long-term government securities held by the trust funds. However, Social Security will still need to invest in non-marketable, short-term government securities in 2011 to manage short-term cash flows during the periods between receiving revenues and paying benefits (42 U.S.C. § 401(a), 42 U.S.C. § 401(d) and 42 U.S.C. § 1320b-15). Investing the trust funds' revenues for even very short periods ensures that the trust funds maximize their interest earnings. Social Security will also need to invest in nonmarketable, long-term government securities in June 2011 when short-term and certain long-term trust fund securities mature in June and amounts not needed to pay near-term benefits are rolled over into long-term government securities, and in June and December 2011 when semi-annual interest income is paid and interest income that is not needed to pay near-term benefits is invested in long-term government securities.

In addition, Social Security will draw on general revenues as a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312, signed on December 17, 2010). Among other provisions, P.L. 111-312 provides a temporary 2 percentage point reduction in the Social Security payroll tax for employees and the self-employed in 2011, resulting in a tax rate of 4.2% for employees and 10.4% for the self-employed.⁶⁵ To protect the Social Security Trust Funds from a loss of payroll tax revenues, P.L. 111-312 appropriates to the Social Security Trust Funds amounts equal to the reduction in payroll tax revenues. The law specifies that these appropriated amounts "shall be transferred from the General Fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted."⁶⁶

Depending on the extent and duration of any future debt limit crisis, and also on Treasury prioritization decisions, Social Security trust fund investment management procedures and benefit payments potentially could be affected because of the requirement that Treasury obligations cannot be issued to the Social Security trust funds if doing so would exceed the debt limit.⁶⁷ Absent Congressional action to make the trust funds whole, delayed issuance of government obligations to the trust funds, or early redemption of some trust fund assets, could accelerate depletion of the trust funds and move up the expected insolvency date.

Depending on the government's cash position in a given month, Treasury may need to issue new public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public debt, however, if doing so would exceed the debt limit. Social Security benefit payments may be delayed or jeopardized if the Treasury does not have enough cash on hand to pay benefits.

Author Contact Information

² Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate majority leader, January 6, 2011, available at http://www.treasury.gov/connect/blog/Pages/letter.aspx. U.S. Department of the Treasury, Treasury Assistant Secretary for Financial Markets Mary Miller February 2011 Quarterly Refunding Statement, February 2, 2011, available at http://www.treasury.gov/press-center/press-releases/Pages/tg1045.aspx.

³ The possible scenario sometimes has been referred to generically as a debt limit crisis. U.S. General Accounting Office (now the Government Accountability Office and hereafter GAO), Debt Ceiling: Analysis of Actions During the 2003 Debt Issuance Suspension Periods, GAO-04-526, May 2004.

⁴ This section draws on CRS Report 98-453, Debt-Limit Legislation in the Congressional Budget Process, by Bill Heniff Jr., and CRS Report RL31967, The Debt Limit: History and Recent Increases, by D. Andrew Austin and Mindy R. Levit.

⁵ If the budget is in surplus and intragovernmental debt rises by an amount that is less than the budget surplus, the total debt would not increase. See the later discussion in the section titled "Implications of Future Federal Debt on the Debt Limit."

⁶ GAO, Federal Trust and Other Earmarked Funds Answers to Frequently Asked Questions, GAO-01-199SP, January 2001, pp. 17-18.

⁷ For an explanation of how this process works for the Social Security trust funds, see Appendix.

⁸ Chapter 56, 40 Stat. 288 (1917). The debt limit is now codified at 31 U.S.C. § 3101.

⁹ The Treasury defines "Total Public Debt Subject to Limit" as "the Total Public Debt Outstanding less Unamortized Discount on Treasury Bills and Zero-Coupon Treasury Bonds, old debt issued prior to 1917, and old currency called United States Notes, as well as Debt held by the Federal Financing Bank and Guaranteed Debt." Approximately 0.5% of total federal debt is not subject to the debt limit. For more information, see U.S. Office of Management and Budget (hereafter OMB), Budget of the U.S. Government, Analytical Perspectives, Chapter 6 and Table 6-2.

¹⁰See generally, 31 U.S.C. §§ 3321 et seq. for the Treasury Secretary's duty to pay obligations. Regarding trust fund investments, see, for example, 42 U.S.C. § 401 (Social Security Trust Funds) and 5 U.S.C. § 8348 (Civil Service Retirement and Disability Trust Fund). The debt limit is codified at 31 U.S.C. § 3101.

