The United States Congressional Budget Office (CBO) on Wednesday said the Treasury Department will exhaust its ability to pay all its bills sometime between July and September unless the $31.4 trillion cap on borrowing is raised or suspended.
In a report issued alongside its annual budget outlook, the non-partisan CBO cautioned that a historic federal debt default could occur before July if revenues flowing into the Treasury in April – when most Americans typically submit annual income tax filings – lag expectations.
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The pace of incoming revenues, coupled with the performance of the US economy in coming months, makes it difficult for government officials to predict the exact “X-date” – when the Treasury could begin to default on many debt payments without action by the US Congress.
“If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government would be unable to pay its obligations fully,” the CBO report said. “As a result, the government would have to delay making payments for some activities, default on its debt obligations, or both.”
Separately, the CBO said annual US budget deficits will average $2 trillion between 2024 and 2033, approaching pandemic-era records by the end of the decade – a forecast likely to stoke Republican demands for more spending cuts.
The sobering analysis reflects the full impact of recent spending legislation, including investments in clean energy and semiconductors and higher military spending, along with higher healthcare, pension and interest costs. It assumes no change in tax and spending laws over the next decade.
“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” CBO Director Phillip Swagel said in a statement.
The need to raise the debt ceiling is driven by past spending laws and tax cuts, some enacted under Democratic President Joe Biden’s Republican predecessor, Donald Trump.
Republicans, who control the US House of Representatives, want to withhold a debt limit increase until Democrats agree to deep spending cuts. Democrats in turn say the debt limit should not be “held hostage” to Republican tactics over federal spending.
After hitting the $31.4 trillion borrowing cap on January 19, Treasury Secretary Janet Yellen said the Treasury can keep up payments on debt and federal benefits and make other outlays at least through June 5, using cash receipts and extraordinary cash management measures.
Year of the debt limit
So far in 2023, not a day has gone by on Capitol Hill without legislators jousting over the debt limit, as Democrats press for a quick, clean increase in Treasury borrowing authority and Republicans insist on first nailing down significant reductions in future government spending.
Social Security and Medicare, the government’s popular pension and healthcare programmes for the elderly, are at the centre of the debt limit and government funding debate, as both parties also jockey to define the contours of the 2024 presidential and congressional election campaigns.
“There has been a Republican drumbeat to cut Social Security and Medicare,” Senate Majority Leader Chuck Schumer, a Democrat, told reporters on Tuesday.
Republican Senate Minority Leader Mitch McConnell has laboured, without much success so far, to smother such talk.
“Let me say one more time. There is no agenda on the part of Senate Republicans to revisit Medicare or Social Security. Period,” he said at a news conference.
Most Americans do not closely follow Washington’s debt-ceiling saga but they still worry it could hurt their finances, according to a Reuters/Ipsos public opinion poll conducted February 6-13.
Fifty-five percent of US adults said they have heard little or nothing about the debate but three-quarters of respondents said Congress must reach a deal because defaulting would add to their families’ financial stress, largely through potentially higher borrowing costs.