WASHINGTON — Treasury Department officials announced the federal government will hit its current $16.39 trillion debt limit at the end of this year.
However, Treasury Assistant Secretary Matthew Rutherford said in a release Wednesday that the Treasury will employ “certain extraordinary measures” to give Congress until early next year to raise the limit so the U.S. can continue to meet its legal obligations.
“We continue to expect that these extraordinary measures would provide sufficient ‘headroom’ under the debt limit to allow the government to continue to meet its obligations until early in 2013,” said Rutherford, who was confirmed to his position by the Senate during the summer.
One of Treasury’s first actions typically is to stop selling state and local government series securities to issuers, which put the SLGS in advance refunding escrows until their bonds can be refunded.
The Treasury has closed the SLGS window seven times in recent years to avoid reaching the debt limit and to give Congress additional time to raise the debt limit.
The department also can temporarily remove investments from government employee pensions as a way to create more borrowing space.
Currently the nation’s debt is $16.16 trillion. Congress approved a $1.2 trillion debt ceiling increase in January under The Budget Control Act, which was enacted in August 2011.
Separately, former Minnesota Governor Tim Pawlenty and newly elected president of the Financial Services Roundtable wrote a two-page letter to Congress and the White House urging them to take a two-pronged approach to addressing the impending so-called fiscal cliff.
“First, bridge over the fiscal cliff as soon as possible to minimize negative economic consequences,” Pawlenty wrote. “Second, address the federal budget deficit in a comprehensive and bipartisan manner in early 2013 to put the U.S. on a path for sustained growth.”
Pawlenty, who ran an unsuccessful bid for president in 2011, said the fiscal cliff is imposing “a negative drag on business lending, hiring, spending and investment right now, despite the cliff being over two months away.”
The fiscal cliff refers to a host of looming tax cuts set to expire at the end of the year including the temporary payroll tax holiday and the Bush-era income tax rate cuts. The Tax Foundation estimated that a large swath of taxpayers could be hit with more than $500 billion in tax hikes, with nine out of 10 households being affected by those.
The Congressional Budget Office has warned that the economy could enter a deep recession if the U.S. goes over the fiscal cliff.
In his letter, Pawlenty highlighted that 87% of economists surveyed by the National Association for Business Economists believe that the uncertainty about fiscal policy is holding back the economic recovery.