¹¹ For example, see archived CRS Report 95-1109, Authority to Tap Trust Funds and Establish Payment Priorities if the Debt Limit is not Increased, by Thomas J. Nicola and Morton Rosenberg (available from CRS upon request).

¹² Congress formally authorized the additional powers to the Treasury Secretary under a "debt issuance suspension period" in the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509).

¹³ For a more detailed analysis of past Treasury actions surrounding the debt limit impasses of 1985 and 1995-1996, see the Appendix.

¹⁴ Treasury also redeemed some of the Social Security Trust Funds' holdings of long-term securities to reimburse the General Fund for cash payments of benefits in September through November 1985. As described above, during this period, the Treasury was unable to follow its normal procedure of issuing short-term securities to the trust funds and then redeeming short-term securities to reimburse the General Fund when it paid Social Security benefits.

¹⁵ Treasury's Exchange Stabilization Fund buys and sells foreign currency to promote exchange rate stability and counter disorderly conditions in the foreign exchange market.

¹⁶ As described in the Appendix, under normal procedures Treasury pays Social Security benefits from the General Fund and offsets this by redeeming an equivalent amount of the trust funds' holdings of government debt. In order to pay Social Security benefits, and depending on the government's cash position at the time, Treasury may need to issue new public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public debt, however, because of the debt limit. Social Security benefit payments may be delayed or jeopardized if the Treasury does not have enough cash on hand to pay benefits.

¹⁷ Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate majority leader, January 6, 2011, p. 4, available at http://www.treasury.gov/connect/blog/Pages/letter.aspx.

¹⁸ U.S. Congress, Senate Committee on Finance, Increase of Permanent Public Debt Limit, S.Rpt. 99-144, September 26, 1985. For more information, see archived CRS Report 95-1109, Authority to Tap Trust Funds and Establish Payment Priorities if the Debt Limit is Not Increased, by Thomas J. Nicola and Morton Rosenberg (available from CRS upon request).

¹⁹ "Treasury: Proposals to 'Prioritize' Payments on U.S. Debt Not Workable: Would Not Prevent Default," Neal Wolin, Deputy Secretary of the Treasury, January 21, 2011, at http://www.treasury.gov/connect/blog/Pages/Proposals-to-Prioritize-Payments-on-US-Debt-Not-Workable-Would-Not-Prevent-Default.aspx.

²⁰ Letter from GAO to the Hon. Bob Packwood, chairman of Senate Finance Committee, GAO B-138524, October 9, 1985, at http://redbook.gao.gov/14/fl0065142.php.

²¹ While CRS has not located a list of established priorities to pay bills during a lapse in increasing the debt limit, OMB previously prepared a list of essential functions that the government should continue to conduct during a government shutdown caused by a lapse in enacting appropriations. These priorities are based on a distinction between functions deemed excepted, such as providing health care or air traffic control, and those deemed non-excepted. If it should become necessary to establish priorities to pay bills when the debt limit has not been increased, it is possible that the Secretary of the Treasury may look to this list of essential functions for some guidance. See later discussion in the section titled "Distinction Between a Debt Limit Crisis and a Government Shutdown."

²² 31 U.S.C. § 1512, a provision of the Antideficiency Act, for example, states that appropriations for a definite period must be apportioned by such things as months, activities, or a combination of them to avoid obligation at a rate that would indicate a necessity of a deficiency or supplemental appropriations for the period. While apportionment commonly is used to control the rate at which agencies are allowed to obligate funds such as by placing orders and signing contracts, the text of Section 1512 also provides that it may be used to avoid expending funds.

²³ 2 U.S.C. §§ 681-692. During the period leading up to enactment of the Impoundment Control Act of 1974, the Nixon Administration used apportionment authority as a tool ultimately to limit outlays to conform to the President's budgetary priorities. Several lawsuits were brought to challenge the President's authority not to expend funds that Congress had appropriated and some lower courts held that the President lacked this authority. The Supreme Court did not address the merits of this issue.

²⁴ Generally, funds that have been proposed for deferral or rescission must be withheld for 45 days of continuous legislative session (excluding periods of more than three days when Congress is not in session), after which period they must be released unless Congress enacts a joint resolution to acquiesce in whole or in part to these requests. Congress sometimes responds to presidential deferral or rescission requests by acting on bills to defer or rescind different budget authorities from the ones that the President has proposed. Because deferrals or rescissions proposed by the President do not take effect unless Congress acquiesces to them, Congress as a matter of law has the final say on these matters. In practice, however, funds that are subject to these presidential requests often are withheld for long periods. For more information, see CRS Report RL33869, Rescission Actions Since 1974: Review and Assessment of the Record, by Virginia A. McMurtry.

