April 15, 2024

Extra Tax Revenue to Delay Debt Crisis

The new estimate creates a significant grace period for Congress to consider an increase in the maximum amount that the government can borrow, a step that House Republicans say they will not take without an agreement to curb spending.

Federal borrowing is still likely to hit the legal limit on May 16, the Treasury said, so this week it will begin to take emergency steps to buy additional time under the cap. Those steps, plus the increase in tax receipts, which have reduced the need for borrowing, will delay a crisis by about a month — to August from July.

“While this updated estimate in theory gives Congress additional time to complete work on increasing the debt limit, I caution strongly against delaying action,” the Treasury secretary, Timothy F. Geithner, wrote Monday to lawmakers.

Mr. Geithner has warned repeatedly that failing to raise the ceiling would force the government to default on its debts and obligations. That, he wrote, “would have a catastrophic economic impact that would be felt by every American.”

Many Republicans have publicly agreed that Congress must raise the ceiling, although they insist that the White House must first agree to some form of meaningful spending limits. A vocal minority of members, however, have said that they are reluctant to raise the limit, and that Mr. Geithner and others ringing alarm bells have overstated the possible consequences of leaving the limit in place.

The debates have become a standard feature of Washington politics in the last two decades, cropping up when federal borrowing nears the limit while power is divided between the two parties. In 2006 and 2007, it was Democrats who inveighed against Republican arguments that debt increases were necessary.

In the past, Congress has always resolved its differences in time to avoid a debt crisis.

Vice President Joe Biden plans to convene White House staff and Congressional leaders Thursday to pursue an agreement on the terms of an increase. There is a growing consensus among Democrats that some restrictions on spending are reasonable and necessary to secure an agreement with Republicans.

To clear as much time as possible for that political process, the Treasury said on Monday that it would take the first in a series of emergency steps authorized by law this Friday. It will suspend a program under which it borrows money from state and local governments to help those governments meet legal obligations to invest in tax-exempt bonds.

The issuance of the State and Local Government Treasury securities, known as “slugs,” are largely a convenience for the governments. A senior Treasury official said the program’s suspension might not cost those governments any significant amount of money, but it would require them to find alternative investments.

The program has been suspended six times in the last two decades as the federal government bumped against the debt ceiling, most recently in 2007.

The Treasury said it would begin to take additional steps on May 16, including suspending programs under which the government borrows money from pension funds for federal employees and then pays interest to those funds. By law, the Treasury must make up for the lost interest payments once Congress raises the debt ceiling.

The ceiling is now set at $14.29 trillion. The government must constantly borrow more money because its commitments vastly exceed its revenue. The Treasury projected that the government would need to borrow $299 billion between April and June, and that it would hit the debt limit in early July.

It now projects that the government will need to borrow $142 billion during that period, thanks to the increase in tax revenue. That leaves enough room for the government to keep borrowing until August.

Article source: http://feeds.nytimes.com/click.phdo?i=a65bb497b5a25343bc3c2636977d30fb

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