By Alan Joel ——Bio and Archives--October 13, 2013
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As provided by Public Law 113-3, the statutory debt limit was suspended by Congress through May 18, 2013. Because Congress has not yet acted to approve normal borrowing authority after May 18, the Treasury Department will begin implementing the standard set of extraordinary measures that enable us, on a temporary basis, to protect the full faith and credit of the United States by continuing to pay the nation'S bills. These measures are the same ones that have been used in previous debt limit impasses, and are described in detail in an appendix to this letter.The appendix describes four particular measures that would free up money: (1) suspending sales of State and Local Government Series Treasury securities; (2) redeeming existing, and suspending new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund; (3) suspending reinvestment of the Government Securities Investment Fund; and (4) suspending reinvestment of the Exchange Stabilization Fund These four actions were calculated by Lew to "free up approximately $260 billion in headroom". The current date for hitting the debt ceiling is sometime between October 17 – November 1, according to recent testimony by Jack Lew to Congress on October 10. Lew described catastrophic consequences for its obligations, citing possible interruption of benefits to Social Security, Medicare, military and veterans among others. However, Lew refused to entertain the possibility of prioritizing payments.. He warned, "If Congress does not act and the United States suddenly cannot pay its bills, the repercussions would be serious". In contrast, a memo from Moody's Investment Service dated October 7, three days prior to Lew's testimony, painted a different story. Moody's opined that, "We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,". It went on to say that, "The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury's extraordinary measures to raise funds) and a default". National Review Online noted that the Treasury department did not respond for comment on Moody's memo. Lew has supposedly already gone through the extraordinary measures of $260 billion worth of transaction-suspending these last five months, which might explain how the Treasury reports show no change in debt, leaving a tiny legal limit cushion of $25 million. At some point, those transactions suspensions will have to be made up, along with continuing to pay on our obligations. In other words, the Administration is currently picking and choosing what parts of government to fund. But isn't that exactly what Obama is lambasting the Republicans for--offering a budget that suspends the funding of something (Obamacare), an action that is perfectly within their constitutional right to do? In fact, suspending the funding of Obamacare for a year will have the same fiscal impact as Lew's current actions: freeing up money. The CBO estimates that it will give us "headroom" of $35 billion over 10 years. Why does Jack Lew get to decide what parts of government get funded or not funded but the House of Representatives does not? A interesting thing to note about Lew's testimony is that, besides rejecting the possibility of prioritizing payments, Lew also declined to be specific about 1) the amount to which Obama wanted the ceiling to be raised and 2) the length of time, i.e. the next deadline. The open-endedness of the position of Obama's Administration regarding the debt ceiling should raise some red flags for those who are leery of raising it. Thomas Jefferson wisely observed, "I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared". For those who are worried about our public debt, have no fear! The Treasury Department'sFAQ's already have a solution. Did you know: "There are two ways for you to make a contribution to reduce the debt: You can make a contribution online either by credit card, checking or savings account at Pay.gov You can write a check payable to the Bureau of the Public Debt, and in the memo section, notate that it's a Gift to reduce the Debt Held by the Public. Mail your check to: Attn Dept G Bureau of the Public Debt P. O. Box 2188 Parkersburg, WV 26106-2188″ And despite our government shutdown, pay.gov is still up and running, and is happy to accept your money. Of course.
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Alan Joel has been a practicing CPA in NYC for more than 40 years. He loves liberty and writes on the politics of taxes at his popular blog, AlanJoelNY.com