Debt limit showdown looms

Ryan won’t commit to treasury timetable

WASHINGTON/NEW YORK, June 8, (Agencies): The US Congress may be headed for a reckoning with the federal debt limit within weeks, thanks to wealthy Americans and corporations deferring tax payments in the hope that they would benefit from the lower tax rates promised by President Trump.

Trump promised tax cuts during his election campaign last year and has reiterated those promises in recent months leading some wealthy Americans and businesses to shift accounting for income into the future, betting that lower tax rates will arrive, perhaps in 2018, wealth managers told Reuters.

“Everyone wants to talk about deferring income,” said Mark Copeland, senior partner at Signature Estate & Investment Advisors LLC in Newport Beach, California.

The US stock market has also rallied since Trump’s election victory in November, partly on hopes for lower corporate tax rates. “We are starting to prepare clients for potentially lower taxes in 2018,” said Julia Carlson, chief executive and at Financial Freedom Wealth Management Group LLC in Oregon.

Trump promised to cut taxes as far back as September 2015 in a four-page plan and reiterated those promises in a two-page “Contract with the American Voter” before last November’s election and again in a one-page document in April, but Republicans in Congress remain divided on tax reform.

The delay to tax payments could help to explain why tax receipts this fiscal year are coming in more slowly than projected, said tax experts and the Congressional Budget Office (CBO), an arm of Congress.

Reduce

“Taxpayers may have shifted more income than projected ... to later years, expecting legislation to reduce tax rates to be enacted this year,” the CBO said in a monthly report on Wednesday.

The weaker tax revenues this year have forced the US Treasury to borrow more money than expected to cover the federal budget deficit and that is putting the government on track to hit its legal debt limit sooner than expected, experts said.

The US government has a legal limit on how much it can borrow, currently set at about $19.8 trillion and the limit can only be increased by a vote of Congress.

Meanwhile, House Speaker Paul Ryan said Wednesday that he won’t commit to holding a vote to increase the government’s borrowing authority this summer.

The Wisconsin Republican instead says the House will vote on such debt legislation before the government defaults — but not necessarily by an August deadline requested last month by Treasury Secretary Steven Mnuchin.

“We’re going to address the debt ceiling before we hit the debt ceiling,” Ryan told reporters. Some analysts think Mnuchin is being overly cautious when setting the August deadline.

Increasing the so-called debt limit is needed to avert a first-ever default on US obligations such as interest payments and Social Security benefits.

Increasing the debt limit requires legislation by Congress and is invariably a headache. Conservative Republicans say they would like to condition lifting the government’s almost $20 trillion borrowing limit on passing cuts to other government programs.

Unusual

Mnuchin wants an increase in the debt limit as quickly as possible and has said spending cuts can wait until later.

But White House budget director Mick Mulvaney has said he would like spending cuts to accompany a debt increase. Such a public difference of opinion is unusual, but it has now become clear the Mnuchin is taking the lead for the administration.

“The Treasury secretary is and should always be the person in charge of debt limit negotiations, debt limit legislation. That’s a natural thing. Every Treasury secretary is in charge of that,” Ryan said.

Ryan won’t commit to a debt measure that’s free of add-ons. He supported the most recent debt increase, negotiated with the Obama administration, which was paired with a two-year budget plan that lifted agency spending limits and imposed modest spending cuts.

“We’re going to work with them on this,” Ryan said. “We’re having long, ongoing conversations with our members about how to address this and we’ll address it before we hit the debt limit.”

The No. 2 House Democrat, Rep. Steny Hoyer of Maryland, told reporters he’s told GOP leaders that he would help them pass a debt limit bill provided that Republicans don’t add poison-pill legislation that Democrats oppose.

“I think it’s not a responsible vote to vote against a debt limit that is clean,” Hoyer said.

The government has officially hit its borrowing capacity, but Mnuchin is using accounting maneuvers to maintain the government’s solvency for the time being.

Meltdowns

In related development, House Republicans headed toward a vote Thursday on dismantling sweeping financial rules established under President Barack Obama that were designed to head off economic meltdowns like the one that caused millions of Americans to lose their jobs and homes during the Great Recession. Republicans are arguing that the many requirements imposed under what is known as the Dodd-Frank Act have actually harmed economic growth by making it harder for consumers and businesses to get credit.

“At the end of the day, Dodd-Frank didn’t help Main Street. It actually made it harder for many on Main Street,” said Rep Cathy McMorris Rodgers, R-Wash.

Democratic lawmakers are overwhelmingly opposed to the bill, which also faces major obstacles in the Senate. They argue that Dodd-Frank, which became law after the 2008-09 economic meltdown, has brought financial security to millions of Americans and that undoing it will encourage the kind of risky lending practices that invites future economic shocks.

They also oppose provisions that would strip away a consumer protection agency’s authority to go after companies that it determines have participated in unfair or deceptive practices in their financial products and services. The agency has returned $29 billion to 12 million consumers who were victims of deceptive marketing, discriminatory lending or other financial wrongdoing.

“You’re ignoring the past and you’re endangering the future of millions of Americans,” Rep Louise Slaughter, D-NY said of Republicans. “Dismantling the law will force consumers to go it alone against Wall Street.”