Don’t Look Now, But Here Comes the Debt Ceiling
The Treasury Department estimates that the US will reach its debt ceiling by the end of this year. However, they still have an array of extraordinary measures that gave them about three months of headroom after hitting the limit in 2011.
The Treasury said Wednesday it could take “extraordinary measures” to juggle the nation’s finances to give Congress and the White House more time to work on a debt-limit increase. But even those steps — essentially a series of accounting maneuvers — would buy only into early 2013 before the government faced a possible default.
As of Tuesday, the U.S. debt was $16.165 trillion.
“I think that, as we saw last summer , it’s important that the debt limit is raised in a timely manner, but really that’s in Congress’ hands,” said Matthew Rutherford, assistant Treasury secretary for financial markets.
In 2011, the US hit the debt ceiling in May, and the extraordinary measures sufficed until what was given as a drop-dead date of early August. So if Treasury uses the same tools, they would have until the end of March before Congress would have to act to raise the debt ceiling (though some analysts claim that they can only make it to February this time around). This isn’t cost-free; the Government Accountability Office estimates that the delay in raising the debt ceiling in 2011 cost the government $1.3 billion. But it does extend the timeframe for Congress.
How Congress deals with the fiscal slope could shift the timing even more. If they let the Bush tax cuts or payroll tax cut expire or allow the sequester budget cuts to occur, for example, more revenue would flow into the Treasury and less spending would go out, meaning that the Treasury could more easily cover its bills. But that wouldn’t cause too great a shift, and with an expected recession as a result, the US would have plenty of other problems to attend to.
Democrats have recently made more noise on extending the payroll tax cut or something like it, after previously giving it up for dead. Republicans want to avoid the sequester cuts on the defense side and extend the Bush-era tax cuts permanently. But all of these things must now be reconciled with a stated desire for deficit reduction and the looming debt ceiling.
This timeframe of a late March reckoning on the debt ceiling, should that come to pass, is actually consistent with the expiration of a continuing resolution to fund the government, which ends March 30. I think this is really the drop-dead date for some kind of grand bargain. John Boehner continues to say that any increase in the debt ceiling must be offset by a concurrent amount of “spending cuts and reforms.” This conveniently leaves out taxes. Boehner got his wish in the 2011 debt ceiling deal, with a total of $2.1 trillion in spending cuts, through a cap on the budget and the sequester. Now he joins his counterparts in trying to delay or cancel the sequester on the defense side, but he hopes you won’t notice that.
Obviously, the makeup of the next Congress, and the occupant of the White House, will have plenty of bearing on the content of any deal. So view the election with that in mind.