The Administration has a bit of a problem. The cap on the national debt, which must be approved by Congress, is $12.1 trillion. The Treasury is borrowing money so fast to fund the stimulus and budget deficits, that it will push up against the level in about two months.
With many members of Congress against the rising federal red ink, the battle lines are likely to be drawn with the stakes being how much higher the limits on federal borrowing will be allowed to go.
According to Reuters, Treasury chief Timothy Geithner sent Senate Majority Leader Harry Reid a letter saying, “It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.”
The Democrats almost certainly have the votes to move the cap higher, but they are giving the Republicans another chance to make the case that borrowing is out of control.
IRS receipts are still running well under the numbers put into the Budget for the current fiscal year. Businesses are not making profits at projected levels and high unemployment is cutting into payments from individuals. Even if the Administration sticks to its spending plans, the rising deficit will have to be funded by higher taxes or greater sale of national debt in the global capital markets. The largest buyer of US debt, China, has already expressed significant reservations about the capacity of America to handle its increasing need for capital without moving up interest rates and hurting its ability to handle its debt coverage.
The recession seems to be coming to the end, but high unemployment could be a negative factor in IRS collections for years.The current request to raise the debt ceiling won’t be the last.
Douglas A. McIntyre