By Kate Davidson 

WASHINGTON -- Treasury Secretary Steven Mnuchin said the government could run out of room to keep paying its bills in full and on time in late summer unless Congress raised the federal borrowing limit before then.

The Treasury Department has been using extraordinary measures to keep making on-time payments to bondholders and other federal-benefit recipients since March 2, when the borrowing limit, or debt ceiling, was reinstated after being suspended for a year. If Congress doesn't suspend or increase the limit again by late summer, Treasury can't raise cash to fund the government and could begin to miss payments and default on the debt.

On Wednesday, Mr. Mnuchin told lawmakers on the House Financial Services Committee that a default was unlikely, but urged them not to delay a debt-limit increase. The Treasury secretary met Tuesday with senior congressional leaders to discuss a possible deal on the budget for fiscal year 2020 and raise the debt ceiling.

"I have confidence that this Congress will not let that occur," he said of a possible default. "From my meetings with senior leadership, everyone understands this issue, and I hope we never get to the point late summer where we're even talking about these things. I would hope for the benefit of the American people that we raise the debt limit soon."

Treasury secretaries typical want agreements to raise the limit as soon as possible, to avoid market uncertainty, which can drive up the government's borrowing costs.

Mr. Mnuchin said the administration would be open to a two-year budget deal "if the numbers are prudent."

Mr. Mnuchin also faced questions Wednesday from Democrats on the committee over his decision to defy a congressional subpoena for six years of President's Trump's tax returns and audit records; they pressed him on reports about an Internal Revenue Service memo about Treasury's obligation to give the returns to Congress.

The IRS drafted a memo in the fall indicating that, unless the president invokes executive privilege to protect his returns, the agency must turn over the returns to Congress, according to a report in the Washington Post Tuesday.

Mr. Mnuchin said he was unaware of the memo's existence until the Treasury Department was contacted by a reporter, and hadn't discussed it with anyone inside the White House, or any outside administration advisers.

"I just saw that memo this morning. I've never seen that before. I don't know who wrote that memo," he said. "We will try to get to the bottom of it."

Mr. Mnuchin also said he didn't think the memo was relevant to the legal analysis the Treasury Department had done. In a letter last week, he said the department wasn't authorized to provide the tax returns because it had determined that Rep. Richard Neal (D., Mass.) lacked a legitimate legislative purpose for them.

The decision by Mr. Mnuchin and IRS Commissioner Charles Rettig was expected after weeks of rebuffing requests from Mr. Neal, the chairman of the House Ways and Means Committee, who invoked a statute that lets the chairmen of the tax-writing committees obtain any taxpayer's returns from the Treasury Department.

Mr. Mnuchin said he would reject the subpoena in a one-page letter to Mr. Neal on Friday.

Messrs. Mnuchin and Neal have both said they expected courts to resolve the dispute.

Write to Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

May 22, 2019 13:04 ET (17:04 GMT)

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