Shutdown or Not, Debt Limit Looms as Next Fiscal Cliff

Washington, D.C.– The following statement is from Shai Akabas at the Bipartisan Policy Center, on the tentative budget agreement and approaching debt limit, reinstatement on March 2 at a record $22 trillion:

We hope this tentative budget agreement means another costly government shutdown has been avoided and that policymakers will meet other important fiscal deadlines in the coming months. In addition to the economic costs and toll on federal workers, another protracted shutdown could bring Congress’ deadline to deal with the debt limit nearer.

The deadline for Congress to extend the debt limit will arrive sometime after mid-summer, possibly creating a hazardous intersection with Congress’ deadline to finalize appropriations before the next fiscal year begins on October 1.

Policymakers will find it difficult to push the appropriations deadline too far down the road using continuing resolutions, as they have previously done, because spending caps from the Budget Control Act of 2011 could kick in, triggering up to $126 billion in automatic spending cuts if no action is taken.

To avoid arbitrary spending cuts this fall, a bipartisan agreement will be necessary, and timing for that may roughly coincide with the debt limit “X Date,” when the federal government would no longer be able to meet all of its obligations in full and on time.

This collision of deadlines could seriously complicate negotiations, as it has in previous years, and sets the stage for a new, and dangerous, fiscal cliff. Congress should act soon to protect the full faith and credit of the United States to avoid tying up the debt limit in budget battles later this year.

 Shai Akabas is available for comment.