Don't Expect Tax Reform Progress Until U.S. Raises Debt Limit, Goldman Economists Say

Raising the debt limit will distract lawmakers through September, just as healthcare did through July, say economists at Goldman Sachs.
By Kinsey Grant ,

Congress will likely raise the U.S. debt limit before the deadline of Sept. 29, in conjunction with a new spending bill to avoid a government shutdown, but debt discussions could further complicate tax reform propositions, Goldman Sachs economists said.

"While the debt limit has no direct effect on the broader fiscal agenda, it will distract lawmakers from tax reform in September just as health legislation distracted through July," Goldman wrote in a Wednesday note. Beyond that, the possibility of a short-term extension of the debt limit could complicate the tax debate if Democrats attempt to connect the two issues.

The deadline to raise the debt limit is 51 days away, and Congress will take at least that much time to enact any spending legislation, Goldman said. But in the event Congress fails to increase the limit by the end of next month, Goldman said there's less risk to the payment of interest or principal on Treasury securities and "much more risk" for other federal payments.

Goldman predicted that the Treasury will likely exhaust its funds by the time it needs to make payments scheduled for Oct. 3. The Trump administration is proposing a "clean" debt limit increase without congressional negotiations of spending cuts or other "gestures of fiscal responsibility."

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