*EPF413 02/14/2002
Text: Treasury Secretary O'Neill on Government Debt Limit Hike
(Asks Congress to increase debt ceiling earlier) (610)

Treasury Secretary Paul O'Neill has urged Congress to act quickly on increasing the government debt ceiling by $750,000 million.

In February 14 testimony before a Senate subcommittee, he said that the increase is necessary earlier than the administration had expected due to the economic downturn and the costs of the response to the terrorist attacks in New York and at the Pentagon.

O'Neill said that the $5,950,000 million ceiling on the amount the federal government can borrow will be reached in late March, not in late 2003 as the administration projected six months ago.

Any delay in legislative action could create uncertainty that would undermine the U.S. position in world capital markets and raise the cost of borrowing for U.S. taxpayers, he cautioned.

The U.S. government invests money collected in taxes for a pension fund, health care for elderly and other purposes in special Treasury securities. As these funds grow, O'Neill said, they push up the level of the Treasury's outstanding debt that is subject to limit set by Congress.

Following is the text of O'Neill's testimony as prepared for delivery:

(Note: In the text "billion" equals 1,000 million.)

(begin text)

TREASURY NEWS
THE OFFICE OF PUBLIC AFFAIRS
February 14, 2002

TESTIMONY OF TREASURY SECRETARY PAUL O'NEILL BEFORE THE SENATE COMMITTEE ON FINANCE SUBCOMMITTEE ON LONG-TERM GROWTH AND DEBT REDUCTION

Mr. Chairman, and Members of the committee last December, just three months to the day after the tragic events of September 11, I wrote to Congress requesting an increase in the statutory debt ceiling by $750 billion. Yesterday I sent another letter, repeating this request with a revised projection that the debt ceiling will be reached in late March. Failure to enact a permanent increase in a timely manner would only serve to undermine confidence in our government and in our economy.

Last August, we forecast that the debt ceiling would be reached in late 2003. Since then, war, recession and national emergency have intervened. This year's surplus has been eroded by the economic downturn and the response to the September 11 attacks.

While the timing of the need to increase the statutory ceiling is sooner than we had anticipated just six months ago because of untoward events, we've always known it would need to be raised at some point. Payroll taxes that the American people put aside and send to the Social Security trust fund result in an increase in the level of debt subject to limit because these funds are invested in special Treasury securities. The same holds true collections for Medicare, highways, airports and other special purposes for which the government has established trust funds. Government account holdings of these special Treasury securities increase by more than $200 billion each year. As these trust funds grow they push up the level of the Treasury's outstanding debt. Indeed, over time the growth of the Social Security trust fund is -- and will continue to be -- the most significant contributor to the increase in the level of the government's debt subject to limit.

The U.S. Government has the premier position in world capital markets because there is no doubt the United States will honor its financial commitments. Legislative action on the debt ceiling is necessary to preserve the U.S. position in world capital markets. Any delay could create uncertainty that would raise the cost of borrowing for U.S. taxpayers.

This is an unnecessary expense and, of course, any uncertainty added to the early stages of our economic recovery would be particularly unwelcome at this time.

I urge Congres to enact this increase in the debt ceiling quickly.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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