Republicans want to accomplish a lot on their fiscal wish list in 2017. But they also have a few must-dos that they ignore at everyone’s peril.
Chief among them: Raise the country’s legal debt limit well before the year is out.
The Bipartisan Policy Center now estimates that the so-called “X” date — or drop-deadline by which lawmakers must act — will hit sometime in October or November.
That’s when the Treasury Department will no longer be able to pay all the country’s bills in full and on time because it will have run out of borrowing authority. And there won’t be enough revenue plus cash on hand to cover all bills due.
Translation: The United States would default on some of its legal obligations.
Those obligations — approved over the years by both parties — include paying bondholders, federal contractors, Social Security recipients, tax filers owed refunds and a vast array of other parties.
Defaulting on any of them could hurt the economy and markets to varying degrees, depending on who gets stiffed and for how long.
It’s an eminently avoidable crisis. Lawmakers will have several legislative vehicles between now and then in which they can choose to either raise or suspend the debt ceiling.
They’ll have to pass a bill by the end of April to continue funding the government for the rest of this fiscal year. They’ll also need to decide on a budget for 2018 by the end of September. And maybe Republicans will manage to pass a repeal-and-replace of Obamacare.
In the meantime, lawmakers will officially be put on notice March 15. That’s when the latest suspension of the debt ceiling expires.
At that point the borrowing limit will reset to just over $20 trillion. And Treasury Secretary Steven Mnuchin must alert Congress that he will start using special accounting measures just to keep paying everything the country owes without violating the borrowing limit.
But his so-called “extraordinary measures” can only last so long. Treasury will soon offer its own projection as to when they’ll be exhausted — a.k.a. the “X” date. Until then, however, BPC’s October-November projection is the best estimate available.
Congress would do well not to cut it too close to the fall.
“The possibility of major fiscal policy changes this year and heightened volatility around tax revenues mean that any projections have a higher level of uncertainty,” BPC fiscal policy director Shai Akabas warned.
One example: President Trump is expected to ask Congress for another $30 billion in defense funding, some of which likely will be spent between now and October.
Even though lawmakers in the past have threatened not to raise the debt ceiling unless their spending cut demands are met, the truth is they have no choice.
The federal government runs deficits every year because incoming revenue is never sufficient to cover all payments. That’s why the Treasury borrows in the first place, to make up the difference.
That’s also why it’s wrong to think of raising the debt ceiling as a “license to spend more.” It’s more like a license to continue paying what the country already owes.
Mnuchin appears to understand this. In his confirmation hearing, he said, “Honoring the U.S. debt is the most important thing. … I would like us to raise the debt ceiling sooner rather than later.”
