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Last updated: January 19, 2012 12:02 am
Congress returned to Washington on Wednesday for a symbolic vote to disapprove of another $1,200bn increase in the federal debt limit, setting the stage for a year of legislative theatre aimed at influencing November’s elections.
The Republican-controlled House voted against the rise in the debt ceiling requested by President Barack Obama by 239 to 176 but, under the procedure agreed last August, its approval is not essential.
The Democratic majority in the Senate is unlikely to follow the House and the president could wield his veto if it did. That means the limit is all but certain to rise, giving the government enough capacity to fund itself into 2013 and preventing a debt ceiling crisis during election season.
Federal borrowing has hit the current ceiling of $15,194bn and the Treasury is using accounting manoeuvres to keep the government funded. The increase under discussion would raise the limit to $16,394bn.
Borrowing is running at about $300bn a quarter, but that figure is falling as revenues slowly recover, while cash flow will soon reach a seasonal peak as Americans file their 2011 tax returns. That means the $1,200bn increase should last into 2013, with the accounting tools available again if more time is needed.
“Barring a significant change in economic conditions or a drastic shift in fiscal policy, we cannot come up with a way that the Treasury is going to be compelled to look at the debt ceiling again before early next year,” said Steve Bell at the Bipartisan Policy Centre in Washington. Even a year of weak economic growth would only bring the deadline forward a few weeks.
The debt ceiling should therefore be only a minor part of a fiscal scramble expected after the election. Tax cuts passed by former president George W. Bush will expire at the end of 2012 and an automatic “sequester” will start cutting spending at the start of 2013. A further increase in the debt ceiling is likely to become part of a wider deal on tax and spending.
Republicans and Democrats struggle to agree on a deal to cut government spending as the US deficit soars above $15,000bn
But the debt ceiling could cause more serious problems if there were a crisis in Europe that drove the US into or close to recession. Any significant spending or tax cuts above what is already planned for 2012 would almost certainly require more authority to borrow. That could limit the ability of the president and Congress to respond to a new economic shock.
There were signs that senior Republicans now want to focus their message on jobs rather than the debt ceiling. “The number one issue for House Republicans is to continue to focus on those policies that we believe will get our economy going again and to create jobs,” said House speaker John Boehner.
“We believe that this is a fraudulent issue, a totally manufactured issue with respect to the debt ceiling,” said John Larson, chairman of the House Democratic Caucus, who claimed that Republicans were trying “to see what damage they can inflict on the president”.
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