Washington Insider: US May Reach Debt Limit Earlier than Expected

In a modest piece of bad news this week, Bloomberg reported that the United States may have less time to take action to avoid a default on federal debt than previously expected. The report said that “a new estimate shortens an already tight timeframe for lawmakers to strike deals on spending and debt.” The report focuses on what it calls a “significant risk” that the U.S. Treasury will run out of ways to make payments without exceeding the debt limit according to the Bipartisan Policy Center (BPC), whose Director of Economic Policy, Shai Akabas, made the announcement Monday. The think tank had previously projected a deadline of October or early November. Missing the deadline to increase or suspend the debt limit would mean the government would be unable to make at least some payments. It could affect benefits under programs such as Social Security and Medicare, BPC Senior Vice President Bill Hoagland told the press. More broadly, it could shake the economy and call into question the U.S. federal government’s ability to make good on its debts. “This would be a real mark on our whole economic system,” Hoagland said. Congress should pass a measure raising or suspending the debt ceiling before its August recess, unless lawmakers plan to come back to Washington during their month off, Hoagland said. The earlier deadline may cast doubt on lawmakers’ assumption that they would be able to pass a measure that simultaneously addresses the debt limit and sets spending limits for fiscal 2020 and 2021 by increasing statutory spending caps. Senate Appropriations Chairman Richard Shelby, R-Ala., said yesterday the news doesn’t necessarily mean they’ll have to pass a clean debt limit measure, but said it does add urgency. “We cannot default,” Shelby told reporters. “That could send chaos through the financial markets of the world, and I think the president knows this, the secretary of the Treasury really knows this.” Sen. Lindsey Graham, R-S.C., a senior appropriator, also described the debt limit deadline in dire terms—but with a somewhat odd comment. He called the situation similar to “getting hit by a slow moving bus in Kansas. I mean, isn’t that a bus? Yeah. Should we move? I don’t know what do you think – whack!” While an early September deadline is possible, it’s more likely that the Treasury will run out of options in early October, Akabas said. If the government makes it past the first half September, it will be virtually guaranteed at least another couple of weeks because there’s generally an influx of revenue in the second half of the month. The earlier deadline is due to weak corporate tax revenues, compared to previous expectations, Akabas said. Still, Senate appropriators won’t mark up any fiscal 2020 spending bills “until there’s a deal on statutory spending limits under the Budget Control Act, Shelby told reporters. He also noted that Senate Majority Leader Mitch McConnell, R-Ky., doesn’t want to do any markups without final numbers – and that he’s “probably right” although Shelby had said previously that he’d like to start work on spending bills as soon as early July even if there was no agreement on top-line spending levels. The decision to delay adds even more pressure on negotiators discussing a potential combined deal on budget caps and the debt ceiling – Shelby further observed that he believes it’s time for a serious talk between the administration and Speaker Nancy Pelosi, D-Calif., so they can come to an agreement on those numbers. There currently is no meeting scheduled that he knows of, he said. “If we get a number, we can move,” he added. Shelby said members of Congress will be in Washington during the August recess if they have to be. So, we will see. House Democrats don’t expect to hold votes in July on their Homeland Security or Legislative Branch appropriations bills, a senior Democratic aide said. Majority Leader Steny Hoyer D-Md., sent members a letter on the caucus’s plans for July votes, which did not mention the bills. Hoyer had originally planned to hold votes on all 12 spending bills by the end of June. It is true that there is no evident enthusiasm for shutting down the government or limiting its capacity to meet its financial obligations, as Senator Shelby observes. Still, the time remaining to deal with the budget and the debt ceiling is short, and the need for new legislative authority is more volatile than expected. These are yet another set of decisions needed to meet demands for orderly government—steps producers should watch closely as they are discussed and implemented, Washington Insider believes.