Congress can probably avoid another debt-ceiling fight before 2012 elections

The White House has asked for another debt-ceiling hike, but, as I pointed out earlier, that one is covered by August’s bipartisan deal. A real fight, however, could come once the deficit reaches $16.394 trillion — the limit agreed to in the Budget Control Act. The Treasury Department estimates that will happen in late 2012, leading some Hill-watchers to worry that a huge, messy debt-ceiling fight could conceivably happen during the lead-up to the November elections.

Researchers at Goldman Sachs crunched the numbers and estimate that the government won’t hit the debt-ceiling until mid-November, after the elections are over. What’s more, the Treasury still has the ability to rearrange its internal finances to buy the government more time — an estimated $200 billion worth — through using so-called “extraordinary measures” that could extend the debt limit until January 2013, according to the Goldman report.
(SOURCE: GOLDMAN SACHS)

I talked to a few outside budget experts, who largely agreed that Congress should be able to avoid a debt-ceiling fight until after the elections, adding that the fiscal picture looks even better now than it did in December. “The data since then suggests that revenues are coming in higher than anticipated, so the probability of hitting the debt limit and resorting to extraordinary measures before the election would be lower,” says Ed Lorenzen, senior adviser to the Committee for a Responsible Federal Budget and a former House aide.

That said, a big, unexpected economic downturn could still move up the date for hitting the debt limit, because incoming revenues would take a hit. And waiting until after the elections to tackle the issue also comes with complications, as Congress would probably have to approve a debt-ceiling increase during a packed lame-duck session. “While it is extremely unlikely that Congress will need to raise the debt limit before the election, it is also extremely unlikely that they will be able to avoid doing so before the end of 2012,” Lorenzen said.

As a result, Congress will be simultaneously debating the debt-ceiling, the expiring Bush tax cuts and the controversial sequestration cuts that are set to begin taking effect in 2013. But Congressional Republicans might not be itching for another debt-ceiling fight at that point: Extending the Bush tax cuts, for example, would add significantly to the deficit.