Seeking debt ceiling head room, Treasury borrows from federal worker pensions
The Treasury Department is using what it refers to as "extraordinary measures" in order to buy time until Congress raises the $14.3 trillion debt ceiling, which the government hit on May 16. Government funds could be exhausted as soon as August 2, 2011, if the debt limit is not raised, says the Treasury Department.
According to Treasury Secretary Tim Geithner, cutting the bond holdings that back federal employee retirement plans for two and a half months will infuse $214 billion back into the federal budget. The funds will be made whole once the debt limit is increased, Geithner said in a letter to legislator; "federal retirees and employees will be unaffected by these actions."
"I can't argue that it'll be pretty," said Jacob Lew, Office of Management and Budget director, while speaking at an event in Washington, D.C. May 23. "I think there's a shared understanding that it's just unthinkable" for the U.S. to default on its debts, Lew added, according to Bloomberg.
The Treasury claims there is no credible budget plan that would allow the government to avoid a debt limit increase; there are budget solutions being proposed, however.
A think tank called Third Way suggested workers enrolled in the Federal Employees Retirement System increase their contribution to retirement benefits by 5 percent. This idea, which would allow the taxpayer-provided portion of pensions to decrease, has since been adopted by the White House's deficit reduction commission and Rep. Paul Ryan's (R-Wis.) deficit-reduction plan, according to The Federal Times.
Meanwhile, government employees are offering their own solutions to help the government stay in the black, without borrowing from their pensions. "Selling off some government buildings might be a good idea, especially as telework takes hold," suggested Patent Information Researcher Caryn Wesner-Early, in a GovLoop forum titled, "What Should The Government Sell So They Can Pay Your Pension?" Other suggestions on the forum included "Roll back taxes to the Reagan era" and "Pull troops out of Iraq and Afghanistan."
Negotiations toward a resolution are reportedly underway with the White House pushing Congress to raise the debt ceiling and Republicans seeking a leaner budget in exchange for raising the ceiling.
Since 1960, Congress has had to permanently raise the debt ceiling 78 separate times, according to Treasury, adding that failing to increase the debt limit would be disastrous for the U.S. economy.
"The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new spending commitments," according to a Treasury Department post.