WASHINGTON (Reuters) - The United States might not hit the statutory limit on its debt until October, a policy research group said on Friday, giving Republican lawmakers more time to extract spending cuts from the Obama administration in return for extending the borrowing cap.
After giving into Democratic demands in December to raise taxes and later working with them to avoid a government shutdown, Republicans have been gearing up to use the debt limit as leverage to seek fresh budget cuts and changes to the tax code.
The Bipartisan Policy Center, a Washington think tank that analyzes the Treasury’s daily and monthly cash flows, had expected the federal government to hit the congressionally-set limit on its debt sometime between early-August and mid-September.
But stronger-than-expected revenues and deeper-than-anticipated budget cuts mean the ceiling on borrowing probably will not be reach until sometime between mid-August and mid-October, the group said on its website on Friday.
“October is a nasty month,” BPC economic policy director Steve Bell said in an interview, noting that major government payments are due in October.
If Congress does not raise the borrowing cap before the Treasury hits the limit, the government will no longer be able to borrow money to pay its bills, including interest on its bonds, raising the risk of a damaging debt default.
In an attempt to avoid being blamed for a default, Republicans in the House of Representatives are pushing legislation to require the Treasury to pay bondholders and Social Security retirement benefits before other bills if Congress does not raise the debt ceiling on time.
The BPC said its forecast could change depending on economic conditions and when updated financial information became available.
Nearly $90 billion may soon be pumped into government coffers by the now-profitable government-controlled housing finance firms Fannie Mae and Freddie Mac to account for deferred tax assets that were written down.
The think tank, however, does not think the disbursement to the Treasury will be that high. “We do expect that there will be a payment of some size in June but it is our opinion that the number is more likely to be in the $20 billion range and not in the rumored $100 billion range,” Bell said.
The Treasury has said it could not forecast an exact date for when Congress must raise the debt ceiling due to delayed tax filings and uncertainty about the effect of the government budget cuts.
Reporting by Rachelle Younglai; Editing by Paul Simao