The U.S. government could run out of money to pay all of its bills by early September if Congress doesn’t rush to raise the debt ceiling, a think tank said Monday, a time frame that could force lawmakers to act much sooner than planned.
The Bipartisan Policy Center said that the Treasury Department could breach the borrowing limit in two months because the government has brought in far less tax revenue this year than was projected. The BPC uses economic models to forecast the government’s ability to pay its bills, and its estimates are often studied by the White House and congressional leaders.
In May, it had projected that Treasury would have until October or November before it ran into debt ceiling problems.
Congressional negotiations to raise the debt ceiling bogged down in recent weeks, with some leaders hoping to package a debt limit increase with a broader budget package. Those talks have faltered amid disagreements with the White House, and it is unclear when they plan to hold a vote.
But if lawmakers heed the BPC’s warning about the debt ceiling, they could be forced to raise the borrowing limit before a lengthy break in August. Senior GOP senators said Monday that the new projected timeline could increase pressure on Congress to act.
“That could change the dynamic,” said Senate Appropriations Chairman Richard C. Shelby (R-Ala.). “We cannot default. That would send chaos through the financial markets."
G. William Hoagland, a senior vice president at the BPC, said tax revenue, particularly money paid by corporations, has lagged far behind estimates and has provided Treasury much less cash than expected. When the government collects less money in taxes, it has less money to pay its bills. Typically, it would address this by borrowing more money, but its ability to do this is limited because Congress hasn’t raised the debt limit.
Even though there have been numerous political showdowns over the debt ceiling, Congress and the White House have never breached the limit. Financial experts have projected that failing to raise the debt ceiling could lead to a stock market crash and a spike in interest rates. The Treasury is expected to run a deficit of roughly $900 billion this year because spending far outpaces tax collection, and borrowing costs would also shoot higher.
BPC officials said it was difficult to pinpoint when exactly the Treasury would run out of money. While they said there was a “significant” chance the government would run out of funds in the first half of September, they said the more likely scenario is that it would have enough until sometime in October. If Treasury can make it through early September, it is expected to receive billions of dollars in tax payments that are due in late September, giving it a bit more flexibility. They said it’s difficult to pinpoint precisely when the debt ceiling would be breached because hundreds of billions of dollars come in and out of the government each month.
Still, Hoagland said, lawmakers “might want to seriously consider quicker action than waiting until early October.”
“We just want to raise the red flag to be very cautious and careful about what action they may want to take before too long,” he said.
The government makes millions of payments each month, from Social Security benefits to interest payments on its debt. During a debt ceiling standoff with Congress, the Obama administration considered prioritizing payments to minimize the disruption for financial markets. But Democrats and Republicans have stressed that there is no way to contain the fallout from a debt ceiling breach given that U.S. debt is considered to be one of the safest investments.
BPC officials outlined twin risks if the debt ceiling isn’t increased. They said it could lead to a cessation of benefits for millions of Americans, particularly the elderly, but also a stock market crash that could hurt the investments of millions of Americans.
Congress is scheduled to go into recess for much of August and not return until after Labor Day weekend in early September. Treasury Secretary Steven Mnuchin has urged Congress to raise the debt ceiling for months, but his overtures have not been met with much enthusiasm by Democrats or Republicans. He has also told lawmakers that the debt ceiling could be breached in September.
The looming debt ceiling threat has caused growing concern on Capitol Hill, especially since it nearly coincides with a Sept. 30 deadline when the federal government will begin to shut down unless new spending legislation is passed. Lawmakers also want to avert onerous spending caps that threaten to slash $126 billion from domestic and military budgets early next year absent a deal.
But there are differences between Republicans and Democrats -- and between GOP lawmakers and the Trump administration -- over the best way to proceed. Trump administration officials recently proposed raising the debt ceiling while extending existing federal spending levels for a year, but Majority Leader Mitch McConnell (R-Ky.) called that approach “unacceptable” because the Pentagon wouldn’t get enough money. At the same time, Republicans have chafed at Democrats’ demands for higher domestic spending levels.
All that has left the path forward unclear even as lawmakers express increasing urgency as their annual August recess approaches.
“I think we need to hustle to a (budget) caps deal as soon as we possibly can and include the debt limit in it, no doubt,” Sen. Shelley Moore Capito (R-W.Va.) said Monday evening after emerging from a Senate GOP leadership meeting where the issues were discussed. “I don’t think it’s in anybody’s best interest to have that fight in September up against the deadline.”
In 2018, Congress suspended the debt ceiling until March 2019. Because that date has passed, Treasury has taken numerous steps to avoid defaulting on obligations by moving money around or delaying certain costs. But Treasury will eventually run out of ways to buy more time.
The U.S. government spends more money than it brings in through revenue, and it covers the difference by borrowing money. It borrows by issuing debt, but it can do so only up to a limit set by Congress.