The U.S. government’s cash reserves are expected to run out faster than expected, the Congressional Budget Office said Wednesday, a result of lost revenue from last year’s tax cut law.
If the debt ceiling isn’t raised by the first half of March, CBO said, “the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both.”
The White House and GOP leaders in Congress have repeatedly punted decisions on how to deal with the debt ceiling. This is in sharp contrast to the approach Republicans took during the Obama administration, when the GOP insisted on deep spending cuts in exchange for any vote to raise the debt ceiling.
The debt ceiling had been suspended until Dec. 8, 2017, and the Treasury Department has taken emergency steps since then to delay falling behind on payments. But it can only use those measures for a short period of time, and CBO said Wednesday that this window is narrower than it previously thought.
Lawmakers are already facing a government shutdown deadline Feb. 8 and are struggling to cut a deal on immigration before work permits for young immigrants brought to the United States illegally as children begin to expire in early March.
The timelines for all these must-do tasks are beginning to converge, raising the possibility of one enormous deal in coming weeks wrapping all the issues up. For now, though, solutions look remote.
CBO said that the tax law is expected to lower tax receipts by $10 billion to $15 billion per month. Even though the tax cut law went into effect January 1, the large drop in tax receipts didn’t kick in yet because companies won’t start using new withholding tables until sometime in February.
“Withheld receipts are expected to be less than the amounts paid in the comparable period last year,” CBO said. “In addition, the government ran a deficit of $23 billion in December, and it normally runs a deficit in the second quarter of the fiscal year.”
In total, the tax law will lead to a drop in revenue of $136 billion in revenue in 2018, the Joint Committee on Taxation has estimated.
The White House and many Republicans have praised the tax law, pointing to announcements from numerous companies that they are raising wages and plan to invest more in the United States. But there had been less scrutiny of the tax law’s near-term impact on the government’s fiscal situation before CBO weighed in on Wednesday.
The Treasury Department had $272 billion in cash on hand as of Tuesday, a substantial amount. But that money can disappear quickly based on the government’s spending patterns. For example, the government typically spends $50 billion in just the first few days of each month on Social Security benefits and military pensions alone.
CBO, a budget watchdog arm of Congress, had previously estimated that the government would be able to fund operations until late March or early April, but it said its new projections on the impact of the tax law forced it to make adjustments.
Complicating factors for the U.S. government, the Treasury Department typically issues a large number of tax refunds in February and March, which could lead to a steeper than expected fall in cash reserves. CBO said last year Treasury paid $211 billion in tax refunds in February and March of last year.
The next opportunity to raise the debt ceiling would likely come in the next few days, as lawmakers have to vote by February 8 to authorize government spending or risk another government shutdown. But adding an increase in the debt ceiling could drive away support from GOP hardliners, and it’s unclear whether Democrats would support another spending bill if they don’t believe there has been any progress on a new immigration law.
Even though there is often drama, Congress always votes to raise or suspend the debt ceiling before a default. But they also often delay these votes until the last minute, and it’s unclear what political coalition will form this time to help raise the borrowing limit.
President Trump has called for Congress to raise the debt ceiling since taking office, but he had previously called for using the debt ceiling as a piece of leverage in political negotiations and mocked lawmakers who voted to increase it.
The U.S. government spends more money than it brings in through revenue. The Treasury Department covers the balance by borrowing money, and it does this by issuing debt. But it can only issue debt up to a certain limit set by Congress. The current limit, which CBO said must be raised soon, is more than $20 trillion.
The government ran a budget deficit of $666 billion in 2017, the largest level since 2013.
Republicans are gathered at a retreat in West Virginia and they have shown little appetite so far to discuss ways to curb spending or deal with the debt ceiling. In fact, one of their top agenda items this year is a $1.3 trillion infrastructure plan, though they have not disclosed how they plan to pay for even a portion of it.