WASHINGTON — The federal government could run out of money as early as March 31, the Treasury Department warned Thursday, even as the Republican-led House of Representatives resists allowing federal debt to rise further without serious cuts first in government spending.
Treasury joined the battle in the first fiscal policy showdown of the new Congress when it said in a letter to congressional leaders that there'd be dire consequences for the U.S. economy unless the government's $14.3 trillion debt ceiling is increased soon.
House Republicans, in a nod to the conservative grass roots tea party movement, are preparing for a fight over that. The House GOP wants to use the approaching debt deadline as a way to force the big spending cuts they promised in their campaign document "Pledge to America." Many new Republicans rode to power on the wave of tea party anger over government spending.
House leaders give only qualified support to raising the debt limit.
"The reason we have to increase the debt limit is because Washington continues to spend more money than it takes in," House Speaker John Boehner of Ohio said Thursday. "And if the House is going to move an increase in the debt limit, I think we have a responsibility to cut spending and make changes in the process by which we spend the American people's money."
Treasury Secretary Timothy Geithner's letter warned that holding the debt ceiling hostage to spending showdowns is dangerous. Failure to raise the debt ceiling from its current $14.3 trillion level, passed in February 2010, could create a financial panic worse than the devastating chaos of 2008 and 2009, Geithner warned.
"Reaching the debt limit would mean the Treasury would be prevented by law from borrowing in order to pay obligations the nation is legally required to pay, an event that has no precedent in American history," warned Geithner. "Such a default should be understood as distinct from a temporary government shutdown resulting from a failure to enact appropriations bills, which occurred in late 1995 and early 1996."
Those government shutdowns, the Treasury secretary said, were disruptive but didn't have the same long-term consequences on the creditworthiness of the United States because the country was not bumping up against the debt ceiling.
In a briefing for reporters, Treasury officials professed little fear that the debt ceiling wouldn't be raised.
"In the end cooler heads prevail," said one Treasury official, who demanded anonymity in order to speak freely. "We hope that responsible activity prevails this time, as it has in the past."
However, the debt limit vote is an important legislative weapon for Republicans to wield, because the White House needs the debt limit raise to be passed.
To help expedite spending cuts, Republicans adopted rules this week permitting House Budget Committee Chairman Paul Ryan, R-Wis., to set enforceable budget limits for this fiscal year.
While default on the debt is "not an option," Ryan conceded, "we've got to start turning this thing around. This gives us an opportunity to do that."
Treasury officials said the government could run out of money between March 31 and May 16th if the debt ceiling isn't raised. They didn't offer a range of how high the debt limit needs to rise, saying Congress determines that.
Boehner defended the Republicans' change in budget practices, saying the Democratic-controlled Congress, which ended this week, failed to pass a budget for the 2011 fiscal year, which began Oct. 1. Government spending authority expires March 4.
That's "left us in a position where there's no spending limit under the law," Boehner said. "And so between now and the time that a new budget is enacted by the House, someone has to set a spending limit."
Democrats accused Republicans of hypocrisy. Under the new House rules, any mandatory spending increases must be offset by spending cuts_ not by tax increases. But most tax cuts, including December's extension of Bush-era tax cuts that now are set to expire at the end of 2012, need not be offset.
Not only will those extensions add to the deficit, Democrats said, but so will the repeal of the 2010 health care law, which the House is expected to vote for next week. The nonpartisan Congressional Budget Office estimated Thursday that repeal _ which is unlikely to pass the Senate _ would add $230 billion to the deficit over 10 years.
Boehner dismissed the CBO findings _ a highly unusual step for a House speaker.
"I do not believe that repealing the job-killing health care bill will add $230 billion to the deficit. CBO is entitled to their (sic) own opinion," he said.
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