The United States could be at risk of defaulting as soon as July if Congress doesn’t move to raise or suspend the debt limit. That’s according to the nonpartisan Congressional Budget Office report released on Wednesday, which comes as the White House and Republican lawmakers are in a standoff over how to proceed.
Last month, Treasury Secretary Janet Yellen sent a letter to congressional leaders telling them the U.S. had hit the $31.4 trillion debt limit. At that time, the Treasury had begun deploying so-called extraordinary measures to keep paying the bills. Yellen urged Congress to act as soon as possible to address the debt ceiling and avoid the government’s first ever credit default, which would have catastrophic economic consequences.
According to the report, the CBO estimates that the government’s ability to rely on extraordinary measures could be exhausted between July and September. The exact date is uncertain because the timing and the amount of revenue being collected and spent could change, the office said.
“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 report said. “As a result, the government would have to delay making payments for some activities, default on its debt obligations, or both.”
In the report, the CBO outlined some of the cash flows that would determine at what point the extraordinary measures would be exhausted. It noted Social Security benefits are disbursed four times a month totaling about $100 billion. Payments for Medicare Advantage health care plans and Medicare Part D prescription drug plans are also made on the first of the month, at about $40 billion. It also stated about $25 billion in pay or benefits to active duty military, civil servants, veterans and others are disbursed at the beginning of each month. At the same time, interest payments on the nation’s debt are made on the 15th and last day of the month.
Meanwhile, tax filing season is underway, with millions of Americans set to receive refunds. One factor in the CBO’s calculation is its anticipation that Americans expecting refunds tend to file earlier than those who owe money, leading to the expectation that revenues rise closer to the April 18 filing deadline. That date is also the due date for the next corporate income tax quarterly payments.
Raising the debt limit does not greenlight new spending. It simply allows the government to pay creditors what it already owes.
The White House has called on Congress to raise the debt limit with a clean bill, that is, with no additional provisions. But Republican lawmakers argue that the U.S. needs to address spending moving forward as part of the deal. What exactly they would cut has been unclear.
Democratic lawmakers have warned Republicans are looking to go after Social Security and Medicare. Republican Speaker Kevin McCarthy has said cuts to the two entitlement programs are off the table, but Republicans have not released their own suggestions about where spending could be reduced.
The White House is expected to release its budget for the upcoming fiscal year next month.
