WASHINGTON – The United States will once again face an unprecedented default on the national debt -- this time in mid-May-- unless Congress extends the government's authority to borrow, a request that has been mired in a political fight.
Treasury Secretary Paul O'Neill dodged a default in April by moving federal retirement funds into a non-interest-bearing account, freeing room for more borrowing.
On Wednesday, the Treasury Department said the debt limit is expected to be hit in mid-May, earlier than the latter-June time frame that O'Neill laid out in an April 17 letter to congressional leaders.
Treasury pushed the date forward because lower-than-expected income tax payments are forcing the government to borrow $1 billion in the April-June quarter. That's a sharp reversal of earlier plans to actually retire $89 billion of the national debt in the quarter.
This is the first time since 1995 that the government has needed to borrow in the April-June quarter, a quarter normally flush with cash from a flood of income tax payments.
O'Neill has repeatedly asked Congress to boost the debt ceiling by $750 billion, but the request has become stuck in a political fight over the budget. The limit now stands at $5.95 trillion.
"No one wants the government to default on its responsibilities," said the House Ways and Means Committee's top Democrat, Rep. Charles Rangel of New York. "But the people and their representatives have a right to know how the Bush administration plans to get the nation out of this fiscal mess before it authorizes a debt ceiling increase."
If the debt limit isn't raised by mid-May, Treasury said, it can use a number of stopgap measures to stay under the debt limit and avoid a default. Those measures include shifting funds and tinkering with Treasury auction schedules to make room for increased borrowing.
But those stopgaps won't help in the "latter half of June when regularly scheduled payments to Social Security and other government trust funds will require the treasury to borrow beyond this additional, limited capacity," Treasury warned.
Without such juggling of funds, Treasury would not be able to borrow the money it needs to keep the government operating, including making payments on debt that is coming due.
If those payments are missed, the government would be technically in default on the $5.95 trillion national debt, something that has never happened.
Given that Treasury can take steps to maneuver around the debt limit and that Congress is sure to eventually raise the ceiling, economists said there is never a real danger of a default, which likely would touch off an economic crisis.
Budget experts predict the United States will record a budget deficit for this entire fiscal year, which has not happened since 1997.
The Bush administration has blamed the return of red ink on a recession that began in March 2001 and the costs of waging war in Afghanistan and battling terrorism at home. But Democrats blame the 10-year, $1.35 trillion tax cut that President Bush pushed through Congress last year.
To help replenish coffers, Treasury plans to sell $33 billion of new securities at regularly scheduled auctions next week: $22 billion in five-year notes Tuesday and $11 billion in 10-year notes Wednesday.