- Debt Ceiling 2015: When Hitting the Limit Isn't Really the Limit
- April 15, 2015
- Law Firm: McDonald Hopkins LLC - Cleveland Office
The seemingly never ending fight over raising the debt limit should be in full swing - the U.S. legally hit the amount it is able to borrow on Monday of this week. Thanks to a series of steps the Treasury Department can take, however, Congress has until October or November of this year to act to avoid default.
The government's timeline benefits from receipts from taxes due before April 15th as well as a sliding deficit. The Congressional Budget Office projects that the deficit will stay at less than $500 billion for fiscal year 2015, meaning the debt will increase at a slower rate and thereby allow the Treasury Department to take measures to prevent default at a slower pace.
Another factor that may increase the amount of time is the Treasury Department's ability to take actions ensuring the U.S. does not default. In a letter to congressional leadership last week, Treasury Secretary Jacob Lew said he planned to take extraordinary measures to prevent a default, as the department has done in other recent debt-ceiling standoffs.
The first of the two largest measures that could be taken to prevent default is allowing the Treasury Department to postpone new investments in the Civil Service Retirement and Disability Fund, which provides defined benefits to retired and disabled federal employees under the Civil Service Retirement System. From there, the department can redeem certain existing investments in the fund. This frees up about $6.8 billion in headroom above the debt limit per month.
Another possible measure the department could undertake would be to suspend daily reinvestment of the Government Securities Investment Fund, known as the G Fund, which is a money market-defined retirement contribution fund for federal employees that is invested in special-issue Treasury securities.
Credit-rating agency Moody's also said it fully expected that if expenditure cuts needed to be made as a result of the debt ceiling, the Treasury Department would prioritize interest payments to preserve the full faith and credit of the U.S.
On previous occasions, Congress has waited until the last minute to raise the debt limit before defaulting on debt, and in 2011, Standard & Poor's downgraded the U.S. credit rating as a result. These standoffs will likely persist while Barack Obama is still president now that Republicans have a majority in both houses of Congress.