Debt Reckoning: The Fiscal Deadline in Washington
At the end of the year, the United States will hit its statutory borrowing limit, starting a countdown clock that would within a matter of weeks lead to it failing to pay all of its obligations, according to a statement from the Treasury Department.
On Wednesday, Treasury Secretary Timothy F. Geithner wrote a letter to Congress informing it that the United States would hit its $16.4 trillion borrowing limit on Dec. 31. The Treasury will “shortly” begin undertaking “extraordinary measures” to avoid the limit — essentially moving money from pocket to pocket to give the government enough breathing room to pay all of its bills, from soldiers’ salaries to Social Security payments, after that date. But within weeks — sometime in February or March, analysts estimate — its required payments would overwhelm its receipts, leaving an unprecedented cash shortfall. That would most likely send financial markets into a tailspin and lead to another downgrade of the country’s debt rating.
This year, the debt ceiling has become a potent political football, complicating negotiations over the scheduled year-end tax increases and spending cuts, the so-called fiscal cliff. The White House wants the debt ceiling to be taken off the table in the negotiations and for Congress to raise it as a matter of course. (Congress controls the country’s level of debt, by virtue of its controlling the government’s power to tax and spend. The debt limit is a secondary check on the total amount of outstanding debt that Congress periodically needs to raise.) But Republicans have threatened not to raise the ceiling if President Obama vetoes a bill extending the Bush-era tax cuts for household income above $250,000 a year, and more generally have indicated that they intend to use it as a bargaining chip.
The full text of Secretary Geithner’s letter is below:
On Wednesday, Treasury Secretary Timothy F. Geithner wrote a letter to Congress informing it that the United States would hit its $16.4 trillion borrowing limit on Dec. 31. The Treasury will “shortly” begin undertaking “extraordinary measures” to avoid the limit — essentially moving money from pocket to pocket to give the government enough breathing room to pay all of its bills, from soldiers’ salaries to Social Security payments, after that date. But within weeks — sometime in February or March, analysts estimate — its required payments would overwhelm its receipts, leaving an unprecedented cash shortfall. That would most likely send financial markets into a tailspin and lead to another downgrade of the country’s debt rating.
This year, the debt ceiling has become a potent political football, complicating negotiations over the scheduled year-end tax increases and spending cuts, the so-called fiscal cliff. The White House wants the debt ceiling to be taken off the table in the negotiations and for Congress to raise it as a matter of course. (Congress controls the country’s level of debt, by virtue of its controlling the government’s power to tax and spend. The debt limit is a secondary check on the total amount of outstanding debt that Congress periodically needs to raise.) But Republicans have threatened not to raise the ceiling if President Obama vetoes a bill extending the Bush-era tax cuts for household income above $250,000 a year, and more generally have indicated that they intend to use it as a bargaining chip.
The full text of Secretary Geithner’s letter is below:
December 26, 2012
The Honorable Harry Reid
Majority Leader
United States Senate
Washington, DC 20510
Dear Mr. Leader:
I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.
These extraordinary measures, which are explained in detail in an appendix to this letter, can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures. At this time, the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain. If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures. Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer.
Sincerely,
Timothy F. Geithner
Identical letter sent to:
The Honorable John A. Boehner, Speaker of the House
The Honorable Nancy Pelosi, House Democratic Leader
The Honorable Mitch McConnell, Senate Republican Leader
cc: The Honorable Dave Camp, Chairman, House Committee on Ways and Means
The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means
The Honorable Max Baucus, Chairman, Senate Committee on Finance
The Honorable Orrin Hatch, Ranking Member, Senate Committee on Finance
All other Members of the 112th Congress
Annie Lowery
Debt Reckoning: The Fiscal Deadline in Washington - NYTimes.com
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