The Congressional Budget Office (CBO) issued a new report Thursday that noted the statutory debt limit of $16.394 trillion will be met by the end of December, but the Treasury Department can take certain measures to fund government without an increase in the debt limit until the end of February or beginning of March. At the time of the published report, the national debt stood at $16.279 trillion, which is approximately $115 billion below the statutory ceiling.
If the debt limit is reached, the Treasury can perform a number of measures, including suspending investments of the Thrift Savings Plan G Fund, suspending the investments of the Exchange Stabilization Fund, redeeming a certain number of Civil Service Retirement and Disability Fund securities and Postal Service Retiree Health Benefits Fund securities, suspending the issuance of new State and Local Government Series (SLGS) securities and replacing Treasury securities with debt issued by the Federal Financing Bank.
Between January and March, the Treasury Department will receive various inflows of cash, such as receipts of corporate tax payments, payments for Social Security benefits and a large interest payment on publicly issued securities.
“Given the magnitude of the government’s daily cash flows and uncertainty about the size of certain key transactions over the next few months, it is difficult to be precise about the date on which the Treasury will lose its authority to borrow additional funds,” the CBO report said.
The CBO performed a study and found that raising the federal excise tax on cigarettes by 50 cents per pack would the federal deficit by $730 million over a 10-year period from reduced health expenditures for Medicare and Medicaid. Additionally, it would save 10,000 lives in a decade.
According to the report (first published in June and later revisited this week), 1.4 million adults would quit smoking because of the rise in cigarette taxes, which is currently at $1.01 for each pack. The 50-cent tax increase would be indexed over time to keep up with inflation and average income growth.
“The policy’s effects on the average health and longevity of the population would grow over time because of several factors — the continuing improvement in health for people who stopped smoking, the decline in the share of the population that took up smoking, and the cumulative effects of lower mortality rates,” wrote the study authors.
As of Jan. 1, 2013, a number of tax cuts will expire and future spending cuts will take place, which has been dubbed the fiscal cliff. Another aspect of the fiscal cliff includes roughly two million Americans losing their unemployment benefits in December when a federal program ceases. An extra one million would see their benefits gone by April.
In a CBO report released Wednesday, it states that extending the unemployment program would cost $30 billion, but it would also save 300,000 jobs by the end of 2013 – the federal government has spent a total of $520 billion over the past five years.
Congress does have several options to consider. One would be to fully extend the unemployment benefits until 2014, while the other includes only partially extending the Emergency Unemployment Compensation program for a cost of $14 billion. Another alternative would be to partially lengthen the Extended Benefits Program for a price tag of $4 billion.
However, even if Washington undergoes these measures, states could still cut back the benefits due to budget restraints. The total number of Americans losing such benefits would be about 500,000.
Due to the other aspects of the fiscal cliff, Washington has not been looking at the issue very closely.
President Obama’s demands
It has been reported that President Barack Obama has put forth his demands as part of a fiscal cliff deal: $1.6 trillion tax increases, $50 billion in additional stimulus spending, a permanent increase in the federal debt ceiling, a one-year expansion of unemployment benefits and an extension of the payroll tax credit. In exchange, the president promised to cut $400 billion from Medicare and other programs.
These latest proposals were presented by Treasury Secretary Timothy Geithner at Capitol Hill on Thursday in meetings with both Republicans and Democrats. Despite the White House’s intentions, Republican Speaker of the House John Boehner shot down the ideas and urged the Obama administration “to get serious.”
“No substantive progress has been made between the White House and the House,” explained Boehner, reports CNBC. “I was hopeful we’d see a specific plan for cutting spending. Jobs are on the line, the American economy is on the line, and this is a moment for adult leadership.”
Democrats blamed the GOP leadership for any delays because they are refraining from accepting the president’s proposals.
“There can be no deal without rates on top earners going up,” said White House Press Secretary Jay Carney. “This should not be news to anyone on Capitol Hill. It is certainly not news to anyone in America who was not in a coma during the campaign season.”
The White House has put forward a social media campaign titled #My2K, which states that if congress does not act then the average middle class family of four would see their taxes rise by $2,200 in 2013.
Meanwhile, Republican Kentucky Senator Rand Paul published an op-ed piece in the Wall Street Journal on Friday calling for the GOP leadership to adhere to the calls for reducing revenue to the government and lowering taxes. When the Republicans, according to Paul, render this belief system then “we doom not only the economy but our party as well.”
“While there is no bigger believer than I am in a balanced-budget amendment, I don’t want to balance a $5 trillion budget (which the Congressional Budget Office estimates we will have by 2020),” said Paul. “I want to balance a budget that is limited in scope by the Constitution and limited in scope by the understanding that the private sector is more efficient than the public sector.”