You are here
Home > News > U.S. faces debt default from June without a raise to debt limit: think tank

U.S. faces debt default from June without a raise to debt limit: think tank

The U.S. government will begin defaulting on its payment obligations between early June and early August without an increase in the federal debt limit, the Bipartisan Policy Center said on Tuesday, flagging pressure from a drop in tax revenue.

The front end of the centrist think tank’s latest estimate for the so-called “X-date” – when the government runs short of cash to pay its obligations – lines up with that of U.S. Treasury Secretary Janet Yellen, who warned last week that a default could come as early as June 1.

The Bipartisan Policy Center (BPC), which closely monitors debt limit disputes in Congress, had estimated in February the X-date could come between summer and early fall, but now sees a default hitting much earlier if Congress fails to raise the USD 31.4 trillion U.S. borrowing cap.

In its latest analysis, the think tank said weak revenues during the spring tax filing season have been exacerbated by payment delays granted to taxpayers in some severe storm disaster areas, including much of California and certain counties in Georgia and Alabama, until October 16, increasing the odds of a cash shortfall by early June.

Congress raises US federal debt limit to USD 31.4 trillion

On Tuesday the US Congress approved raising the federal government’s debt limit by USD 2.5 trillion, to about USD 31.4 trillion. President Joe…

see more

“The coming weeks are critical for assessing the strength of government cash flows,” Shai Akabas, BPC director of economic policy. “If a solution is not reached before June, policymakers may be playing daily Russian Roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country.”

Tax lifeline

But if tax revenues allow the Treasury to meet obligations through mid-June, quarterly estimated tax payments due on June 15 can likely float the government through June 30, BPC said in its analysis.

On that date, the Treasury would be able to access USD 143 billion in additional borrowing headroom by suspending reinvestment of maturing investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, among the remaining extraordinary cash management measures that could be activated.

“In such a scenario, the additional room created by these measures would support Treasury’s ability to make good on our obligations through at least early July and perhaps several weeks beyond,” BPC said.

The think tank’s latest estimate roughly agrees with the Congressional Budget Office’s revised assessment that there is now a “significantly greater risk” of an early June default.

Later on Tuesday, President Joe Biden is scheduled to meet with U.S. House of Representatives speaker Kevin McCarthy and other congressional leaders to discuss options to resolve the debt limit standoff between Democrats and Republicans.

Biden has so far refused to negotiate on Republicans’ demands for spending cuts in exchange for raising the debt ceiling, but has said he is willing to discuss reducing deficits once the limit has been increased.

Yellen said on Monday failure to raise the debt ceiling would deal a severe blow to the U.S. economy and weaken the dollar’s status as the world’s reserve currency, telling CNBC there are “no good options” for choosing which bills to pay.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.