Budget director: Debt ceiling will be raised before it's reached

Obama Budget Director Jack Lew said Monday evening that he does not envision any chance that the debt ceiling will not be raised by Congress by the time it is reached in August.

“I think now having been in quite a number of meetings with the leaders of the House and Senate I think there is shared understanding that it is just unthinkable for us to default,” he told The Economic Club of Washington. “I can't argue that it will be pretty. Things very rarely happen early in Washington.”

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Lew noted that he had had not thought there would be an April government shutdown when Democrats and Republicans could not agree on a 2011 spending bill, and he had been proven right then.

Congressional Republicans have publicly demanded trillions of dollars in spending cuts in exchange for raising the debt ceiling.

The White House wants the $14.3 trillion debt ceiling to be raised by Aug. 2, when the Treasury department says it will no longer be able to avoid hitting the mark. Not raising the debt ceiling will result in missed payments, including possibly to holders to U.S. treasury bonds.

Lew told the audience he believes it possible that deficit talks being led by Vice President Joe Biden will make a down-payment on reducing the national debt, by bringing deficits down to 2.5 percent or so of gross domestic product by around 2016. This is a reduction from about 9 percent today. The size of the debt would be stabilized at that point, he said.

He waxed nostalgic about his days as President Clinton's budget director, when he was able to deliver three years of budget surplus in a row—the first time that had happened since President Andrew Jackson.

“There very little possibility that I will be leaving with a record as strong as I had then,” he noted.

Lew also made clear his view that Social Security should be reformed now, but not as part of a deficit reduction package.

Democrats are divided on this issue with some, like Senate Majority Leader Harry Reid (D-Nev.) saying that the program's problems should not be touched for decades.

Social Security will not be able to pay all its promised benefits after 2036 under current projections. It does not use funds from the general Treasury, so in that sense it does not contribute to the deficit. However, to fix the program, taxes may have to be increased or money borrowed. That revenue, in that case, would not be available for the defict.

Lew acknowledged that in this wider sense Social Security is related to the deficit. He said that waiting to reform it later will make the pain greater.

“I believe very strongly the time to deal with Social Security is now,” he said.

He said that the administration has not put out a proposal because doing so could only harden battle lines. Instead, quiet talks can bring both sides toward an agreement that can be announced together as was the case in the 1983 reform of the program, he said.

The main problem right now is that Republicans won't agree to any payroll tax increases as part of a fix for the program, and they only want to cut benefits.

“We are not in a place right now,” to solve the problem, he said.