Analysts are already commenting on the likelihood that a number of partisan fiscal battles could tear Washington apart early next year.
According to Citi economist Steven Wieting’s calculations, if Congress maintains current income tax levels then the next round of debt ceiling drama will culminate right around the new year.
That’s if the Administration does everything in its power to delay it—including using the Treasury’s cash balance to keep the government working. Last time, this allowed the government do delay raising the debt limit by a full three months.
This chart tells the tale:
Photo: Citigroup Global Markets
By the end of the fiscal year 2012 (September 30), the administration expects debt subject to the limit to be $60 billion below the ceiling. The monthly budget deficit is likely to be near $80 billion in October 2012 by our estimates. But our own estimate for revenues and expenditures over the course of 2012 (prior to fiscal year end) is slightly more optimistic than administration projections. As figure 7 shows, running out of debt capacity under the debt limit prior to the November election is quite unlikely under our baseline projections. Furthermore, there is flexibility if revenues fall short.
As we can see from the chart above, if employment growth were to lag or stall, the government could have difficulty raising necessary revenues to make sure the debt ceiling debate takes place in the new year. Either way, we’re probably not going to see this debate until after the election, and once again the debate will probably be like pulling teeth.