BY: CAITLIN EMMA | 02/22/2023 09:00 AM EST
The federal government could default on its debt this summer or early fall, although the official date depends heavily on the upcoming tax season, the Bipartisan Policy Center said Wednesday.
If tax revenues fall far short of expectations, the “X-date,” when the Treasury Department can’t meet its financial obligations, could move up dramatically. Just ahead of the June 15 deadline for quarterly tax receipts, the nation could approach the verge of default in a “too close to comfort situation” before that mid-June cash boost helps the country pay on its loans for a few more weeks or months, the think tank warned.
The predicted range “reflects, in part, the considerable uncertainty in our nation’s current economic outlook,” said Shai Akabas, the group’s director of economic policy. Congress should begin bipartisan negotiations now to the raise the $31.4 trillion debt limit, injecting some “certainty into the U.S. and global economy,” Akabas said.
Key context: The Bipartisan Policy Center’s latest estimate takes into account recent federal projections, including the latest prediction from the Congressional Budget Office that the federal government will run out of cash sometime between July and September, foreshadowing a potential debt ceiling standoff in the middle of Congress’ scheduled August recess.
Treasury Secretary Janet Yellen has previously warned congressional leaders that the agency will likely have enough resources to keep paying bills on time through at least early June, between cash on hand and so-called “extraordinary measures” to stretch the government’s borrowing ability.
What’s next: Federal budget experts and economists say the X-date range will narrow, particularly as the tax season evolves. The Bipartisan Policy Center noted that the government is expected to spend more than $3 trillion and take in about $2.5 trillion between now and June.
Fluctuation of just a few hundred billion dollars in either direction could “markedly affect the X-date,” the think tank notes.