WASHINGTON — Congress should not wait until the 11th hour to increase the nation's borrowing authority, Treasury Secretary Jack Lew said Monday. Speaking on the debt limit at The Bipartisan Policy Center here, Lew also said it may be possible for congressional Democrats and Republicans to work together on corporate tax reform and infrastructure investment.
"I believe that infrastructure investment is something we badly need," he said. There is a "convergence of thinking" on business tax reform, he added.
President Obama has on several occasions suggested the savings from enacting corporate tax reform could be used for infrastructure funding.
But Lew also said the first thing Congress can do to strengthen the economy and improve job creation is "just do its business" and extend the debt limit so that people can breathe a little sigh of relief. Lew warned that the extraordinary measures Treasury can use to continue financing the government after the debt limit is reinstated will be exhausted more quickly this time than in the past.
Congress in October suspended the debt limit through Friday, Feb. 7. After that, Treasury can engage in maneuvers that will temporarily allow the federal government to continue to meet its obligations. But the extraordinary measures are likely to be exhausted by the end of the month, Lew said.
When the debt ceiling was reached last May, Treasury was able to take extraordinary measures until mid-October. However, "at different times of the year, these extraordinary measures provide more or less of a cushion depending on variables that we cannot control," Lew said.
One of the extraordinary measures is halting sales of state and local government series securities (SLGS), which municipal issuers purchase for advance refunding escrows to ensure they will comply with tax requirements.
Internal Revenue Service guidance on what to do when the SLGS window closes exists in the form of Revenue Procedure 95-47, Vicky Tsilas, Treasury associate tax counsel, said at the Government Finance Officers Association debt committee meeting here on Friday.
Although some members of Congress would like to see a debt limit increase tied to spending cuts, "raising the debt limit has nothing to do with new spending," Lew said. Rather, "it's about fulfilling spending obligations that Congress has already made and paying bills that are already been incurred."
Other people and groups have also recently called for the debt ceiling to be raised quickly. Democrats on the House Ways and Means Committee urged House Speaker John Boehner in a letter Monday to "immediately put a clean debt limit increase on the House floor" because failing to act in a timely manner could lead to a delay in the Treasury's paying tax refunds to families.
The Securities Industry and Financial Markets Association and the American Bankers Association warned Congress last week that "even a short-term failure to fulfill our obligations would seriously impair market operations and could have significant consequences to our fragile economic recovery."
During a panel discussion following Lew's remarks, Paul Sheard, chief global economist and head of global economics and research for Standard & Poor's, said that U.S. Treasury Securities are the ultimate risk-free, liquid asset in the global financial system. Market participants view the debt limit as an "unnecessary issue that layers potential noise and then potential costs into the system," he said.
Panelists debated whether the U. S. should even have a debt limit. Lawrence Lindsey, former director of the National Economic Council and economic policy assistant under former President George W. Bush, said it's important to have a debt ceiling to force decisions.
Lindsey criticized President Obama for refusing to negotiate with congressional Republicans over a debt limit increase, noting that past presidents have negotiated with members of Congress on the issue.
But Tony Fratto, a former Treasury Department and White House spokesman under Bush, said the Obama administration doesn't need to negotiate on the debt limit because Congress will pass an increase. The vast majority of debt limit negotiations the Bush administration had with members of Congress were not on serious issues, he said.
Rudolph Penner, a former director of the Congressional Budget Office, said he does not think the debt ceiling has much of a purpose and the real place to negotiate over spending and tax matters is in the budget resolution. Ideally, he wants the debt limit to be eliminated. Other options could include Congress giving the president the discretion to raise the debt limit and Congress the power to disapprove of a change, or tying the debt limit increase to the budget resolution.
Amanda Sayegh, Minister-Counsellor and senior Treasury representative at the Australian Embassy in Washington, described her country's brief experience with having a debt limit. Australia instituted a debt ceiling in 2008 but ended it in 2013. Now, the Australian Treasurer is required to issue a directive about the maximum about that the government can borrow, but the parliament can't strike down that direction.
