WASHINGTON -- Congress has one month to raise the nation's borrowing limit or the government will default on its debt, the Treasury Department said Friday.
Treasury officials confirmed the Aug. 2 deadline in a monthly update that assesses the nation's borrowing situation. The United States reached the $14.3 trillion limit in May. Higher revenue and accounting maneuvers have allowed the government to keep paying its bills in the interim.
Treasury Secretary Timothy Geithner urged Congress to raise the limit and "avoid the catastrophic economic and market consequences of a default crisis."
President Barack Obama and Congressional Republicans are engaged in tough negotiations over resolving the issue. Republicans are demanding deep spending cuts as a condition of increasing the limit. But Republicans will not support tax increases, which Democrats say must be part of any deal.
A Democratic official said Thursday that the real deadline for reaching agreement is mid-July. That's because congressional leaders need a week or two to finalize the details and line up votes.
The U.S. government will continue to take in revenue after the Aug. 2 deadline passes. But it won't be enough to meet its obligations. The government borrows 40 cents for every dollar that it spends and that adds up to an average deficit of about $125 billion each month, the Treasury says.
In May, the government took in $175 billion in revenue and spent almost $233 billion.
The government faces several payments in August that will necessitate a higher borrowing limit, Treasury officials say. About $23 billion in Social Security payments must be made on Aug. 3. And a $30 billion interest payment is due Aug. 15.
A default would likely raise interest rates and threaten the economic recovery, analysts say. But some congressional Republicans are skeptical of such scenarios. Administration officials worry that it could take a financial calamity before Congress acts.
The Senate has canceled its planned July Fourth recess and will work on reaching a deal next week. But partisan divisions remain wide.
Obama has said that Republican and Democratic negotiators have found more than $1 trillion in potential spending cuts over the coming decade.
The White House is also proposing about $400 billion in higher tax revenues. Republicans want no tax increases and deeper spending cuts than Democrats have proposed. The overall goal would be to cut at least $2 trillion over 10 years.
An increase in the borrowing limit of about $2.4 trillion would carry the government through the end of 2012. That would enable Congress to avoid another vote on the issue until after the presidential election.