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Debt ceiling

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President Obama and Congress have been given some breathing room when it comes to dealing with the debt limit.

As part of the agreement that averted the so-called fiscal cliff in January, the White House and Congress suspended the nation’s $16.4 trillion debt limit through Saturday, when the debt limit will be raised to the debt level at that time or about $16.8 trillion. However, a 32 percent drop in the deficit has put off another day of reckoning over raising the country’s borrowing power after Saturday.

According to the Congressional Budget Office a 16 percent increase in tax revenue due to a recovering economy and changes in rates also agreed to in January has helped lower the federal deficit by $231 billion from where it stood a year ago.

Besides that, Fannie Mae, the government-backed mortgage giant, expects to make a $59 billion divided payment to the government by the end of June with another $7 billion expected from Freddie Mac. The sequester has also reduced federal spending.

With the increased revenue, the Treasury has some maneuvering room to use “extraordinary measures” to avoid reaching the debt limit until September or October. That removes any urgency President Obama and congressional Republicans would have in dealing with the issue.

On Thursday, the House took the first step with strictly partisan legislation that would allow the Treasury Department to borrow above the limit to pay holders of U.S. debt and Social Security recipients first, if the government reaches its statutory debt limit.

The Republican plan is not expected to get through the Democratic-controlled Senate. Democrats denounced it as the “Pay China First Act,” since the bill would allow China to be paid ahead of the military and veterans.

The House plan is the opening round of what will likely be a repeat of the contentious process that has marked previous standoffs between President Obama and Republicans over the debt ceiling and deficit reduction.

Republicans have called for more spending cuts, entitlement reform, no tax increases and maybe even overhauling the tax code. President Obama, though, has said he will not negotiate conditions for raising the debt limit and has called for increased spending to stimulate the economy. The debt ceiling debate can also get wrapped up in comprehensive deficit reduction talks and negotiations over a 2014 budget.

President Obama and Congress waited until the deadline in the summer of 2011 to agree on raising the debit limit, leading to a credit downgrade by Standard & Poor’s Financial Services followed by a stock market plunge. The lingering uncertainty created doubt for consumers and investors.

With a slow economic recovery, a repeat has to be avoided. Congress and the president need to take advantage of the three or four months ahead to agree on a plan to pay existing obligations and avoid a default without the brinkmanship that has become routine in Washington.

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