Washington policymakers will have less wiggle room to hammer out a debt-limit agreement than they did when they struck last Augusts’ eleventh-hour accord, according to new analysis.
The government now has fewer tools to free up cash once the $16.4 trillion borrowing cap is reached, and early 2013 is a particularly rough time for government finances, which could make the next effort to boost the ceiling particularly rough-going, according to the Bipartisan Policy Center (BPC).
A new report released Tuesday estimated that Washington is set to reach its $16.4 trillion borrowing limit by the end of December. When Washington last reached the limit, in mid-May, the Treasury Department was able to employ a series of “extraordinary measures” to free up cash, buying time to raise the limit until the beginning of August.
This time around, Congress will not have the same amount of leeway, as those same measures are expected to only buy little more than two months worth of wiggle room, meaning the limit will need a boost in February.
A major reason for the shortened timeframe is that one of the measures employed in the summer of 2011 is not available now. Last summer, Treasury Secretary Timothy Geithner could hold off rolling over maturing debt in civil service and postal retirement funds to free up funds. But now, there is no maturing debt that could be relied on to yield more immediate cash.
In addition, February is usually a rough month for the government when it comes to money going out versus money coming in, as early tax returns seeking refunds will be filed while returns accompanied by tax payments typically do not come in until closer to the April 15 deadline.
When combined with a political calendar that could hold off major work through most of January as elected officials are sworn in, it results in a situation that could be even trickier than the biggest fight of the 112th Congress.
“Last year, we were lucky,” said Steve Bell, BPC’s senior director of economic policy and a former Republican Senate staffer. “This year, we’re unlucky.”
Bell said he does not expect Congress will wrap a debt-limit increase in lame-duck session talks on the expiring tax cuts and automatic spending cuts, and that January will largely fall by the wayside as both houses of Congress and President Obama are sworn in.
“This will be a February event,” he said.
The BPC noted in its latest analysis that talks over the “fiscal cliff” are also complicating efforts to determine exactly when the government will hit the debt limit, as multiple tax and spending measures are up in the air heading into 2013. Furthermore, the chance for another “wild card,” like a supplemental spending bill aimed at helping rebuild the Northeast following Hurricane Sandy, could push up the debt limit arrival date.
The report also analyzed the ultimate costs to the government of the last debt limit fight, which took the nation’s finances to the brink, unsettling markets and resulting in the first-ever downgrade of the nation’s credit rating. BPC estimates that the 10-year cost of that fight totaled $18.9 billion, which is roughly the same cost as a one-year extension of the “doc fix,” which prevents reductions in physicians’ Medicare payments. A separate study by the Government Accountability Office released in February pegged the one-year cost of the standoff at $1.3 billion.
Source: The Hill