The Washington Post

December 04, 2001, Tuesday, Final Edition

SECTION: A SECTION; Pg. A04

In Switch, Administration Seeks to Boost Debt Ceiling Now

by Glenn Kessler, Washington Post Staff Writer

The Bush administration, which only months ago warned of the perils of retiring the federal debt too quickly, is exploring with lawmakers the need to raise the debt ceiling immediately.

The shift is emblematic of the weakening budget situation, but it also could prove politically embarrassing to the administration. President Bush pushed his tax cut through Congress by asserting the projected surpluses were large enough to cut taxes and pay down record levels of federal debt.

Since then, the slumping economy and the war on terrorism, as well as reduced revenue from the tax cut, have pushed the budget into deficit, and officials say it will remain that way for several years. The debt ceiling hasn't been raised since 1997, when the federal government began running surpluses. Democrats appear in little hurry to grant the administration's request. The national debt is about $ 200 billion below the debt ceiling of $ 5.95 trillion, meaning there is little immediate crisis, Democrats say. But the White House is pressing for early action, apparently to avoid the debt ceiling becoming an issue in congressional races next year.

"The chickens are coming home to roost," said Thomas Kahn, Democratic staff director of the House Budget Committee. "For months, they had told us we could have it all. But their numbers are not adding up."

Administration officials have contended that the tax cut will help boost growth later in the decade, and remains an essential part of the president's economic strategy. But they acknowledge that the debt ceiling will need to be raised.

Michele Davis, a Treasury spokeswoman, said the administration's mid-session budget review, issued in August, projected the debt ceiling would be breached in September 2003.

"Now it looks like we will reach it in March 2002," she said. "Look at what is different from August to November. It is the declining economy combined with the attacks in September."

Davis said the administration was seeking action before lawmakers depart for the holidays.

The national debt consists of securities owned by the public and government trust funds, such as the Social Security trust fund. As the government ran surpluses, the publicly held debt of about $ 3.4 trillion has shrunk. These are mostly bonds held by investors, and the government has used the surpluses to pay off this debt. From an economic standpoint, the public debt is most important, because reducing it makes it easier for private enterprises, such as companies, to raise money by issuing bonds.(The assumption here is that investors unable to buy Treasury bonds will turn to corporate bonds instead. TUFF)

But even as the public debt has decreased, the debt in the government trust funds has increased. As the government begins to run deficits again, both types of debt will rise -- prompting the need to raise the overall debt limit.(see real figures under "important numbers." TUFF)

This would mark a major shift for the Bush administration, which had predicted a record pay-down of the debt only last February.

"The president's budget commits to using today's surpluses to reduce the federal government's publicly held debt so that future generations are not shackled with the responsibility of paying for the current generation's overspending," the president's budget document said. "It commits to an historic amount of debt retirement and will retire $ 2 trillion in debt over the next 10 years."

In April, the president said that "after funding important priorities and retiring all government debt possible," the budget had enough room to use the "remaining portion of the surplus to provide fair and reasonable tax relief."

The mid-session review also predicted "federal budget surpluses will continue to allow the government to repay historic amounts of the publicly held debt."

Rep. John M. Spratt Jr. (S.C.), the senior Democrat on the House Budget Committee, last week released an analysis showing that 55 percent of the decline in the projected surplus over the next decade could be attributed to Bush's tax cut. Spending related to the war on terrorism accounted for 11 percent, other spending also 11 percent and the recession 23 percent, according to the analysis.