New Developments with the Debt Ceiling

The House is pressing forward this week on debt ceiling legislation that contains a few different moving parts. The bill would buy lawmakers some more time to deal with it but would not be a full solution to avoiding breaching the debt limit.

In short, the bill would do the following:

• Suspend the debt ceiling until May 19. In other words, there would be no debt limit to constrain debt issuance from the passage of the legislation until then.
• Reinstate the limit on May 19.
• Increase the limit by the amount of debt necessary to cover obligations in the period when the debt limit was suspended. The bill appears to be worded so that Treasury could not issue an excess amount of debt within that period and use the surplus funds to pay full obligations beyond May 19. It could only go to fund the necessary obligations within that time period.
• Withhold Members' pay after April 15 until each respective chamber passes a budget resolution or the 113th Congress ends.

Although this proposal would set a specific date of May 19 when the government would hit the debt ceiling, it would likely not be a dropdead deadline. There would still be some extraordinary measures that Treasury could employ after May 19, although the exact amount of headroom is unknown and would depend on if Treasury repaid the funds it was using in the suspended limit period.

The withholding method described above is used because Congress is barred by the 27th Amendment from altering its own pay in the same term, thus making elimination of pay unconstitutional. The enforcement may not be necessary since Sen. Chuck Schumer (D-NY) has indicated that the Senate will pass a budget, and the House might go with something similar to their budget resolutions from the past two years. Tax Policy Center president Donald Marron notes that the bill does not require the chambers agree on a single budget, just that each pass one on their own. Assuming that they pass, broader budget negotiations would likely build off those budget plans.

While we welcome an effort to address the debt through the regular budget process, we would discourage complacency over the next couple of months. Policymakers should still replace the sequester with a more gradual and intelligent set of deficit reduction policies. If not, they must at minimum fully pay for any further delay of the sequester and hope to hammer out a deal through regular order as happened in the 1990s.