U.S. to hit debt limit in mid-October

Setting up what could be another major budget showdown between President Obama and Republicans in the Congress, the Treasury Department says Uncle Sam will reach its limit on government borrowing in mid-October, as Democrats urged GOP leaders to reach a broader budget agreement and avoid a historic default.

“Congress must act quickly to ensure we pay the bills we have already incurred,” said Rep. Chris Van Hollen (D-MD), the top Democrat on the House Budget Committee.

“Any effort to play political games with the full faith and credit of the United States will result in severe economic harm,” Van Hollen added in a statement.

But one side’s “political games” are the other parties important calls for change, as GOP leaders in the Congress say the problem in Washington is too much spending, one reason they have rebuffed Democratic attempts to raise taxes and wipe away the automatic budget cuts in the sequester.

Republicans have made clear for months that the only way they will raise the $16.7 trillion limit on government borrowing is in exchange for meaningful spending cuts by Democrats, in both the regular budget and entitlement spending, something many Democrats hotly oppose.

The declaration of the mid-October deadline by Treasury Secretary Jack Lew sets up a series of budget deadlines in coming weeks – the first, at the end of September, is when a temporary budget is needed to keep the government running.

Then, just over two weeks after that, the debt limit deadline arrives.

Both sides originally thought the debt limit would be reached months ago, but a spike in new tax revenues and lower than expected federal spending combined to reduce this year’s deficit by over 40% from a year earlier.

If no agreement is reached, then the U.S. would technically default on its debts.

The last time the two parties battled over the debt limit was the summer of 2011, when it took a last minute agreement to avert default – a deal that brought about spending caps and the sequester.

While a number of lawmakers in each party have been working behind the scenes on a possible budget deal, there have been no public hints of a broader deal; Republicans refuse to budget on taxes, arguing that Democrats got their higher taxes in the fiscal cliff deal, while Democrats say they won’t agree to anything that doesn’t include more tax revenues.

Congress returns to work the week after Labor Day.

And the clock is already ticking to the end of the fiscal year and the debt limit as well.