November 30, 2012

WASHINGTON, Nov 29 President Barack Obama and his Democrats are insisting that an increase in the $16.4 trillion U.S. debt limit be part of any deal to avert the "fiscal cliff" of year-end tax hikes and automatic spending cuts.

At the current federal spending pace, the U.S. Treasury Department expects to reach the debt limit around the end of 2012. But Congressional Budget Office said on Thursday that government borrowing can continue through mid-February or early March by employing extraordinary cash management measures.

As of Wednesday, the federal debt stood at $16.268 billion, $126 billion below the limit, according to the Treasury.

Following is the non-partisan CBO's assessment of the capacity in each of these extraordinary measures, which combined could claw back about $215 billion in borrowing capacity. CBO also gave estimates of the key government cash inflow and outflow dates early in the new year.

TREASURY CASH MANAGEMENT MOVES

-- Suspend daily reinvestment of assets in a government employee pension fund known as the G-fund. These totaled $152 billion as of Oct. 31.

-- Suspend dollar investments of the Exchange Stabilization Fund, which was used in the past to backstop the dollar and money market mutual funds. This would provide $23 billion in borrowing capacity.

-- Suspend the issuance of new securities to other pension funds, the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. This would provide about $19 billion.

-- Suspend the issuance of State and Local Government Series securities to municipal bond issuers and halt the sale of consumer savings bonds, both of which count against the debt limit. This would provide up to $13 billion in monthly borrowing capacity.

-- Substitute up to $8 billion in Treasury securities with debt issued by the Federal Financing Bank, which is not subject to the debt limit.

KEY INFLOW/OUTFLOW DATES

-- MID JANUARY: Receipt of nonwithheld individual income tax payments. These have averaged about $45 billion in January over the past few years. The Treasury also will continue to collect income and payroll taxes withheld from paychecks.

-- Mid March: Receipt of quarterly corporate tax payments. These have averaged about $23 billion over the past few years in March.

-- Feb. 1: Payment of benefits for Social Security, Medicare Advantage, Medicare Part D and others, along with payroll for active duty military staff. These recently totaled $67 billion monthly.

-- Feb. 6, 13, 20: Additional Social Security payments, recently about $11 billion each time.

-- Feb. 15: a large interest payment on publicly issued securities is due. This has previously exceeded $30 billion.

-- March 1: another big payment for Social Security, Medicare benefits and military pay, also around $67 billion.

-- March 6, 13, 20: Additional Social Security payments, $11 billion each.

COMPLICATIONS

Chief among these are the uncertainty over future tax rates amid the rancor on Capitol Hill and potential delays in processing of tax returns by the Internal Revenue Service.

Possible changes to the Alternative Minimum Tax, resulting in more upper-middle income taxpayers having to pay the tax, could delay filings and processing of returns, potentially affecting the government's receipts early in the new year. The future reach of the AMT is one of the key questions that Congress is wrestling with in the fiscal cliff talks, and the outcome could cause delays in preparation of IRS tax forms.

"Given the magnitude of the government's daily cash flows and uncertainty about the size of certain key transactions over the next few months, it is difficult to be precise about the date on which the Treasury will lose its authority to borrow additional funds," the CBO said in its report.

(Reporting By David Lawder; Editing by Bob Burgdorfer)

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