The Obama administration still wants Congress to pass a “clean bill” raising the $14.3 trillion legal debt limit, even as the president is willing to support a side deal on deficit reduction, White House Budget Director Jacob Lew said.
The two can proceed on “a parallel track” in Congress, Lew said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.
“Let’s not link them,” he said. “We have multiple things that are urgent. We need to pass the debt limit.”
The debt limit, which the Treasury Department says the U.S. will hit next month, has become a flash point in a wider debate between the White House and Congress over how to cut the nation’s long-term budget deficit. Republican senators are examining a plan to tie an increase in the debt ceiling to a cap on federal spending at 20.6 percent of gross domestic product within 10 years.
President Barack Obama this week called for an agreement by late June to cut the U.S. government’s long-term deficits. The Treasury Department projects that it will reach the debt limit on May 16, though it could use emergency measures to avoid default until about July 8.
Obama, in an interview with the Associated Press yesterday, Obama said that congressional approval of a higher debt limit is “not going to happen without some spending cuts.” While warning that a failure to raise the cap risked plunging the world economy back into a recession, Obama expressed confidence that Congress will approve the increase.
Lew, 55, called a proposal circulating in the Senate to set a ceiling on federal spending at 20.6 percent of gross domestic product “very dangerous.”
“It’s, in effect, pretending you can repeal the retirement of the Baby Boomers. You can’t,” Lew said. The result is “more and more people” will be collecting Social Security and Medicare benefits, adding to government spending, he said.
Democratic Senator Claire McCaskill of Missouri has joined Republicans in supporting the proposal. Some of the Republican supporters are considering trying to attach the measure to legislation raising the debt limit.
A spending ceiling “defines the problem incompletely. The problem is not just the spending problem,” Lew said, “It’s a combination of spending and revenue.”
House Republicans have proposed a plan to reduce the deficit by $4 trillion over 10 years that relies on spending cuts alone. The White House has countered with a plan that would cut the same amount over 12 years and includes $1 trillion in additional revenue from taxes, which it says would be paid entirely by families earning more than $250,000.
The federal budget deficit this year is projected to top $1.6 trillion, or 10.9 percent of GDP.
For all the debate about the deficit in Washington, bond market yields in the U.S. are lower now than when the government was running a budget surplus a decade ago, even though Treasury Department data show that the amount of marketable debt outstanding has risen to $9.13 trillion from $4.34 trillion in mid-2007.
The yield on the benchmark 10-year note is below the average of 6.92 percent since 1980 and compares with the average of 5.48 percent in the 1998 through 2001 period, according to Bloomberg Bond Trader prices. Yields on 10-year notes dropped nine basis points, or 0.09 percentage point, to 3.41 percent at 5:09 p.m. in New York yesterday, according to Bloomberg Bond Trader prices.