Lew Warns U.S. Likely to Hit Debt Ceiling in February — Not March

Treasury Secretary Jack Lew testifies before the US Senate Finance Committee about the debt limit on October 10, 2013, on Capitol Hill in Washington, DC. 
National Journal
Catherine Hollander
Jan. 16, 2014, 5:59 a.m.

Treas­ury Sec­ret­ary Jac­ob Lew warned law­makers Thursday that a fi­nal dead­line for rais­ing the na­tion’s bor­row­ing lim­it is likely to ar­rive next month, not in March, which he had pre­vi­ously said was a pos­sib­il­ity.

“I think that if Con­gress is look­ing at the num­bers the way we are — we have the best data — they would see that they would be look­ing more at the end of Feb­ru­ary than any time in March,” Lew said Thursday at a dis­cus­sion hos­ted by the Coun­cil on For­eign Re­la­tions.

The $17 tril­lion debt ceil­ing, which was sus­pen­ded in Oc­to­ber as part of the agree­ment to re­open and fund the gov­ern­ment fol­low­ing a 16-day shut­down, will be reached again on Feb. 7. The Treas­ury De­part­ment can then use spe­cial au­thor­ity — so-called ex­traordin­ary meas­ures — to pre­vent the na­tion from de­fault­ing. These meas­ures briefly al­low the United States to con­tin­ue to meet its ob­lig­a­tions un­til a later date, of­ten re­ferred to as the “drop-dead” dead­line. At that point, the na­tion risks de­fault.

Lew’s em­phas­is on Feb­ru­ary in his Thursday re­marks was a de­par­ture from a let­ter he wrote to House Speak­er John Boehner last month. In that let­ter, the Treas­ury sec­ret­ary said his agency’s au­thor­ity would likely last through “late Feb­ru­ary or early March.”

The un­pre­dict­able nature of tax sea­son makes it tough to fore­cast the ex­act date when Treas­ury will ex­haust these spe­cial meas­ures. In Novem­ber, the non­par­tis­an Con­gres­sion­al Budget Of­fice said that would “prob­ably” hap­pen in March. “However, the tim­ing and mag­nitude of tax re­funds and re­ceipts in Feb­ru­ary, March, and April could shift that date of ex­haus­tion in­to May or June,” CBO said in a re­port on the debt ceil­ing. On Wed­nes­day, Mor­gan Stan­ley eco­nom­ists es­tim­ated the drop-dead date would ar­rive some­where between late March and June.

“We see it as a close call wheth­er this would last only un­til late March or fur­ther in­to the spring, which would be largely de­term­ined by how strong the tax-re­fund sea­son is,” they wrote in a note to cli­ents.

On Thursday, Lew cri­ti­cized the “Wash­ing­ton par­lor sport” of guess­ing when the na­tion will hit the lim­it, and he urged law­makers to act to raise it “as quickly as pos­sible.”

“The buildup to the last minute causes dam­age,” he said. Eco­nom­ists — in­clud­ing those at Treas­ury — of­ten cite slid­ing stocks, lower con­fid­ence, and great­er un­cer­tainty as some of the neg­at­ive ef­fects that can ripple through the eco­nomy as a res­ult of debt-lim­it brink­man­ship.

Rais­ing the debt lim­it has been a polit­ic­ally con­ten­tious is­sue for years, most dra­mat­ic­ally com­ing to a head in Aug. 2011, when a last-minute deal aver­ted de­fault but cost the U.S. its top AAA cred­it rat­ing. Lew, Boehner, and Sen­ate Ma­jor­ity Lead­er Harry Re­id each sep­ar­ately urged law­makers on Thursday to raise the lim­it be­fore a de­fault is near.

“All I know is that we should not de­fault on our debt. We shouldn’t even get close to it,” Boehner told re­port­ers.

In the af­ter­noon, Re­id walked back re­marks he made earli­er Thursday that the debt lim­it prob­ably wouldn’t need to be dealt with un­til April or May. “Sen­at­or Re­id be­lieves that the debt ceil­ing should be dealt with as soon as pos­sible,” spokes­man Adam Jentleson said in a state­ment.

The out­lines of the next round of debt-ceil­ing talks are still tak­ing shape on Cap­it­ol Hill. The White House has said it would be un­will­ing to ne­go­ti­ate on the debt ceil­ing, mean­ing it would not play ball with Re­pub­lic­ans who want to use an agree­ment to hike the bor­row­ing lim­it as lever­age for oth­er is­sues. Re­id said the same on Thursday.

But early next month, Sen­ate Re­pub­lic­ans are ex­pec­ted to in­clude the goal of achiev­ing some sort of con­ces­sions over gov­ern­ment spend­ing through the up­com­ing debt-lim­it talks in the 2014 strategy they sketch out at their an­nu­al re­treat. And so the debt lim­it risks be­com­ing a con­gres­sion­al stick­ing point once more.

Contributions by Michael Catalini
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