Debt Ceiling Deadline Pushed Back as Growth Lifts U.S.Ian Katz
The U.S. Treasury Department may have more time than economists previously estimated before the government’s debt limit is reached as changes in tax policy and an economic rebound boost federal revenue.
The date the nation hits the ceiling on borrowing could be pushed back as far as mid-September to Sept. 30 from a previous estimate of late August to mid-September, Steve Bell, senior director of economic policy at the Bipartisan Policy Center in Washington, said in an interview.
A later deadline would give Congress more time to debate lifting the cap and postpone any vote until after the August recess. President Barack Obama in February signed legislation suspending the $16.4 trillion debt limit through May 18. The Treasury uses so-called extraordinary measures to push the deadline further.
Treasury Secretary Jacob J. Lew said last week Congress should “extend the debt limit to remove any uncertainty” and declined to estimate when the ceiling would be reached.
“A solid economy is certainly part of the story,” said Lou Crandall, chief economist at Wrightson Icap LLC in Jersey City, New Jersey. “Underlying fiscal trends are somewhat stronger than I had anticipated a few months ago.”
As a result, the Treasury is likely to have “a slower cash burn rate this summer than originally seemed likely,” he said.
Receipts in the six months through March totaled $1.2 trillion, up 12.4 percent from the October-March period a year earlier, according to Treasury data.
Individual income-tax payments advanced 14.7 percent, while corporate profit taxes gained 18.6 percent, the data showed. Those two categories accounted for about 55 percent of total revenue in the first half of the current fiscal year.
Government spending totaled $1.8 trillion in the six months through March, leaving a fiscal year-to-date deficit of about $600 billion, the data showed.
Nancy Vanden Houten, a policy analyst with Princeton, New Jersey-based Stone & McCarthy Research Associates, said in an interview that more than half of this year’s higher revenue is related to expiration of the payroll tax cut at the end of last year and “some shifting of income to avoid higher tax rates in calendar year 2013.”
A smaller part, perhaps three to five percentage points of of the 12 percent jump in receipts, “reflects underlying growth in the economy,” she said.
The debt limit is one of the thorniest political issues in Washington. In 2011, the Obama administration and Republicans debated for months before raising the ceiling in August of that year. Standard & Poor’s downgraded the U.S. three days later, citing political gridlock in Washington and the nation’s long-term fiscal challenges.
U.S. Treasuries rallied afterward, with the 10-year note yield touching a record low 1.379 percent in July 2012. Benchmark 10-year notes yielded 1.72 percent at 12:10 p.m. today in New York.
The Treasury in 2011 staved off a debt limit breach for about three months by taking steps including declaring a “debt-issuance suspension period” under the statute governing the Civil Service Retirement and Disability Fund. That allows the U.S. to redeem existing Treasury securities held by that fund as investments.
The U.S. unemployment rate has declined to 7.6 percent in March from 8.2 percent a year earlier, and the S&P 500 Index has increased for the past five months.
Lawmakers let marginal income-tax rates increase on taxable income of married couples above $450,000 and individuals above $400,000. Those changes increased the top tax rate on ordinary income to 39.6 percent and raised the top tax rates on capital gains and dividends. The law also reimposed limits on itemized deductions and personal exemptions for top earners.
Fannie Mae and Freddie Mac may also contribute to extending the debt limit by sending profits to the Treasury in June. Such a decision by the government-controlled mortgage companies “is a big wild card that could change the timing of the debt limit by quite a bit,” Vanden Houten said.
The debt limit will increase on May 19 to account for the deficits that accrued during the suspension period. The Treasury will have to use its extraordinary measures unless the limit is raised or suspended again.