Meanwhile, the House took the unprecedented step of suspending the federal debt limit, then set at $16.4 trillion, until May 19. When the debt ceiling goes back into effect next weekend, the limit will automatically be lifted to account for any new borrowing. But Republicans calculated that the Treasury would almost immediately be in trouble again and in need of an even higher debt limit before the August break.
Ryan laid out the strategy for rank-and-file lawmakers at a January retreat in Williamsburg and during listening sessions on Capitol Hill. “These pressure points would come together and force a bargain on the budget,” said a GOP aide, speaking on the condition of anonymity to discuss private meetings. “This was Ryan’s spiel.”
The strategy, however, failed to account for the improving budget outlook. In February, the nonpartisan Congressional Budget Office predicted that this year’s deficit would fall to $845 billion, down from nearly $1.1 trillion in 2012. Goldman Sachs recently predicted that the deficit would fall even further, to $775 billion, and return to sustainable levels within two years.
As a result, the national debt is rising far more slowly than in the frantic days after the 2008 economic crisis: The Treasury Department actually expects to repay a tiny sliver of the $16.8 trillion national debt by the end of June.
Much of the improvement stems from recent budget deals. Over the past two years, Congress has capped agency spending and created the sequester, which is trimming outlays on domestic programs and the military. Lawmakers also agreed to raise taxes on virtually every American this year, letting a temporary reduction in the payroll tax expire and tax rates rise for households earning more than $450,000 a year.
But other factors are at work, too. Defense spending has been declining rapidly with the end of the war in Iraq and the ongoing drawdown of forces in Afghanistan. A surprising — and apparently durable — slowdown in health-care costs has sharply reduced projected spending on Medicare and Medicaid. And the falling jobless rate and improving economy have helped push federal tax collections up 16 percent over last year, according to figures out Tuesday.
As a result, forecasts of the date when the debt is expected to hit the new debt limit have been slipping, from midsummer to late summer to early fall. Forecasters at Goldman and the Bipartisan Policy Center who have been watching the government’s cash-flow situation closely say the Treasury is all but certain to make it to Oct. 1 if Fannie Mae, the taxpayer-owned mortgage giant, and its sibling Freddie Mac turn over tens of billions of dollars as a result of their stronger financial status amid a recovering housing market. A decision is expected this week.
Treasury officials have declined to provide much guidance, citing “forecasting uncertainty.” That could change as May 19 draws near. Meanwhile, the White House has called the date irrelevant, saying that Obama will not negotiate over the debt limit and urging Republicans to act now to broker a debt-reduction deal.
“No one should threaten the default of the United States,” White House economic adviser Gene Sperling said Tuesday at the Peterson summit. “Democrat or Republican, for any reason, no one should use the default of the United States as a budget path or negotiating tool.”