The U.S. government is teetering on the date when it risks defaulting on the national debt, a date expected sometime this summer or early fall, according to the latest forecast released by the Bipartisan Policy Center (BPC) Wednesday.
The federal government hit its $31.4 trillion statutory debt limit on Jan. 19, prompting the Treasury Department to begin using accounting tools known as “extraordinary measures” to track the bills for a variable, but to pay in cash for a limited period of time. The BPC expects the “X-date” by which the extraordinary measures will be exhausted to arrive sometime this summer or early fall, depending on fluctuations in spending and tax revenues.
“Over the coming months, revenue during tax season will be the single largest factor influencing Date X,” Shai Akabas, director of economic policy at BPC, told FOX Business. “If the final tax receipts for 2022 are lower than projected, the X-date would come earlier – and conversely, if the receipts are higher, the date would be pushed back. In any case, we expect tax revenues to significantly narrow the date range.”
US GOVERNMENT DEBT WILL RISE BY $20 TRILLION OVER THE NEXT 10 YEARS: CBO
Treasury Secretary Janet Yellen said the accounting maneuvers would allow the government to continue paying its bills at least until early June, when it first deployed the extraordinary measures.
Raising the debt ceiling will require a bipartisan compromise in Congress between Democrats, who control the Senate, and Republicans, who control the agenda in the House. Though some high-level debt limit meetings have taken place between House Speaker Kevin McCarthy, R-Calif., and President Joe Biden, negotiations have yet to begin in earnest and Congress could face a time crunch if tax receipts fall short of expectations .
CBO OFFERS CONVENTIONAL OPTIONS TO SAVE SOCIAL SECURITY, MEDICAL CARE, HIGHWAY TRUST FUND FROM BANKRUPTCY
“Today’s X-period reflects, in part, significant uncertainties in our nation’s current economic outlook,” Akabas said. “The early end — this June — represents an urgent need for Congress and the President to negotiate a way forward to avoid further US credit rating downgrades and broader economic disruption. To minimize costs and risks, our leaders should act with this timeframe in mind.”
Legislators in Congress from both parties tend to protract tax matters in order to gain leverage. This dynamic often plays out through last-minute votes to pass short-term rolling resolutions to avoid government shutdowns until agreements are reached on massive spending bills. Previous standoffs above the debt ceiling have been similarly reckless and, in one notable case over the last decade, volatile enough to shake financial markets.
BY 2033 KEY SOCIAL SECURITY TRUST FUNCTIONS COULD BE MADE AVAILABLE: CBO
The debt ceiling crisis of 2011 produced America’s first-ever credit rating downgrade, when Standard & Poor’s lowered its rating from AAA (excellent) to AA+ (excellent). Such credit downgrades could potentially increase the government’s borrowing costs, although the other major rating agencies, Moody’s and Fitch, kept the US at its highest credit rating.
Credit downgrades can lead to rising interest rates, making it more expensive for the federal government to service the national debt and further widen the existing budget deficit.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Akabas told FOX Business, “The closer we get to the X-date, the greater the cost and risk to US taxpayers and hard-working Americans will be.”
“Policymakers have an opportunity to bring reassurance to the U.S. and global economy by beginning serious bipartisan negotiations on our nation’s financial health and taking action to restore full confidence and creditworthiness to the United States well ahead of the X-date.” uphold,” added Akabas. “The sooner these negotiations start, the greater the chance that the situation will be resolved before the economy really feels the impact.”