U.S. President Barack Obama is seeking new authority to set the country's borrowing limit, adding a contentious new element to the end-of-the-year debate over the government's spending and tax policies.
The U.S. is again nearing its legal borrowing limit, now set at nearly $16.4 trillion. It is likely to reach that limit in early 2013, and without further congressional authorization, the U.S. would not be able to sell more government bonds to finance its operations. As the country's debt mounts, increasing the ceiling on its borrowing limit is now controversial in the U.S., even though it has been done more than a hundred times in the last century, often with almost no debate.
Obama and Congress engaged in a weeks-long standoff in mid-2011 before increasing it to the current level. As part of negotiations with congressional leaders to stave off $600 billion in mandated spending cuts and tax increases set to take effect January 1, Obama says he wants the power to set the debt ceiling, and the right to veto any congressional disapproval of the debt level he sets.
Newly re-elected, the Democratic president is seeking the debt ceiling authority as part of his call to raises taxes by $1.6 trillion over the next decade to eventually trim the country's debt. But his Republican opponents in Congress are balking at giving him new power over setting the country's debt limit and his tax proposals. They are calling for government spending cuts equal to any increase in the debt limit and retaining control over setting the limit.
Today, Obama told toy factory workers in Pennsylvania that he thinks he and congressional lawmakers can reach a compromise to avoid $600 billion in spending cuts and tax increases set to take effect January 1. But the Democratic president said reaching a deal with Congress will not be easy, with both sides needing to make compromises.
"All of us are going to have to get out of our comfort zones to make that happen," said Obama. "I'm willing to do that and hopeful enough members of Congress in both parties are willing to do that as well."
The House Republican leader, Speaker John Boehner, said negotiations are at a stalemate and said the president's proposals are not a "serious" offer to settle the dispute.
"There's a stalemate," said Boehner. "Let's not kid ourselves. Now I'm not trying to make this more difficult... And then the White House spent three weeks trying to develop a proposal and they send one up here that called for $1.6 trillion in new taxes, calls for not even $400 billion in cuts and they want to have this extra spending that's actually greater than the amount they're willing to cut. It was not a serious proposal."
The dean of the business school at Hofstra University in New York, Patrick Socci, said that increasing the debt ceiling has become controversial because the U.S. has been accumulating annual trillion-dollar deficits during Obama's tenure. The government has been spending substantially more than it is collecting in taxes as it moved to boost its economy in the aftermath of the deep recession in 2008 and 2009.
"The reason why it's contentious now is there are a significant number of Americans who feel we're on an unsustainable course," said Socci. "We're spending far too much money and we need to cut back."
But not raising the U.S. debt ceiling could be economically catastrophic. One financial services company cut the country's top credit rating in 2011 after Congress wavered on raising the debt ceiling.
As it stands now, several foreign governments, topped by China and Japan, are the biggest investors in U.S. securities, each holding more than $1 trillion in American bonds. Economic analyst Steve Bell of the Bipartisan Policy Center in Washington said there would be widespread uncertainty throughout the world about the safety and reliability of U.S. financial obligations if the debt ceiling is not increased again.
"If that were to happen, which would be unprecedented in American history, that means that the Treasury would essentially have to pay the bills as they came due, and I mean that literally," Bell noted. "It's 9 o'clock in the morning, and a bill came due, and enough money had happened to come into the Treasury that day to meet that bill, they'd pay that bill. But the next bill would come in, and there wouldn't have been enough money, that bill would not be paid. The question is for everybody in the world who depends upon the safety of American debt, would this mean the debt would be paid on time? And the answer is, nobody knows."
Bell said he thinks the debt ceiling will not be raised until the last couple weeks in February. But Socci suggested Obama and Congress would agree to increase it as part of a compromise on the year-end tax and spending issues.