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'Fiscal cliff' meets debt ceiling: Should Washington tackle both now?

Some analysts say moves to avoid the 'fiscal cliff,' looming as of Jan. 1, should be resolved alongside the need to again address the national debt ceiling, which could hit its limit as soon as February. Others say that's a bridge too far.

By Staff writer / November 14, 2012

After a seven-week pause, Congress returned Tuesday to a crowded agenda of unfinished business overshadowed by the urgent need for President Obama and lawmakers to avert the economic double hit of tax increases and automatic spending cuts, at the Capitol in Washington, Tuesday, Nov. 13.

J. Scott Applewhite/AP

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How might Americans know when negotiations between President Obama and congressional leaders are getting serious on the "fiscal cliff"?

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“When they start using the words ‘debt limit,’ ” says J.D. Foster, a senior fellow at the conservative Heritage Foundation.

How to back the nation off the cliff – shorthand for the more than $600 billion in higher taxes and lower government spending set to hit the American economy beginning Jan. 1 – is all the buzz in Washington. But immediately behind that lurks the need for Washington to confront, again, what to do about bumping up against the debt ceiling, a matter that is vital to the actual functioning of America’s government.

A dive off the fiscal cliff (meaning no action is taken to avert the tax hikes and big spending cuts) means the US economy would enter a recession in 2013 and the unemployment rate would rise to more than 9 percent, according to the forecast of the nonpartisan Congressional Budget Office (CBO). No one in Washington wants to put the country through that. But America has survived recessions.

What the nation has not endured before are the effects of congressional refusal to raise the national debt ceiling, such as a potential default on its debt obligations, a blow to its credit rating, and a crippling of government operations.

“In fact, you can go over the fiscal cliff,” says Mr. Foster. But “you cannot continue the federal government without appropriations, [and] you cannot continue to run a deficit without a debt limit. All the fiscal cliff stuff is an almost-must-pass [package of legislation]. The debt limit is a must-pass.”

The debt ceiling limits how much money the federal government can borrow to pay debts it has already accrued. Congress raised it by $2.4 trillion in the summer of 2011 to $16.4 trillion – just enough to cover the government's obligations until after the November election. It took that action after protracted negotiations led by House Republicans and the White House that sent financial markets down and approval ratings of Congress and President Obama plummeting.  

The federal government is expected to run out of maneuvering room on the debt ceiling sometime between February and April.  

House Speaker John Boehner (R) had vowed previously to boost the debt limit only by trading $1 in debt increases for $1 in government spending cuts. At a time when Congress is trying to offset at least some part of the $109 billion in automatic spending reductions in 2013 known as the sequester, finding more government cuts to match another debt-ceiling increase would be a tall order.

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