Tax bill, wildfire aid could hasten rise of debt
WASHINGTON The next fight over the national debt limit could happen earlier than expected.
The Republican tax law could force Congress to act sooner to raise the nation's $20.5 trillion borrowing ceiling because less money is expected to flow into the Treasury in coming weeks.
On top of that, the possibility of increased federal aid for victims of California wildfires and other disasters, and a budget deal that could boost military spending, would drain the Treasury faster than expected.
Lawmakers might have to accelerate their timetable to begin the debt-limit debate. They have been operating under a still-vague deadline known as the X date of sometime in March or early April when the Treasury would run out of cash and risk a federal government default.
"I think this is the most uncertainty there's ever been in projecting an X date given that there are so many policy levers in flux right now," said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a think thank that has done extensive work on the debt limit.
He estimated Wednesday that the X date would still be in March, but now could be earlier in the month.
The debt limit a statutory restriction on the federal government's borrowing has existed since 1939 and for decades was raised routinely with little controversy. But starting in the 1980s, both parties began using the need to raise the limit as political leverage.
In recent years, as government borrowing soared, some Republicans have sought to tie debt-limit increases to spending cuts. Democrats have argued that is inappropriate because the borrowing is simply for spending Congress already has authorized.
A 2011 standoff over the debt limit, which was raised at the last minute, led Standard & Poor's to downgrade the nation's AAA credit rating for the first time. Two years later, another showdown, which also was resolved shortly before a possible default, caused investors to avoid buying some government bonds and led to higher government borrowing costs.
Congress' Joint Economic Committee has estimated that the tax law would reduce federal revenue by $136 billion this year. Even when taking into account a possible economic boost from tax cuts, the committee estimated that federal revenue would decline by $104 billion this year.
How much of that reduction will take place in the coming weeks is not known. As of Friday, the Treasury had $229 billion in cash.
The estimates of when the government would run out of enough money to pay all its bills in full are based on the existing federal budget. But lawmakers could pass a new budget that boosts defense spending, as Republicans advocate. And the budget also could include $81 billion in disaster aid to deal with wildfires in California and other Western states, and damage from major hurricanes last fall.