A three-month truce on the debt-limit war is about to expire, and Congress and President Obama will enter a no-man’s land with nobody quite knowing how things will shake out when the debt peace ends in two weeks.
For now, there is no legal debt limit, and lawmakers on Capitol Hill are wondering what the number will be come May 19, which is the end of the grace period Congress granted in February.
“As this day looms, much uncertainty exists,” Sen. Tom Coburn, Oklahoma Republican, wrote to newly installed Treasury Secretary Jack Lew. “The debt limit will be reinstated at that time, but at a higher, unspecified level.”
Until this most recent episode, Congress set a legal borrowing limit for the administration. Unless the limit was raised, the federal government would have to suspend some payments and could pay out only what was coming in from taxes and fees.
But in February, with the government about to breach its limit, Congress and Mr. Obama agreed to a timeout. They passed legislation giving the Treasury Department a three-month extension to May 19 and said any government expenditures over and above what it took in would not count toward the debt limit.
That leaves the question, though, of what the legal limit will be on May 19.
The legal limit stood at $16.394 trillion in early February, and gross debt stood at $16.434 trillion — not all of that debt is subject to the legal limit.
By Sunday, the last day for which the government has reported figures, it was $16.835 trillion, or an increase of $401 million. That’s a slightly faster rate of increase than the $345 million added to the debt during the same period in 2012, when a legal limit was in place.
The Treasury Department can’t say what the limit will be when May 19 rolls around, nor would officials say whether they would immediately begin using “extraordinary measures” to keep the government from breaching the limit.
Officials usually can estimate how long those extraordinary measures will carry the government, but with this year’s tax increases boosting revenue and the sequester spending cuts lowering outlays, Matthew Rutherford, assistant secretary for financial markets, said it’s tough to predict how much room they will have to maneuver.
“I don’t have an exact answer for you at this point other than to say we will be providing more clarity in the future,” Mr. Rutherford told reporters last week.
Indeed, one major question is how much Treasury will have in the tank for those “extraordinary measures.” It was already about a month into them when the debt limit was suspended in February, but it’s unclear whether the suspension reset those funds or not.
But Mr. Coburn said there are other outstanding questions, such as how a transfer from Fannie Mae or Freddie Mac would affect Treasury’s ability to avoid breaching the debt limit. Some project these payments may provide a boost of revenue that could keep the country from breaching the debt limit until October or even November.
Fannie and Freddie likely would have to borrow the money they use to pay Treasury, however, and Mr. Coburn said that would be at a higher interest rate than Treasury would pay — raising questions about whether that is a good deal for taxpayers.
That is unlikely, given that both sides have hardened their positions since 2011, when Mr. Obama and House Speaker John A. Boehner, Ohio Republican, worked out the deal that raised the debt ceiling more than $2 trillion, in exchange for spending limits and the budget sequesters that are beginning to bite.
Mr. Obama said he would no longer negotiate, and Mr. Boehner said any debt increase would have to be matched dollar-for-dollar with spending cuts.
Robert Bixby, executive director of the Concord Coalition, a nonpartisan deficit watchdog group, said he predicts some sort of deal, though nothing like the “grand bargain” both sides were flirting with in 2011.
“I think both sides want to avoid the ugliness of the summer of 2011,” he said, predicting “a mini-deal that might tweak sequestration and raise the debt limit.”
“I wouldn’t expect a big debt limit increase or much change in sequestration, but enough to save face on both areas. In other words, more of the same,” he said.