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Here We Go Again: Congress Digs in Over Debt Ceiling
Remember last year’s titanic struggle over increasing the debt ceiling? A mighty contest that threatened to leave the nation in default, lasted for much of the year, and resulted in a $2.1 trillion increase in the national debt—papered over in part by the cover of the not-so-super committee? Well, this movie has a sequel: Debt Limit II, a return engagement scheduled to open on Election Day, November 6, 2012.
Of course, the election will be in large part about President Obama’s dreadful handling of the economy, which is finally showing real signs of life despite—not because of—Obama’s policies. And the election will also be about America’s future, a future that is not as bright as it should be because the national debt will have risen by more than $5 trillion over the course of Obama’s term. But this only partly explains the timing of the sequel’s release.
The sequel is scheduled to open on or about Election Day because that, in fact, is when the federal government is likely to once again hit the debt ceiling with a loud clang.
Recall that when the cynically named Budget Control Act enacted last August raised the debt ceiling by $2.1 trillion, the figure was not chosen at random. It was chosen carefully (if poorly) to carry the government through 2012. Neither the Republicans nor the Democrats in Congress nor the President wanted another debt ceiling vote until safely after the election. Ah, the best laid plans.…
What happened? First, the deficit forecast for 2012 ballooned. The Administration’s official analysis last September projected a 2012 deficit of $956 billion. Imagine: Getting the deficit below a trillion dollars is now considered good news.
According to the latest Congressional Budget Office (CBO) analysis under its more realistic “Alternative Fiscal Scenario,” the 2012 deficit is projected to be $1.111 trillion. And that was before Congress passed legislation extending the payroll tax holiday, among other things, which according to CBO in 2012 will reduce revenues by about $95 billion and raise spending by about $20 billion—exclusive of the Medicare “doc fix” provisions already assumed in the Alternative Fiscal Scenario. On balance, this leaves a projection for the 2012 deficit of roughly $270 billion more than the White House projected last summer.
Given the current level of debt, this deficit forecast, and the normal monthly pattern of federal receipts and outlays, the implication is that rather than hitting the debt limit sometime in early 2013, as expected when the Budget Control Act was signed, the federal government is likely to max out its credit card on or about Election Day, which should make for an especially entertaining spectacle.