The Biden Administration remains locked in a standoff with congressional Republicans over raising the federal debt ceiling, just two weeks before the nation is set to default on its obligations for the first time.
The U.S. government hit its congressionally imposed $31.4 trillion borrowing limit in January, and Treasury Secretary Janet Yellen has warned that the country could run out of cash as early as June 1 if Democratic President Joe Biden and Republican House Speaker Kevin McCarthy are unable to reach a deal to raise the debt ceiling.
But while a default would be unprecedented, according to most experts, this isn’t the first time Washington has been down this road.
Since the 1950s, both political parties have engaged in legislative battles over the debt ceiling—each using it to paint the other as financially irresponsible—only to reach an agreement before markets began to panic.
Here’s what to know about the history of the debt ceiling and how it provides context for the current political battle.
What is the debt ceiling and why was it created?
The debt limit refers to a ceiling imposed by Congress in 1917 that sets the maximum amount of outstanding debt the U.S. can incur.
The first debt limit was established to give the Treasury autonomy over borrowing by allowing it to issue debt up to the ceiling without congressional approval, making it easier to finance mobilization efforts in World War I. Before that, Congress generally had to authorize the Treasury to borrow in smaller increments.
But the U.S. began accumulating more debt as it got involved in more wars abroad. After entering World War II, the U.S. raised the debt limit every year to accommodate increased borrowing. According to the Bipartisan Policy Center, “By the end of the war, in June 1946, the debt limit is lowered to $275 billion as war costs dissipate and the federal government begins to run three years of surpluses. The federal debt limit remains unchanged at this level for eight consecutive years – the longest such period since its inception.”
In the last two decades, the U.S. has added $25 trillion in debt, spending nearly $1 trillion more than it receives in taxes and other revenue every year since 2001—in large part due to financing wars, tax cuts, emergency responses, and expanded federal spending. To make up the difference, the government has to borrow money to continue to finance payments that Congress has already authorized.
Now that the U.S. has hit its limit, unless Congress raises or suspends the debt limit, the federal government will lack the cash to pay all its obligations.
How many times has the debt limit been raised?
Since 1960, Congress has raised, extended, or revised the debt limit 78 separate times, of which 49 were under Republican presidents and 29 were under Democratic presidents, according to the Department of Treasury. In each of those instances, Congress took action on the debt limit before the nation defaulted.
But in recent years, raising the cap has become an increasingly political issue, particularly when power in Washington is divided. Since the debt ceiling is one of the few must-pass bills, both parties have tried to use the vote as an opportunity to take a political stand and exact concessions, blaming the other side for its profligacy.
Read More: Previous Debt Ceiling Fights Offer Clues to How This One Will End
That is what we are seeing play out this year. House Republicans are demanding steep spending cuts and a rollback of some of President Joe Biden’s legislative accomplishments in exchange for their votes to raise the debt ceiling. Meanwhile, Biden and Senate Democrats have insisted that they will not negotiate over the debt limit, calling on Congress to pass a clean increase without any strings attached.
When was the last time the U.S. was debt free?
January 1835 was the first and only time all of the government’s interest-bearing debt was paid off, according to the Treasury Department. President Andrew Jackson, who was suspicious of banks and did not trust the paper money they issued, liquidated the Second Bank of the United States, returning the government’s original investment plus a profit.
As a result, the government had a huge surplus of money, at $17.9 million, far greater than the actual government expenditures for the year. Congress divided the surpluses up among the states, which were bogged down with debt.
The last time the federal government ran a surplus was in 2001.
Has the U.S. ever defaulted before?
It depends on who you ask. Yellen, the Treasury Secretary, has said that “the U.S. has always paid its bills on time” and that if Congress does not raise the debt ceiling, “America would default for the first time in history.”
The White House has also claimed that the U.S. faces a first-ever default if Congress is unable to raise the debt limit.
