Red Ink Update: February 11, 1996

Update for February 11, 1996.


Though Congress is officially in recess until February 26th, committees are still meeting and some progress is being made on legislation affecting the budget. Much of the partisan rancor which has recently plagued the 104th Congress has quietly subsided. For the first time in months, a genuine spirit of partisan cooperation seems to be emerging - though that could vanish when the Congress officially resumes business on the 26th.

The new spirit of cooperation became very apparent at the meeting of the House Banking Committee on Thursday, February 8th, which had convened to hear the testimony of Treasury Secretary Robert Rubin and others about the need to raise the debt limit from its current level of $4.9 trillion. The committee is chaired by veteran (10th term) Republican Congressman James Leach (Iowa), who encouraged a very polite and conciliatory tone from both sides of the aisle. From comments made at that meeting, it looks likely that the debt ceiling will be raised to $5.5 trillion, which, if it happens, would not only end the potential crisis of a technical default on the national debt, but would prevent this controversy from recurring for at least two or three years, since it would take at least that long to reach the new ceiling.

The Republicans really had no choice but to cave in on this issue - there was no way of winning. Default on debt payments, which would likely happen in March without an increase in the ceiling, would be an intolerable gamble and the Republicans would get most of the blame if there were any serious consequences, and if there were not, they would get credit for nothing except being taciturn. Equally important, their own plans require an increase in the ceiling. Even if the most conservative budgetary plan were to be adopted in Washington, and one that truly balances the budget by FY2002, since between now and then deficits would still be run, the debt must continue to grow by considerably more than $600 billion.

Note: Even with a balanced budget, the debt subject to statutory limit would continue to rise at about $90 billion per year. See the notes at the bottom of the page.

So it now looks like the debt ceiling will cease to be an issue after early March. Agreement on the general budget, though, is another matter. The President and the Republicans are still miles apart on Medicare and Medicaid - not so much on the budget numbers as on the nature of the changes that would have to be made for those numbers to be met.

President Clinton has released the first version of his FY1997 budget, available on Web Site http://www.doc.gov/BudgetFY97/bud97toc.html , and the full budget, including revised historical tables, is scheduled to be released after March 18th.


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