U.S. hits its debt limit of $19.9 trillion
Treasury begins using accounting maneuvers to avoid a federal government default until Congress raises the ceiling again.
WASHINGTON — The U.S. hit its debt limit again Thursday — a whopping $19.9 trillion this time — and the Treasury Department started using accounting maneuvers to buy Congress several months to raise it to avoid a potential federal government default.
The statutory limit on borrowing has become a partisan flashpoint in recent years.
During the Obama administration, conservatives in Congress tried unsuccessfully to include spending cuts with any debt increases. Although analysts believe that the limit will be raised this time, Republicans might not be able to count on as much Democratic support with President Trump in the White House.
And with narrow House and Senate majorities, Republicans might need that support if hard-line GOP members balk again.
“They have the obligation as the majority to pass this debt ceiling increase,” said Rep. Joseph Crowley (DN.Y.), a member of the House Democratic leadership. “And if they cannot do it with their votes and they want our support, they need to talk to us about that.”
Crowley said Democrats would support only “a clean bill” that doesn’t include any spending cuts or other controversial provisions.
The debt limit needs to be raised to pay for spending already authorized by Congress, not for future spending.
Trump sided with hardliners in 2013, publicly opposing an increase. “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!” he tweeted then.
But Trump’s views appeared to have changed now that he’s president and would have to deal with the ramifications of a default. Treasury Secretary Steven Mnuchin “will work with Congress on a path forward,” White House Press Secretary Sean Spicer said this week.
Senate Majority Leader Mitch McConnell (R-Ky.) downplayed any concerns.
“We’re talking to the secretary of the Treasury about timing, but obviously we will raise the debt ceiling,” he told reporters Tuesday.
Two leading credit-rating companies, Fitch Ratings and Moody’s Investors Service, said that Republican control of Congress and the White House made it more likely that the debt limit would be raised well before a potential default.
Timing is important. A 2011 standoff in which the limit wasn’t raised until the last minute caused Standard & Poor’s to downgrade the nation’s AAA credit rating for the first time.
The delay in raising the limit caused the Treasury to pay an additional $1.3 billion in borrowing costs for that year alone, according to the Government Accountability Office.
Another showdown two years later — again resolved before a default — increased Treasury’s borrowing costs by $38 million to $70 million as investors avoided buying bonds the government might not be able to repay, the GAO said.
“The debt ceiling isn’t a game of chicken,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “It should be raised as soon as possible to ensure continued confidence in our economic system here at home and around the world.”
Lawmakers have until sometime this fall to act, the nonpartisan Congressional Budget Office reported this month. But it noted that the complexity of predicting incoming tax revenue and spending outlays made it difficult to pin down an exact date.
An analysis by the Bipartisan Policy Center think tank found that the debt limit would need to be raised by October or November but said the possibility of major changes in fiscal policy by Congress and the Trump administration give projections “a higher level of uncertainty.”
Mnuchin wrote to congressional leaders March 8, encouraging them “to raise the debt limit at the first opportunity.”
He expressed more urgency in a letter to them Thursday.
“I respectfully urge Congress to protect the full faith and credit of the United States by acting to increase the statutory debt limit as soon as possible,” Mnuchin wrote.
To avoid lawmakers voting to set a specific debt level — one that includes lots of zeroes — congressional leaders the last few years have advanced bills that simply suspended the limit for a period of time.
At the end of that period, the debt limit automatically reset at the level of total outstanding federal government debt.
Congress used that strategy in the Bipartisan Budget Act approved in November 2015. It suspended the debt limit until Wednesday.
On Thursday, the limit was reinstated at about $19.9 trillion, the current level of outstanding public debt. To avoid going over the limit, Treasury has begun what it calls “extraordinary measures.”
The first accounting maneuver began Wednesday when the Treasury suspended the sale of state and local government series securities, which count against the debt limit.
On Thursday, the department suspended issuing new debt for some federal employee retirement and disability funds, Mnuchin said.
Although there are months to go before those measures would be exhausted, diverting Treasury employees to engage in them is wasting government resources, said Shai Akabas, director of fiscal policy at the Bipartisan Policy Center. The effects increase and can include higher borrowing costs as the date gets closer — as does the risk of a default, he said.
“It’s troubling that it’s not on the agenda right now,” Akabas said of a debt limit increase.
MacGuineas said the use of extraordinary measures “has become all too ordinary” in recent years. She warned that the nation’s fiscal situation is unsustainable and urged Congress to “accompany lifting the debt ceiling with specific policy measures to reduce the debt trajectory.”