The United States has had a "debt ceiling," or debt limit, since 1917. However, until 1941, the limit only applied to bonds, not to other forms of indebtedness.
The 1917 and 1918 debt limits were implemented to help the United States more easily raise money for the war effort, which had begun in April of 1917.
1917 - 1938: Bond Limit Years
The separate limit on bonds prompted calls for consolidating the debt limit in 1939, when President Roosevelt asked Congress to remove it. The president said that there was no immediate need to raise the total public debt ceiling of $45 billion, but asked that the Treasury bond limit of $30 billion be removed.
President Roosevelt's request was granted on July 20, 1939, with the passage of the Public Debt Act. For the first time, all American public debt was subject to the same limit.
1939 - 1974: Debts and Budgets
From 1939 through 1974, the debt limit was debated simultaneously with the budget process. Many of the incremental changes you see in the chart below are the result of several provisions coming into force from one debt limit amendment.
It did not take long after the debt limit was consolidated before the minority party began to grumble about the size of the national debt. These concerns were largely abandoned once the country entered World War II.
The 92% debt limit increase in 1942 remains the largest percentage increase in American history. An identical increase in our current limit would create a new debt ceiling of $31.5 trillion.
1946 saw the debt limit's first reduction, as heightened war spending was no longer necessary. Debate on that reduction included comments from one Senator that the debt of the United States was then equal to that of the entire rest of the world.
Throughout the postwar years, minor episodes of partisan bickering never amounted to much more than hot air. The debt ceiling reached a turning point in 1974, when Congress implemented a new decision-making structure for federal spending affairs, overriding President Nixon's veto and separating the budget process from the debt limit debate.
1974 - Present: Debt Politics and Debt Crises
With the debt limit freed from budget negotiations, politicians on both sides of the aisle began wielding it as a threat in order to score points against the party controlling the White House.
In 1979, Treasury Secretary Michael Blumenthal was forced to plead with balanced-budget pushers in the House of Representatives to pass a limit increase, as the Treasury was on the verge of default and would risk missing payments to retirees. Unfortunately, this could not prevent a technical default on $122 million worth of Treasury bonds. The resulting fallout permanently increased rates by 0.6%, which has added up to over $12 billion in additional interest payments per year.
The Senate failed to raise the debt limit in a timely fashion in 1983, causing a minor political crisis. During the month of November, the Senate's inaction was blamed for an estimated $250 million increase in interest payments on the national debt.
The debt limit also played an important role in the government shutdowns at the end of 1995. A contentious budget fight during the winter of 1995 and 1996 brought the Treasury near default, which caused Moody's to threaten a ratings downgrade on $387 billion in Treasuries. Republican lawmakers wielded the debt limit throughout this period in an attempt to extract tax cuts and a "down payment" on a balanced budget from President Clinton.