But Alex Pollock, a former Treasury Department official, argued in a 2021 op-ed in The Hill that there are four precedents for U.S. defaults: 1) During the Civil War in 1862, when the U.S. printed paper money after the Union’s reserves of gold and silver coin were depleted; 2) during the Great Depression in 1933, when the government refused to repay bondholders with gold, as agreed to when the securities were sold; 3) in 1968, when the U.S. did not honor silver certificates with an exchange of silver dollars; and 4) in 1971, when the government abandoned the Bretton Woods Agreement, which included a commitment to redeem dollars held by foreign governments for gold.
However, according to Politifact, these precedents do not mirror the type of default that would happen today. A debt limit breach could lead to a decline in real GDP, nearly 2 million lost jobs, and an increase in the unemployment rate, per a recent report from Moody’s Analytics.
What’s the history of work requirements?
Stricter work requirements for federal aid programs have emerged as a key issue that appears to be holding up negotiations over raising the nation’s debt ceiling. Biden has signaled openness to compromise, even as other Democrats have balked.
Legislation passed by House Republicans in April would impose new or expanded work requirements for beneficiaries of three federal programs: Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps; Temporary Assistance for Needy Families (TANF), which offers aid to low-income families with children; and Medicaid assistance for adults without dependents.
Read More: What Republican Work Requirements in the Debt Ceiling Bill Would Do
Work requirements for federal aid programs are not a new idea. Biden told reporters last weekend that he “voted for tougher aid programs” when he was a senator from Delaware. “That’s in the law now,” he said. “But for Medicaid, it’s a different story.”
In 1996, Biden was one of 78 senators who voted for a welfare reform package that then-President Bill Clinton signed into law. The law eliminated the nation’s main welfare program and replaced it with TANF, which requires recipients to participate in work activities as a condition of receiving cash benefits. In remarks about the debt ceiling on Wednesday, Biden said it’s possible there could be a few work requirement provisions in the deal but “not anything of any consequence.”
“I’m not going to accept any work requirements that go much beyond what is already… I voted years ago for the work requirements that exist,” he said.
Do other countries have a debt ceiling?
There are only two countries that maintain a debt ceiling: the U.S. and Denmark. But the debt ceiling in Denmark does not regularly threaten economic disruption since it is set much higher than the country’s spending. In 2021, Denmark’s debt was about 14% of its ceiling.
Only once has Denmark approached its limit—in 2010 after the 2008 financial crisis—and the nation’s parliament quickly decided to raise it.
Other countries have temporarily had a debt ceiling. Australia introduced one in 2007 amid a large budget deficit, though it was repealed six years later.
What is the role of the 14th Amendment?
Some Senate Democrats are urging Biden to prepare to invoke the 14th Amendment to lift the debt ceiling on his own, without an act of Congress.
The controversial legal theory, which previous administrations had ruled out, builds on Section 4 of the 14th Amendment to argue that it would be unconstitutional for the U.S. to fail to make payments even if the debt limit isn’t raised, effectively challenging the debt limit on legal grounds.
Read More: Could Joe Biden Use the 14th Amendment to Solve the Debt Ceiling?
The 14th Amendment states that “the validity of the public debt, authorized by law…shall not be questioned.” Some legal scholars argue that this clause gives the Treasury Department the ability to keep borrowing money past the current $31.4 trillion debt limit that requires congressional approval to raise or lift.
“It’s a constitutionally tenable argument—and a strong argument—to solve the current debt ceiling crisis,” says Rebecca Zietlow, a professor at the University of Toledo College of Law whose research focuses on the 14th Amendment.
Biden said after his first meeting with top congressional leaders that he was “considering” using the 14th Amendment, but also acknowledged drawbacks to that approach. “The problem is it would have to be litigated, and without an extension it would end up in the same place,” he said.
More Must-Reads From TIME
- What to Know About Trump's Indictment
- Jason Isbell Is Finding His Purpose
- Can Taurine Slow Aging? What the Science Says
- Good Luck Getting Insurance When Your Country is On Fire
- Why Berberine Is Not 'Nature's Ozempic'
- How a Texas High Jumper Has Earned Nearly $1 Million
- The Best Shows to Stream on (HBO) Max
- 9 Ways to Combat Self-Criticism
Write to Nik Popli at nik.popli@time.com and Olivia B. Waxman at olivia.waxman@time.com.
