The Corner

Does the Deal Really Cover Obama Through the Election?

President Obama indicated that one of his main objectives in the budget negotiations was to raise the debt ceiling by an amount that would cover the government through the 2012 election.

While we can all be sure that the Treasury Department ran the numbers for him, let’s do some back-of-the-envelope calculations of our own.

The 2011 deficit is projected to be between $1.4 and 5 trillion. Next year’s is projected to be a couple hundred billion less, but it’s really difficult to project what the final numbers will be because there are just so many variables (i.e. GDP growth and tax-revenue collections).

It’s important to note that the latest GDP numbers (and the revisions) have not been helpful on this front.

The first tranche from the Budget Control Act will increase the debt ceiling by $900 billion. If the annual deficit projection stays in the $1.4–5 trillion range, the U.S. will be adding roughly $125 billion each month to its total debt bill. This means that this first debt-ceiling increase will probably get the U.S. into February 2012.

Now, here is where things get a little tricky. My understanding of the BCA is that the second tranche will raise the debt ceiling anywhere from $1.2 to 5 trillion. One of the underreported aspects of this deal is that there could be a real incentive for the new joint committee to deliver $1.5 trillion in cuts because of the corresponding debt-ceiling increase. If the committee only delivers $1.2 trillion in spending reductions, or falls back on the sequestration (i.e. automatic or triggered cuts), then the debt ceiling is only raised by that same (and lower) amount.

Let’s go back to the envelope:

A $2.1 trillion (first $900 billion + $1.2 trillion) debt-ceiling increase may get the government through 16 or 17 more months. Counting forward, that would put the next debt-ceiling deadline somewhere in the November–December window

Yet it’s really impossible to know this far out if that amount will certainly be enough. And even if that amount does turn out to be sufficient, a lame-duck Congress may have to debate another debt-ceiling increase. Under almost all of the election scenarios (Democrats win big, Republicans win, or things stay roughly the same), that lame-duck debate could be really ugly.

If Congress passes a plan from the joint committee that achieves $1.5 trillion in savings, then the debt ceiling will be raised by a total of $2.4 trillion. Getting this extra $300 billion in cuts and the corresponding debt-ceiling increase could be the only way for the administration to avoid a lame-duck debate in Congress (before new senators and representatives are sworn in early 2013).

Lastly, it will be interesting to see how hard the administration pushes for an extension of the payroll tax cut this fall. A one-year extension could eat away almost an entire month of the president’s debt-ceiling runway heading into the 2012 election.

— Christopher Papagianis is the managing director of Economics21, a nonpartisan policy-research institute, and previously was special assistant for domestic policy to Pres. George W. Bush.

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