The federal budget is central to Congress's ability to exercise its "power of the purse." Recent economic turmoil put strain on the federal budget due to declining revenues and increasing spending levels. Subsequently, policies enacted to restrain spending, along with an improving economy, have put the federal budget on a more sustainable path in the near term. In FY2012, the U.S. government spent $3,538 billion (22.8% of GDP) and collected $2,449 billion in revenue (15.8% of GDP), resulting in a budget deficit of $1,089 billion (7.0% of GDP). CBO currently estimates the FY2013 deficit at $845 billion (5.3% of GDP). The Obama Administration released its FY2014 budget on April 10, 2013. Under the proposals in the President's budget, the deficit is estimated at $744 billion (4.4% of GDP) in FY2014. The FY2014 budget contains a policy agenda that largely focuses on providing additional stimulus to create jobs, increasing infrastructure investment, and providing additional funding for early childhood education programs. The President's budget also proposes new deficit reduction aimed at replacing the Budget Control Act's (BCA's) automatic spending reduction process. These proposals include additional tax revenues generated by limiting deductions on higher-income households and ensuring that higher-income households pay a minimum percentage of their income in taxes. On the spending side, the proposals include reductions in health spending, certain mandatory programs, and lowering of the BCA's discretionary spending caps. The budget also contains a proposal to use the chained consumer price index (CPI) for the purposes of calculating annual increases in certain federal benefits and for the indexation of tax brackets. The stimulus measures are primarily targeted to increase spending in FY2014 and FY2015, whereas the deficit reduction takes place mainly after FY2015.

The federal budget deficit has exceeded $1 trillion in each of the last four fiscal years (FY2009- FY2012). Concern over these large deficits, as well as the long-term trajectory of the federal budget, resulted in significant debate during the 112th Congress over how to achieve meaningful deficit reduction and how to implement a plan to stabilize the federal debt. Numerous expiring provisions, across-the-board spending cuts, and other short-term considerations having a major budgetary impact, were scheduled to take effect at the very end of 2012 or in early 2013. This combination of policies, estimated by CBO to reduce the deficit by $502 billion between FY2012 and FY2013, was referred to by some as the "fiscal cliff." Had these policies taken effect, CBO projected that the economy would have returned to recession in FY2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA; H.R. 8 as enacted), which addressed many of these tax and spending policies. As Congress changed the trajectory of these policies by increasing spending and decreasing revenue, these policies have increased the deficit relative to the current law baseline. The provisions of ATRA were estimated by CBO to increase the budget deficit by $330 billion in FY2013 and nearly $4 trillion over the FY2013-FY2022 period.

Total federal debt can increase in two ways. First, debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it. On August 2, 2011, President Obama signed the Budget Control Act of 2011 (BCA; S. 365; P.L. 112-25), after an extended debt limit episode. The federal debt had reached its legal limit on May 16, 2011, prompting Treasury Secretary T. Geithner to declare a debt issuance suspension period, allowing certain extraordinary measures to extend Treasury's borrowing capacity. The BCA included provisions aimed at deficit reduction and allowing the debt limit to rise between $2,100 billion and $2,400 billion in three stages, the latter two subject to congressional disapproval. Once the BCA was enacted, a presidential certification triggered a $400 billion increase, raising the debt limit to $14,694 billion, and a second $500 billion increase on September 22, 2011, as a disapproval measure (H.J.Res. 77) only passed the House. A January 12, 2012, presidential certification triggered a third, $1.2 trillion increase on January 28, 2012. On January 18, 2012, the House passed a disapproval measure (H.J.Res. 98) on a 239-176 vote. The Senate declined to take up a similar measure (S.J.Res. 34), on a 44-52 vote on January 26, 2012. On December 26, 2012, the U.S. Treasury stated that the debt will reach its limit on December 31. Extraordinary measures will then be used to meet federal payments. CBO estimates those measures could fund the government until mid-February or early March 2013. Congress has always placed restrictions on federal debt. The form of debt restrictions, structured as amendments to the Second Liberty Bond Act of 1917, evolved into a general debt limit in 1939. Congress has voted to raise the debt limit 11 times since 2001, due to persistent deficits and additions to federal trust funds. Congress raised the limit in June 2002, and by December 2002 the U.S. Treasury asked Congress for another increase, which passed in May 2003. In June 2004, the U.S. Treasury asked for another debt limit increase and again in October 2004, enacted on November 19, 2004. In 2005, reconciliation instructions in the FY2006 budget resolution (H.Con.Res. 95) included a debt limit increase. After warnings from the U.S. Treasury, Congress passed an increase that the President signed on March 20. In 2007, Congress approved legislation (H.J.Res. 43) to raise the debt limit by $850 billion to $9,815 billion that the President signed September 29, 2007. The recent economic slowdown led to sharply higher deficits in recent years, which led to a series of debt limit increases. The Housing and Economic Recovery Act of 2008 (H.R. 3221), signed into law (P.L. 110-289) on July 30, 2008, included a debt limit increase. The Emergency Economic Stabilization Act of 2008 (H.R. 1424), signed into law on October 3 (P.L. 110-343), raised the debt limit again. The debt limit rose a third time in less than a year to $12,104 billion with the passage of the American Recovery and Reinvestment Act of 2009 on February 13, 2009 (ARRA; H.R. 1), signed into law on February 17, 2009 (P.L. 111-5). Following that measure, the debt limit was subsequently increased by $290 billion to $12,394 billion (P.L. 111-123) in a stand-alone debt limit bill on December 28, 2009, and by $1.9 trillion to $14,294 billion on February 12, 2010 (P.L. 111-139), as part of a package that also contained the Statutory Pay-As-You-Go Act of 2010.

