Going against calls from the White House, Republican leaders in the House of Representatives have yet to schedule a vote to raise the debt limit. This failure to act has forced Treasury Secretary Paul H. O’Neill to tap funds from Treasury bonds in one of the investment plans and replace them with non-interest bearing IOUs.
The debt limit represents the combined total of publicly held debt and includes money owed to holders of Treasury bonds and other government securities plus the government’s obligations to retirement trust funds. In a letter to congressional leaders on March 18, Secretary O’Neill indicated that the government would breach the debt ceiling by April 1. In order to prevent the government from exceeding the debt limit, currently set at $5.95 trillion, Secretary O’Neill must resort to borrowing from the Treasury bonds to allow the government to continue paying its creditors. This action by the Secretary is not unprecedented. In 1996, Treasury Secretary Robert E. Rubin resorted to the same accounting practice when a similar stalemate arose between Congress and then President Bill Clinton.
Secretary O’Neill’s creative accounting will buy House leaders time until April 15, when taxpayers begin filling the federal coffers with their returns. But the debt limit will need to be raised once again. Most likely the increase will be between $300 and $400 billion, but far short of the $750 billion that Secretary O’Neill requested last November. Republican leaders plan to attach the legislation to an anti-terrorism supplemental spending bill that is expected to reach the House floor in mid-April.
Democrats are poised to use the vote on raising the debt limit as further evidence that last year’s tax cut ate away at budget surpluses, brought a return to deficit spending and consumed scarce resources for domestic programs such as education.