At the same time, he said, the United States now has until Aug. 2 to raise the legal limit on federal borrowing, 25 days longer than he had estimated last month. The reprieve is largely the result of higher tax revenues than anticipated.
In a letter to Congress, the Treasury secretary renewed his warning that a failure to raise the $14.3 trillion debt limit “would have a catastrophic economic impact.” But he also acknowledged that it could take weeks for Congress to vote to do so.
Lawmakers on both sides of the aisle are demanding that any increase in the debt limit be accompanied by concrete steps to slow the growth of the debt. But there is much disagreement on how to accomplish that.
President Obama and Geithner have called for a vote on the debt limit that is not linked to any actions. Some congressional Democrats favor a trigger that would cut spending and raise taxes if budget goals are not met within a few years. Many Republicans favor hard caps on spending and don’t want to raise taxes at all.
But Geithner dismissed the idea of linking the debate over the nation’s long-term fiscal picture to the debt limit.
“Contrary to common misperception, the debt limit has never served as a constraint on future spending, nor would refusing to increase the debt limit reduce the obligations the country has incurred,” he wrote in his letter.
The government is set to breach the debt limit officially in the middle of this month, on May 16, but the emergency measures Geithner is taking starting Friday will postpone a potential default until the beginning of August.
The measures include a suspension of a Treasury program that helps state and local governments manage their debts, and borrowing money from a pension fund from federal workers. The Treasury also could tap an emergency program used to deal with foreign financial crises.
A boost in tax revenues is providing a slight reprieve. In a separate release, the Treasury said Monday that between April and June it expects to borrow $142 billion, less than the $299 billion it expected in its last report.
No one knows exactly what will happen if Congress fails to raise the debt limit. Some Republicans argue that Geithner could pay interest payments on the debt first, avoiding default and buying more time.
The Treasury has rejected this line of thinking. In his letter, Geithner said that a failure to raise the debt limit would force the government to stop, limit or delay payments on military salaries, Social Security, Medicare and unemployment benefits. Tax refunds also would be affected.
Geithner also warned that interest rates could rise for many types of loans, increasing borrowing costs for everyday Americans.
Geithner gained a new ally Monday in his crusade to raise the debt limit, as a powerful business group called on Congress to do so.
The Business Roundtable, which has been at odds with the Obama administration on many issues, said all of the proposals to rein in the nation’s debt are meritorious.
But, it added, “Business Roundtable believes a debt limit increase is simply unavoidable and necessary to protect the long-term health of our economy and ensure America’s international credibility.”