U.S. Could Default as Soon as July if Debt-Ceiling Standoff Isn’t Resolved
WASHINGTON—The U.S. could become unable to pay all of its bills on time sometime between July and September, the nonpartisan Congressional Budget Office estimated, giving lawmakers several months to reach an agreement on lifting the debt limit and avoiding a default.
The Treasury Department ran up against the roughly $31.4 trillion debt limit in January. It is now deploying a series of special accounting maneuvers to keep paying the government’s obligations to bondholders, Social Security recipients and others.
In its estimate on Wednesday, the CBO said the so-called extraordinary measures could also run out before July if its expectations for tax revenue are off.
“The projected exhaustion date is uncertain because the timing and amount of revenue collections and outlays over the intervening months could differ from CBO’s projections,” the agency said.
epublicans and President Biden have been at an impasse over raising the debt limit this year. Republicans, who recently took control of the House, are demanding that any deal on raising the debt limit be accompanied by unspecified spending cuts. The White House and Democrats in Congress have rejected the possibility of spending cuts, arguing that lawmakers should raise the debt limit without any other conditions.
While lawmakers routinely spar over spending, the current debt-ceiling standoff has heightened fears among some market watchers and lawmakers over the possibility of a default. A failure by the U.S. to pay its bills on time could send financial markets into a tailspin and wreak broader havoc on the global economy.
In 2011, Standard & Poor’s stripped the U.S. of its triple-A credit rating for the first time after the Treasury came within days of being unable to pay certain benefits.
The Treasury Department has said that its extraordinary measures would last until at least early June. The specific timing of a potential default hinges on a number of factors, including incoming tax receipts. The Treasury is also looking to encourage lawmakers to act soon.
“There’s no question Treasury wants to say look we are in dire straits we don’t have any room to maneuver you need to fix this and so they err on the side of putting it early,” said Douglas Holtz-Eakin, a former CBO director who is now the president of the conservative American Action Forum.
The Treasury, CBO and other independent forecasts will offer more precise estimates for the date at which the U.S. could default as it approaches.
The battle over the debt limit has thrust decadeslong debates about government spending to the forefront of Mr. Biden’s presidency. Deficits have ballooned under the leadership of both Republicans and Democrats in recent decades, with a burst of Covid-19 aid adding trillions of dollars to the debt in 2020 and 2021.
As those aid programs have wound down, the U.S. deficit narrowed precipitously last fiscal year. Democrats have touted that record as they argue that their plans would help close the deficit by raising taxes, attacking Republicans for their desire to cut spending.
Speaking Wednesday at a Maryland union hall, Mr. Biden said that some Republicans in the House are “talking about taking the economy hostage.”
