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Debt-Ceiling Lift Could Trigger Fight Before Elections Debt-Ceiling Lift Could Trigger Fight Before Elections

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Debt-Ceiling Lift Could Trigger Fight Before Elections


(AP Photo/Mark Lennihan)

A White House request this week to tap into the third and final round of scheduled increases in the nation’s borrowing limit will set the clock counting down to another nasty debt-ceiling fight. And it could come before the November elections.

Treasury Department officials said on Tuesday that President Obama will likely request the debt ceiling be increased by $1.2 trillion on Friday. That’s when they estimate U.S. debt will be within $100 billion of the current $15.194 trillion limit.


Although the latest effort to increase the ceiling on borrowing comes as no surprise, it remains unclear whether the added funds will be enough to keep the government going through the 2012 elections. If not, it could reignite another protracted debt-ceiling showdown and threaten an economically painful stalemate before November.

A Treasury Department document shared on Tuesday said that if the limit is reached before the elections, the government could take “extraordinary measures to extend borrowing authority beyond the next elections.” But the department offered no detail.

Treasury estimates the debt limit will not be reached again until “late in the year 2012,” but officials acknowledge that they do not know precisely when. In the document, Treasury said, “It is much too early to say with any precision what will happen a year from now.” 


According to outside economists, the timing depends in large part on the U.S. economy’s performance and its ability to maintain slow growth. A slowdown, or a dip back into recession, could blow Treasury’s debt-limit timeline and put an all too fragile economy at the mercy of a political system that has made a tradition of brinkmanship.

The drawn-out fight this summer over the spending limit caused the United States to lose its sterling AAA credit rating and put investors in a tailspin, rattling markets worldwide.

Lawmakers have only complicated matters since then, postponing the day of reckoning on several crucial decisions affecting the country’s fiscal health--from tax rates and spending to long-term deficit reduction.

That means, just after the election, a lame-duck Congress will be debating the Bush-era tax cuts, another likely extension of the payroll-tax holiday, and adjustments to planned defense spending cuts. If the Treasury Department runs up against the debt limit in the fall, add to that already difficult mix this sure-to-be toxic dispute over boosting the ceiling again.


Henry Aaron, a fellow with the Brookings Institution, called it a “perfect budgetary storm.”

“It is the reason why all of the talk about this election being one of the most important in U.S. history is not exaggeration but rather the simple truth.”

It is unclear what kind of a fight lawmakers will put up in the interim, even if it is for political gain without fiscal implications.

After the August deal to raise the debt ceiling, the House signaled it was against following through with the agreement. It voted 232-186 to disapprove of increasing the debt ceiling by $500 billion, but it did not manage to stop the increase.

Obama should be able to override any attempt to block an increase, but tensions between the parties are high and lawmakers only have a two-month reprieve before the payroll-tax-cut extension that they just secured before Christmas, expires, setting up yet another spending fight just weeks from now.

Still, Republicans might have little appetite for another fiscal fight in 2012, given the bruises they still show from December’s showdown over extending the payroll-tax credit.

“Given that the Republicans certainly didn’t look very good in the last battle over the payroll-tax extension, there is almost no downside risk for President Obama,” said Dean Baker, the codirector with the Center for Economic and Policy Research. “If they have a fight, that almost certainly helps him politically.”

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