²⁵ Discretionary spending is provided in, and controlled by, annual appropriations acts, which fund many of the routine activities commonly associated with such federal government functions as running executive branch agencies, congressional offices and agencies, and international operations of the government. Mandatory spending includes federal government spending on entitlement programs as well as other budget outlays controlled by laws other than appropriations acts. Mandatory spending also includes appropriated entitlements, such as Medicaid and certain veterans' programs, which are funded in annual appropriations acts. For more information, see CRS Report RS20129, Entitlements and Appropriated Entitlements in the Federal Budget Process, by Bill Heniff Jr.

²⁶ For example, because federal, state, and local government finances are linked by various intergovernmental transfers, late payment or nonpayment of federal obligations to states could affect the budgets and finances of local governments, such as school districts, counties, and municipalities.

²⁷ 31 U.S.C. § 3902.

²⁸ 26 U.S.C. § 6611.

²⁹ For information about the balances of all federal trust funds, see CRS Report R41328, Federal Trust Funds and the Budget, by Thomas L. Hungerford.

³⁰ Congressional Budget Office (hereafter, CBO), The Economic and Budget Outlook: An Update, August 1995, p. 49.

³¹ In the event of a funding hiatus, the Antideficiency Act nevertheless allows an exception for agencies to incur obligations for emergencies involving the safety of human life or the protection of property. For discussion, see CRS Report RL34680, Shutdown of the Federal Government: Causes, Processes, and Effects, by Clinton T. Brass.

³² While this passage indicates that a delay in increasing the debt limit has the potential to postpone the payment of Social Security benefits, among other benefits, Social Security benefits have been paid on time during past debt limit crises. Non-marketable securities can be redeemed on demand. GAO, A New Approach to the Public Debt Legislation Should be Considered, FGMSD-79-58, September 1979, pp. 17-18, http://archive.gao.gov/f0302/110373.pdf.

³³ Ibid.

³⁴ GDP = consumption + investment + government spending + (exports - imports). If government spending declines, then GDP will also decline by definition, all else equal.

³⁵ This report focuses on the potential impacts on government operations of reaching the debt limit and does not analyze or track proposals from the Administration or Congress in how to approach the debt limit issue.

³⁶ Letter from Timothy F. Geithner, Secretary of the Treasury, to the Hon. Harry Reid, Senate majority leader, January 6, 2011, p.4.

³⁷ Ibid., pp. 1, 3.

³⁸ ABC News This Week, Transcript: White House Adviser Austan Goolsbee, January 2, 2011, at http://abcnews.go.com/ThisWeek/week-transcript-white-house-adviser-austan-goolsbee/story?id=12522822.

³⁹ Treasury Secretary Geithner letter, January 6, 2011, p. 4.

⁴⁰ Neal Wolin, Deputy Secretary of the Treasury, "Treasury: Proposals to 'Prioritize' Payments on U.S. Debt Not Workable; Would Not Prevent Default," January 21, 2011, at http://www.treasury.gov/connect/blog/Pages/Proposalsto-Prioritize-Payments-on-US-Debt-Not-Workable-Would-Not-Prevent-Default.aspx.

⁴¹ Treasury Secretary Geithner letter, January 6, 2011, p. 4.

⁴² Senator Jim DeMint, "More Spending is a Threat to America," Politico, January 24, 2011, at http://www.politico.com/news/stories/0111/48020.html.

⁴³ Senator Pat Toomey, "Senator Toomey Sends Letter to Secretary Geithner on the Debt Limit," press release, February 2, 2011, http://toomey.senate.gov/record.cfm?id=330828&.

⁴⁴ Davidson, Paul, "Economy still in a deep hole, Bernanke says," USA Today, February 4, 2011.

⁴⁵ U.S. Congress, Senate Committee on the Budget, Challenges for the U.S. Economic Recovery, Testimony of Mark Zandi, February 3, 2011, available at http://budget.senate.gov/democratic/testimony/2011/Zandi_Senate_Budget_2_3_2011.pdf.

⁴⁶ Marron, Donald, "Debt Ceiling: Geithner Won't Let Us Default," CNNMoney.com, January 19, 2011.

⁴⁷ The amount of federal borrowing needed to fulfill obligations through the end of the fiscal year may depend on Treasury's use of the supplemental financing program. CRS calculations based on U.S. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, Tables 1-4 and C-2.