Total federal debt can increase in two ways. First, debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it. On August 2, 2011, President Obama signed the Budget Control Act of 2011 (BCA; S. 365; P.L. 112-25), after an extended debt limit episode. The federal debt had reached its legal limit on May 16, 2011, prompting Treasury Secretary Timothy Geithner to declare a debt issuance suspension period, allowing certain extraordinary measures to extend Treasury's borrowing capacity. The BCA included provisions aimed at deficit reduction and allowing the debt limit to rise between $2,100 billion and $2,400 billion in three stages, the latter two subject to congressional disapproval. Once the BCA was enacted, a presidential certification triggered a $400 billion increase, raising the debt limit to $14,694 billion. That certification also triggered a second $500 billion increase on September 22, 2011, as a disapproval measure (H.J.Res. 77) only passed the House. A January 12, 2012, presidential certification will trigger a third, $1.2 trillion, increase after 15 days unless a disapproval measure, which would be subject to veto, were enacted. On January 18, 2012, the House passed such a measure (H.J.Res. 98) on a 239-176 vote. Congress has always placed restrictions on federal debt. The form of debt restrictions, structured as amendments to the Second Liberty Bond Act of 1917, evolved into a general debt limit in 1939. Congress has voted to raise the debt limit 11 times since 2001, due to persistent deficits and additions to federal trust funds. Congress raised the limit in June 2002, and by December 2002 the U.S. Treasury asked Congress for another increase, which passed in May 2003. In June 2004, the U.S. Treasury asked for another debt limit increase and again in October 2004. A debt limit increase was enacted on November 19, 2004. In 2005, reconciliation instructions in the FY2006 budget resolution (H.Con.Res. 95) included a debt limit increase. After warnings from the U.S. Treasury, Congress passed an increase that the President signed on March 20. In 2007, Congress approved legislation (H.J.Res. 43) to raise the debt limit by $850 billion to $9,815 billion that the President signed September 29, 2007. The recent economic slowdown led to sharply higher deficits in recent years, which led to a series of debt limit increases. The Housing and Economic Recovery Act of 2008 (H.R. 3221), signed into law (P.L. 110-289) on July 30, 2008, included a debt limit increase. The Emergency Economic Stabilization Act of 2008 (H.R. 1424), signed into law on October 3 (P.L. 110-343), raised the debt limit again. The debt limit rose a third time in less than a year to $12,104 billion with the passage of the American Recovery and Reinvestment Act of 2009 on February 13, 2009 (ARRA; H.R. 1), which was signed into law on February 17, 2009 (P.L. 111-5). Following this measure, the debt limit was subsequently increased by $290 billion to $12,394 billion (P.L. 111-123) in a stand-alone debt limit bill on December 28, 2009, and by $1.9 trillion to $14,294 billion on February 12, 2010 (P.L. 111-139), as part of a package that also contained the Statutory Pay-As-You-Go Act of 2010.