White House Office of Management and Budget Director Mick Mulvaney on Wednesday said that tax receipts were coming in “slower than expected” and that the federal government could run out of cash sooner than it had thought.
Mulvaney’s comments, which came during a House Budget Committee hearing, resurrected an issue that Congress has mostly ignored in recent months but that will soon force some tough political decisions.
A few hours later, Treasury Secretary Steven Mnuchin echoed these concerns, telling another House committee, “I urge you raise the debt limit before you leave for the summer.”
“We can all discuss how we cut spending and how we deal with the budget going forward, but it is absolutely critical that where we’ve spent money, that we keep the credit of the United States as the most critical issue,” Mnuchin told the House Ways and Means Committee. “It is the reserve currency of the world.”
The House Freedom Caucus, a group of conservative Republicans, said later Wednesday it opposes an increase in the debt limit without further cuts to the budget, potentially complicating negotiations this summer. “We have an obligation to the American people to tackle Washington’s out of control spending,” the caucus said in a statement.
The government runs a budget deficit because it spends more money than it brings in through revenue, and it borrows money to cover that difference by issuing debt. There is a legal limit, though, on how much debt the government can issue, and this limit must be raised by Congress.
In 2015, the Obama administration and Congress agreed to suspend the debt ceiling, but the extension expired in mid-March. Now the Treasury Department is taking emergency steps to suspend certain payments so that it can cover all of its bills, but it can do this only for a few more months.
Steve Bell of the Bipartisan Policy Center, which analyzes federal receipts and spending, warned that the federal government could have difficulty making a substantial payment that is due on Oct. 2. The government is expected to put between $70 billion and $80 billion into the Military Retirement Trust Fund that day. As of Monday, the government's cash balance was $164.9 billion, a figure that will be slowly drawn down over time.
Mulvaney and Mnuchin met Tuesday to discuss the debt ceiling and are planning to meet with White House National Economic Council Director Gary Cohn when he returns from President Trump’s current foreign trip.
Mulvaney said that the White House did not have a “stated policy yet” on what Congress should do about the debt ceiling. Mnuchin has in the past urged Congress to raise or suspend the debt limit, a sentiment he amplified Wednesday. Trump, before he became a presidential candidate, ridiculed lawmakers for raising the debt ceiling, and Mulvaney — when he was a member of Congress — opposed efforts to increase the debt ceiling, saying then that Congress should do more to restrain government spending.
If tax receipts are coming in slower than expected, that could increase pressure on lawmakers to raise or suspend the debt ceiling by the August recess. Such votes can be politically unpopular, but many business groups have warned that failing to raise the debt ceiling could lead to a financial crisis because the U.S. government might not have enough money to pay its bills.
Doug Andres, a spokesman for House Speaker Paul D. Ryan (R-Wis.), said lawmakers were committed to address the issue soon. “The U.S. will meet its obligations, and we will address this issue with our colleagues in the Senate and the administration in a timely manner,” he said.
Similarly, Rep. John B. Larson (D-Conn.) said Congress must act on the issue. “We should have resolution on this before we leave here this summer,” he said. “It could be a calamity for the country” if Congress doesn't act.
Donald Marron, who was a member of President George W. Bush's Council of Economic Advisers, said the tax-receipt slowdown could be the result of investors waiting to sell their assets in the hope that Trump and Republicans in Congress will reduce taxes, allowing them to pay less when they realize their gains. For instance, the Republican effort to repeal the Affordable Care Act would also eliminate a levy of 3.8 percent on gains from investments.
“You have some investors that are out there saying: ‘Huh. If the health-slash-tax bill goes through, taxes on capital gains go down 3.8 percentage points,” Marron said. “Maybe there’s a chance that tax reform would go even further.”
While detailed data on federal taxes is not yet available, reports from Connecticut — which many wealthy investors call home — support that theory. The state is in serious financial difficulty, with officials saying collections are 30 percent below expected levels this year. They attribute the shortfall to quarterly income returns, the kinds of payments often made by investors. (Workers who earn wages and salaries, by contrast, pay with each paycheck as their taxes are withheld.)
Correction: An earlier version of this post incorrectly stated that the Bipartisan Policy Center projected that the federal government would reach its debt limit on Oct. 2, when a major retirement payment is due. The group projects that the limit will be reached at some point in October or November. This version has been corrected.
This post has been updated with a statement from the House Freedom Caucus.