Treasury Secretary Steven Mnuchin for the first time Monday said the Treasury Department has enough money to fund the government only through early September, a much earlier timeline than many analysts had projected.
Mnuchin's comments, made at a congressional hearing, came in response to a question about the debt ceiling, which is preventing Treasury from borrowing enough money to cover the large gap between how much money the government brings in through revenue and how much it spends.
He asked Congress to lift the debt ceiling before it leaves for the August recess.
“We've run lots of models and there are lots of different assumptions,” he said. “I am comfortable saying we can fund the government through the beginning of September.”
Asked what would happen if the debt ceiling weren't raised, Mnuchin said: “I can't imagine that that would ever be a scenario. But it would obviously create significant market disruption.”
Mnuchin also called on Congress, going forward, to somehow change the way the debt ceiling works so that votes on raising the debt ceiling are closely timed to coincide with votes on the budget. Right now, there is no connection between the two, but Republican lawmakers often demand spending cuts or budget changes in exchange for a vote to increase the debt ceiling, fueling uncertainty about whether an agreement can be reached.
Earlier on Monday, the Bipartisan Policy Center (BPC) said its models showed that the Treasury should have enough money to fund government operations through October or November.
Yet Shai Akabas, BPC’s director of fiscal policy, warned that predicting the exact date on which the government will run out of cash is essentially impossible, and that Mnuchin might have access to more recent or precise data than is publicly available.
“If you’re trying to protect the full faith and credit of the U.S. government, you don’t want to take a point-one percent chance that Congress waits too long,” Akabas said of Mnuchin.
Mnuchin said that there is a “backup” plan if the debt ceiling isn't raised before Congress's August recess, but he declined to provide more information about what that would entail.
Treasury's cash balance was $148 billion on June 8, down from $273 billion in late April. The cash balance fluctuates as revenue comes in and goes out each month.
If the debt ceiling isn't raised, the Treasury Department could be forced to prioritize which payments to make. White House Office of Management and Budget Director Mick Mulvaney has suggested they could prioritize the interest payments on federal debt as a way to technically avoid “defaulting,” but this could still spook financial markets, and lead to a stock market crash and a surge in interest rates.
The debt ceiling can be raised only by Congress, and it limits how much money the government can borrow. The government currently spends more money than it brings in through tax revenue, and it borrows money to cover this difference by issuing debt.
Increasing the debt ceiling does not authorize any additional government spending. Rather, the ceiling determines only how much the Treasury Department can legally borrow, and if the department is unable to borrow enough to pay bills the government has incurred through spending, the government could be forced to default on some of its obligations.
House Speaker Paul D. Ryan (R.-Wis.) has said Congress will raise the debt ceiling, although Republicans have not unified behind a central plan for how to do so. Raising the debt ceiling can be a politically perilous vote, and President Trump — before he took office — ridiculed Republicans for voting to do so in the past.
BPC's Akabas pointed out that as uncertainty about the debt ceiling mounts, the government will be forced to pay even more as investors become reluctant to lend it money. A report by the nonpartisan Government Accountability Office (GAO) concluded that during the last round of congressional negotiations over the debt ceiling, those increased costs totaled $38 million to $70 million.
“It’s money you could use for something else,” said Susan Irving, GAO's director for federal budget analysis. “You're using it to pay interest unnecessarily, and we don’t need that.”
Irving also argued against making negotiations over the debt limit into a debate about how federal borrowing can be brought down to a sustainable level over the long run, as lawmakers did during the Obama administration.
“GAO is second to no one in its concern about the long-term fiscal outlook and the path we’re on, but the way to manage that path is not to raise questions about whether we’re going to pay our bills,” she said.
One reason Treasury is facing a cash crunch is because it is collecting less money in tax revenue than projected. Mnuchin said Friday that one reason for this is that some Americans are delaying tax payments because they want to take advantage of lower tax rates that the White House and Republicans in Congress could put in place.
Federal revenue this fiscal year has been about 3 percent below projections, according to a monthly report published last week by the nonpartisan Congressional Budget Office (CBO). That amounts to a shortfall of $60 billion to $70 billion, the report said.
The amount of cash the federal government has on hand can change significantly from one month to the next. The government spent about $3.9 trillion last year and took in about $3.3 trillion, according to CBO, but the revenue does not always arrive at the same time that the government's bills are due, resulting in large shifts in the government's balance.
In February, for instance, federal spending exceeded revenue by $192 billion, according to the Treasury Department's monthly statement. In March, the deficit was $176 billion. In April, however, the government operated a surplus of $182 billion as federal taxes came due.