The Federal Government’s Debt Ceiling Needs More Teeth

Dr. Michael Makovi

Assistant Professor, Economics

Dr. Michael Makovi
April 29, 2024

The Federal Government’s Debt Ceiling Needs More Teeth

Congress has repeatedly demonstrated it is not constrained by the debt ceiling (which is the total amount of debt the federal government can legally borrow). Every time the federal debt approaches the limit, Congress raises it. Ergo the debt ceiling does not meaningfully prevent the government from borrowing and spending more money than it has. 

The U.S. reached the debt ceiling on January 2023, after having done so in 2021, and before that, in 2013. In June 2023, President Biden signed legislation raising the debt ceiling to $31.4 trillion, which delayed the “debt crisis” for another few years. To truly limit federal spending and debt, we must create a new limit that Congress cannot increase on its own. If the debt ceiling is ever reached without being raised, the U.S. Treasury will run out of cash, unable to borrow enough money to pay for expenditures that Congress has already promised through legislation. That would force the government into default and having to prioritize some payments over others. 

No one is quite sure how that would work, but some results are fairly certain. Interest rates on federal debt — especially U.S. Treasury Notes — would increase because those who loan money to the federal government by buying the government’s bonds would perceive a higher risk of default in the future. Purchasers would be reluctant to loan money to Uncle Sam, and they would demand a higher interest rate to cover the risk. As a result, taxpayers would pay higher taxes to finance the same amount of federal government activity.

The United States has never defaulted on its debt, but we’ve had close calls like the current situation many times before. The debt ceiling was created by the Second Liberty Bond Act in 1917 to constrain federal spending. Congress and the President can’t spend too much money, the thought goes, if the debt is limited, much as a teenager will not spend too much of their parents’ money if their credit card has a low credit limit. But the debt ceiling has repeatedly failed to achieve its purpose. Rather than reining in spending to avoid getting near the top, Congress raises the ceiling.

The problem is that the debt ceiling has no teeth. If Congress is to perceive the debt ceiling as a credibly binding constraint, the ceiling must be set one level above Congress. The U.S. Constitution should be amended to restrict the ability of Congress to incur more debt. The debt ceiling would be essentially the same as it is today, except it would be set by a Constitutional amendment rather than ordinary legislation so raising it would require another amendment. This would make it far more difficult to raise the debt ceiling because amendments must be ratified by three-quarters of the 50 states, whereas legislation only requires a majority of Congress plus the President’s signature. Congressional representatives would be more likely to treat the debt ceiling as a binding constraint because the government could not unilaterally modify the ceiling. Therefore, embodying the debt ceiling in an amendment to the Constitution is more likely to persuade members of Congress to avoid allowing the debt to approach the ceiling in the first place.

Alternatively, we could add a balanced budget amendment to the Constitution, similar to the balanced budget provisions in the constitutions of every U.S. state except Vermont. A balanced budget requires that every year, expenditures do not exceed revenues. A balanced budget amendment is, therefore, equivalent to a complete ban on deficits and debt. Some states have variations on this theme. For example, Indiana prohibits state debt except for “temporary and casual deficits” for exceptional purposes. Most states permit debt for capital expenditures, such as transportation and other infrastructure. 

A third possibility is a so-called “debt brake,” as implemented by Germany and Switzerland. A debt brake allows the government to run a deficit for a few years as long as surplus is run for the next few years after that. This ensures that in the long-run, the budget is balanced while still allowing for cyclical deficits and surpluses to track the boom-and-bust business cycle in the short-run.

The point, in any case, is that one way or another, some binding constraint on the debt should be embodied within the U.S. Constitution to finally give teeth to the debt ceiling and turn it into a real limitation on government spending.

About the Author

Dr. Michael Makovi is an Associate Economic Professor and Bretzlaff Scholar at Northwood University. This piece, which was published in the March/April edition of Northwood’s signature publication, When Free to Choose, is the subject of an upcoming new video in the Philosophy of Free Enterprise online course. This free course is for anyone interested in learning about the importance of business in society, the ethical foundations of the capitalist system, the meaning of free enterprise and the ways in which it benefits us, limited government and the rule of law, and the differences between capitalism and other economic systems. To access the course, visit

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