Debt doomsday may come sooner than expected

2.24.12

The federal government could hit the debt ceiling sooner than expected — and possibly around the November election — according to a report out Friday.

Lawmakers on Capitol Hill had hoped that last summer’s deal to end the nasty fight over lifting the debt ceiling would ensure the issue wouldn’t resurface until at least 2013.

But the Bipartisan Policy Center said Friday that the debt-limit doomsday could come earlier than that.

Analysts from the Bipartisan Policy Center projected that the United States will hit its $16.4 trillion debt ceiling between late November 2012 and early January 2013 due to lower-than-expected corporate tax revenues and the recent extension of the payroll tax holiday.

A number of other factors, such as the ongoing financial crises in Europe, volatile gas prices and how quickly the U.S. economy continues to grow could push the debt-ceiling deadline forward or backwards, according to the center.

“When the Budget Control Act of 2011 increased the debt ceiling last August, Congress, the administration, and outside analysts believed that this increase would allow federal borrowing under the limit well into 2013,” the center’s analysts wrote. “Due to unexpected circumstances … that belief appears increasingly likely to have been misguided.”

The current debt level is $15.4 trillion, according to the Treasury Department.

The center’s report echoes a warning from Treasury Secretary Timothy Geithner last week, when he testified before the Senate Budget Committee that the country would reach the debt limit “significantly” after the fiscal year ends on Sept. 30, but “before the end of the calendar year.”

“Those estimates will change, it’s a long way away and you know those estimates change a lot,” Geithner told senators. “But what we do try and do is update those estimates regularly, transparently and we’ll keep doing that as we have in the past.”

President Barack Obama’s fiscal 2013 budget also foreshadows an earlier-than-expected deadline. As of Sept. 30, the debt level is expected to hit $16.3339 trillion, running close to the statutory $16.394 trillion limit, according to the budget.

A grueling, weeks-long battle in Congress last summer ended with an agreement to slash $2.1 trillion from the federal budget in exchange for raising the debt limit by the same amount. The standoff pushed the country to the edge of default and triggered the first-ever downgrade of the nation’s credit rating.

If the United States maxes out its credit limit before the end of this year, that could set up another messy and acrimonious battle during the lame-duck session. Lawmakers already face a dilemma over expiring Bush-era tax rates and a potential fight over preventing the $1.2 trillion in automatic budget cuts that were borne out of the supercommittee’s failure last November.

Congress has to sign off on any increases to the debt ceiling, but the Treasury Department can employ a variety of accounting maneuvers to stall the absolute deadline before the country defaults on its debt. It did so last year, when the debt limit was actually hit in May but Treasury was able to delay the deadline until early August.

The Bipartisan Policy Center said it believed that the Treasury Department could punt the debt-limit deadline until February 2013 if the so-called extraordinary measures were again used.

A recent analysis from JP Morgan also estimated that due to the payroll tax holiday deal – which also included an extension of jobless benefits and a delay in steep pay cuts to doctors who serve Medicare patients – the debt ceiling will be reached in mid-December. But the investment banking firm said that with the various accounting measures, Treasury could delay the absolute deadline until February 2013.

SOURCE: SEUNG MIN KIM - POLITICO