If no deal is reached to raise the debt ceiling, at some point in July through September, the Treasury Department will have exhausted all of its wiggle room and the United States will be forced to delay its debt payments or default, the Congressional Budget Office announced on Wednesday.
The U.S. already hit its $31.4 trillion debt ceiling last month, but Treasury Secretary Janet Yellen has been able to employ “extraordinary measures” that allow the federal government to raise additional money without exceeding the limit. However, the CBO is projecting that, “if the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023.”
The date is uncertain because it is based on CBO’s projections of spending and tax revenue in the coming months. A wider gap would bring the date of reckoning sooner, while if more tax revenue comes in and/or spending is less than anticipated, the date could come at the latter end.
“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,” CBO warned. “As a result, the government would have to delay making payments for some activities, default on its debt obligations, or both.”
The CBO warning comes as it released its revised budget projections, which estimate that the U.S. will run a deficit of $1.4 trillion in the current fiscal year, and cumulative deficits of $20 trillion over the next decade.
In terms of the political calendar, if the crisis date comes on the earlier end, it will hit just as lawmakers are getting ready to skip town for August recess, which is often a motivator to cut a deal. If it gets extended further, it could get folded into the fight over the annual budget. Government funding runs out at the end of the fiscal year, which falls on September 30. This creates the potential for two major fights in the fall — one over raising the debt ceiling and the other over funding the government to avert a shutdown. Combining negotiations may prove a way out of the current impasse, which comes down to the fact that Republicans reject the idea of passing a clean debt-ceiling increase, while Democrats don’t want to make concessions to get them to raise the debt ceiling.
If the timing lines up, it’s possible the ultimate deal will involve Republicans agreeing to raise the debt limit as part of a funding agreement for the next fiscal year, which would allow them to extract concessions while allowing President Biden and Democratic leadership to claim they didn’t directly negotiate over the debt limit.