In the past when lawmakers have failed to act fast enough, Treasury has been forced to borrow from government retirement funds.
Treasury Secretary Henry Paulson told congressional leaders Monday the agency is now predicting it will reach the nearly $9 trillion statutory debt limit in early October and urged lawmakers to raise the cap before then.
In a letter, Paulson said Congress should hike the $8.965 trillion debt ceiling "as soon as possible" to preserve the "full faith and credit" of the United States.
Congress must increase the debt limit or else the United States, upon breaching that cap, would face default on its worldwide financial obligations and risk a government shutdown because it would be unable to pay its bills. That has never happened before, although lawmakers regularly use must-pass debt limit legislation to debate each party's fiscal priorities.
The last debt limit increase, which boosted the cap by $781 billion, occurred last March; and was the fourth debt limit increase to take place during President Bush's tenure. The largest-ever debt limit increase -- $984 billion -- was approved in 2003.
Paulson did not specify how much of a debt ceiling increase would be required. Upon adoption of the fiscal 2008 budget resolution, House Democrats used what has become known as the "Gephardt rule" to automatically approve an $850 billion debt limit increase. The Senate would still have to take up the bill.
Paulson said in his letter that Congress should act before early October or else Treasury would be forced into accounting maneuvers to forestall reaching the debt ceiling. He wrote that such actions "would create unnecessary uncertainty for the financial markets and result in costs to the government. These actions should be reserved only for extraordinary circumstances and should be avoided."
When Congress has ignored such warnings, Treasury has been forced to borrow from government pension funds, for example, to delay breaching the debt ceiling. Democrats will want to time a final vote on the legislation in a manner that provides Treasury enough room that Congress can avoid taking another politically difficult debt-limit vote until after the November 2008 elections.
"It serves as a reminder that President Bush and the Republican Congress added $3 trillion to the national debt and serves as another reminder why it's so important that Democrats have produced a budget that reaches balance and sticks to the pay-as-you-go rule," said Tom Kahn, staff director for House Budget Committee Democrats.
Republicans said Democrats were adding to the debt by increasing spending and failing to rein in entitlement programs. "It is my sincere hope that today's Treasury notice will serve as a wake-up call -- to all in Congress -- that we simply can't spend our way out of debt," said Budget ranking member Paul Ryan, R-Wis.