The government will reach the $16.4 trillion debt limit Monday, Treasury Secretary Timothy Geithner told congressional leaders Wednesday, adding a new and possibly dramatic wrinkle to negotiations aimed at averting the “fiscal cliff.”
The news came as President Barack Obama and the Senate prepared to return to Washington on Thursday, and Republican leaders in the House of Representatives conferred by phone Wednesday to plot strategy.
If no alternatives are adopted, Bush-era income tax rates will expire at the end of the year and $109 billion in automatic spending cuts will take effect Jan. 2.
In his letter, Geithner said the Treasury "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."
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These could include a temporary halt on payments on federal pensions and a temporary suspension of sales of special-purpose securities issued by the Treasury and often purchased by state governments.
It was unclear what impact this news would have on negotiations to avert the fiscal cliff, the term that’s been used to describe the combination of Bush-era tax cuts expiring and automatic spending cuts taking effect unless alternatives are adopted.
Geithner explained that the special measures "can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months."
But, he said, "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.”
Last year, negotiations to extend the debt ceiling dragged on for eight months, damaging the economy and resulting in an embarrassing downgrade of the U.S. government’s creditworthiness by the debt rating agency Standard & Poor’s. Its competitor, Fitch Ratings, recently warned that it, too, would knock down the government’s credit rating if there were no resolution soon on raising the debt ceiling, which amounts to allowing new borrowing in order to pay for past borrowing.
The Treasury Department is expected to have significantly less leeway this time, according to the Bipartisan Policy Center, a research center that estimated earlier this month that $112 billion will be going out the door as income tax refunds in February alone.
The center projected that another $117 billion will be owed to Social Security recipients in February and for reimbursements to Medicare and Medicaid, as well as $33 billion due on interest on the debt. In addition, another $27 billion will be due that month to vendors who sell to the Defense Department.
In all, the center expects outflows owed by the government to be about $464 billion in February, compared with incoming revenue of about $202 billion.
Earlier Wednesday, House Republican leaders met and said afterward that they’d wait for the Senate to act on legislation to avoid the fiscal cliff.
The Republican-controlled House passed a bill in August that would extend all the Bush-era tax cuts for one year. The House also approved legislation last week that’s an alternative to the automatic spending cuts.
The Democratic-run Senate passed a measure this summer that would extend the tax cuts only for individuals who earn less than $200,000 a year and families that make less than $250,000.
In a statement after its meeting Wednesday, the House GOP leadership said: "The House has acted on two bills which collectively would avert the entire fiscal cliff if enacted. Those bills await action by the Senate. If the Senate will not approve and send them to the president to be signed into law in their current form, they must be amended and returned to the House,” which would then decide what to do.
Reacting to the House Republicans, Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid, D-Nev., said the Senate already had rejected the GOP’s “tea party bills, and no further legislation can move through the Senate until Republicans drop their knee-jerk obstruction."