New debt limit deadline possible in March: Study

The deal President Trump signed into law to extend the debt limit will likely push the next debt ceiling deadline into March, according to a preliminary study by the Bipartisan Policy Center.

“While a formal projection at this early stage would be premature, we currently believe that the debt limit ‘X Date’ – when the government can no longer pay all of its bills in full and on time – may occur sometime in March 2018,” said Shai Akabas, BPC’s director of economic policy.

The debt limit’s deadline will have significant political implications, with Democrats hoping to use the must-pass legislation to increase it to approve a solution for young immigrants protected under the Deferred Action for Childhood Arrivals (DACA) program, and conservative Republicans seeking to use it to limit spending or regulations.

{mosads}Trump’s deal, reached with Democratic leaders last week, officially pushed the debt deadline to December 8th. But the Treasury Department has in the past extended its legal borrowing limit using loopholes it calls “extraordinary measures.” The U.S. last March, for example, technically hit its debt limit, but extraordinary measures put off the true deadline for six months.

If Congress does not take action by the deadline, the U.S. would not be able to borrow in order to cover its costs, and thus default on its debt and miss other crucial government payments. Economists warn that such an eventuality would spark a global financial crisis.

But March is by no means the certain debt deadline.

Treasury’s ability to stretch its extraordinary measures, which most consist of borrowing from internal pools that do not technically add to the federal debt, depends largely on how quickly tax revenue comes in and how many bills come due.

“The uncertainty this far out – including yet-to-be-determined spending for Hurricanes Harvey and Irma and the possibility of income tax changes – cannot be overstated,” Akabas said.

If the Treasury is able to extend the extraordinary measures into mid-April, the inflow of income taxes could stretch its abilities by a few more months. Similarly, if Congress is able to pass a tax reform bill by 2018 — one that could be applied retroactively to 2017 — the tax revenue may be significantly lower than expected.