⁴⁸ U.S. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, Table C-2.

⁴⁹ Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2011, Mid-Session Review, Table S14, available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/11msr.pdf.

⁵⁰ Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2011, Mid-Session Review, Table S-1.

⁵¹ For more information, see CRS Report RS21519, Legislative Procedures for Adjusting the Public Debt Limit: A Brief Overview, by Bill Heniff Jr.

⁵² Under the most recent projections, the federal budget is expected to remain in deficit through FY2021 under current law. U.S. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, Table 1-1.

⁵³ Treasury redeemed some of the Social Security Trust Funds' holdings of long-term securities to reimburse the General Fund for cash payments of benefits in September through November 1985. As described above, during this period, the Treasury was unable to follow its normal procedure of issuing short-term securities to the trust funds and then redeeming short-term securities to reimburse the General Fund when it paid Social Security benefits.

⁵⁴ Letter from Charles A. Bowsher, Comptroller General of the United States, to the Hon. James R. Jones, chairman, Subcommittee on Social Security, House Committee on Ways and Means, December 5, 1985, GAO B-221077.2, http://archive.gao.gov/d12t3/128621.pdf.

⁵⁵ Ibid.

⁵⁶ GAO, Debt Ceiling Options, AIMD-96-20R, December 7, 1995, http://archive.gao.gov/paprpdf1/155750.pdf.

⁵⁷ Treasury's Exchange Stabilization Fund buys and sells foreign currency to promote exchange rate stability and counter disorderly conditions in the foreign exchange market.

⁵⁸ As described in later in this Appendix, under normal procedures Treasury pays Social Security benefits from the General Fund and offsets this by redeeming an equivalent amount of the trust funds' holdings of government debt. In order to pay Social Security benefits, and depending on the government's cash position at the time, Treasury may need to issue new public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public debt, however, because of the debt limit. Social Security benefit payments may be delayed or jeopardized if the Treasury does not have enough cash on hand to pay benefits.

⁵⁹ See 42 U.S.C. § 1320b-15.

⁶⁰ U.S. Social Security Administration, "Program Legislation Enacted in Early 1996," Social Security Bulletin, vol. 59, no. 2, Summer 1996, p. 65, at http://www.ssa.gov/policy/docs/ssb/v59n2/index.html.

⁶¹ There are two sources of Social Security revenues: (1) payroll taxes paid by workers and employers and (2) federal income taxes paid by some beneficiaries on a portion of their benefits. In addition, Social Security receives income from trust fund investments. Interest income is paid to the trust funds as a credit from the General Fund to the trust funds, in the form of additional non-marketable government securities.

⁶² The trust funds' long-term securities have maturities ranging from 1 to 15 years and normally mature in June of each year.

⁶³ For a detailed discussion, see Social Security Administration, Office of the Chief Actuary, Social Security Trust Fund Investment Policies and Practices, Actuarial Note Number 142, January 1999, http://www.ssa.gov/OACT/NOTES/pdf_notes/note142.pdf (hereafter cited as SSA Actuarial Note Number 142).

⁶⁴ For SSA's projections of Social Security trust fund operations, see 2010 Annual Report of the Board of Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Washington, DC, August 5, 2010, p. 2, http://www.ssa.gov/OACT/TR/2010/tr2010.pdf. For projections from the Congressional Budget Office (CBO), see Congressional Budget Office, 2010 Long-Term Projections for Social Security: Additional Information, Washington, DC, October 2010, p. 1, http://www.cbo.gov/ftpdocs/119xx/doc11943/10-22SocialSecurity_chartbook.pdf and The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, Appendix C. Note that Social Security's cash deficit will be offset by interest income for many years, with the result that Social Security will continue to run a positive total (or "primary") cash flow balance until the trust funds are exhausted in 2037 (under the intermediate projections of the Social Security Board of Trustees) or 2039 (under the projections by CBO). Social Security benefits scheduled under current law can be paid in full as long as there is a positive balance in the trust funds.

⁶⁵ P.L. 111-312 makes no change to the Social Security payroll tax rate for employers (6.2%) or to the amount of wages and net self-employment income subject to the Social Security payroll tax ($106,800 in 2011).

⁶⁶ See Title VI of H.R. 4853 as passed by the House and the Senate at http://www.gpo.gov/fdsys/pkg/BILLS111hr4853enr/pdf/BILLS-111hr4853enr.pdf.

⁶⁷ SSA Actuarial Note Number 142, p. 3.