2011 Debt Ceiling Standoff Cost Taxpayers $18.9 Billion
Nov. 27, 2012
Washington, D.C. – An analysis released today by the Bipartisan Policy Center (BPC) found that the federal government will very likely reach its debt limit in the last week of December 2012, meaning that the issue will play a prominent role in the ongoing fiscal cliff negotiations. Further, unless the limit is raised, the federal government will have insufficient funds to meet all of its financial obligations – including payments for Medicare, Medicaid and Social Security benefits – as early as February 2013.
“In addition to the challenges posed by the impending fiscal cliff, we estimate that policymakers will also be forced to grapple with a debt limit increase in the coming months,” said Steve Bell, BPC’s Senior Director of Economic Policy. “If the debt ceiling is not increased in the lame duck, the president and 113th Congress will have little time to ensure that the federal government can meet all of its obligations when they are sworn in early next year.”
Click here to read BPC’s full analysis and to learn more about BPC’s methodology.
If the debt limit is reached this year, the financial maneuvers, also known as Extraordinary Measures, available to Treasury will not last as long as they did in the lead-up to the ultimate debt limit increase in 2011. The federal government will have only $197 billion in Extraordinary Measures available to meet its federal obligations – a substantially smaller amount than last year. Also, the month of February has historically entailed the highest deficit of the year due to the beginning of the tax filing season and the need for the federal government to begin distributing tax refunds.
BPC used estimates of cash on hand and the operating cash flows of the federal government to project the February 2013 date. A number of factors, including the outcome of the fiscal cliff negotiations, a failure to patch the Alternative Minimum Tax by the end of 2012 or additional deficit spending for Hurricane Sandy disaster relief, could alter the February 2013 date slightly. BPC’s analysis also found that last year’s delay to increase the debt limit will cost taxpayers $18.9 billion over ten years.
In addition to defaulting on financial obligations, BPC found that several other risks could result if the federal government fails to increase the debt limit, including higher interest payments on U.S. bonds and a possible downgrade of the United States’ sovereign debt.
Economic Policy Project