The United States risks a catastrophic default between July and September if the nation’s debt limit isn’t raised in time, according to a projection released Wednesday by the nonpartisan Congressional Budget Office, offering a clearer estimate of the deadline that Washington faces to avert a costly political and economic crisis.
For Congress, the most immediate challenge is the debt ceiling, which limits how much the government can borrow to pay its bills. Lawmakers may have as few as five months to raise or suspend the cap, which Republicans have refused to do unless they can first secure steep spending cuts. It is a demand President Biden has rejected out of concern about the consequences of fiscal brinkmanship.
Both parties are responsible for the nation’s debt, which exceeds $31 trillion, yet GOP leaders have sought to cast the imbalance as a consequence of Democrats’ two-year control of Washington. If lawmakers do not act, the repercussions could be vast and severe, sending shock waves through the global economy while potentially thrusting the United States into a recession, the Biden administration has warned.
The CBO delivered its estimate Wednesday along with a dour review of the federal budget, laying bare the difficult, long-term challenges that lawmakers face to address the country’s finances. The deficit — the annual imbalance between what the government spends and receives in revenue — is expected to reach $1.4 trillion this year and average an additional $2 trillion each year after until 2032, according to its projections.
“Over the long term, our projections suggest changes in fiscal policy must be made,” said Phillip Swagel, the director of the CBO, in a briefing with reporters Wednesday, noting the “adverse consequences” of large and growing debt.
In future years, the shortfall is expected to widen considerably, totaling $18.8 trillion by the end of the decade, or roughly $3 trillion more than the CBO anticipated in its report last spring. That means the sum of the country’s total outstanding obligations — the amount subject to the debt-ceiling law — could reach $52 trillion in 2033, according to the CBO.
The poor fiscal picture reflected a recent uptick in federal spending, particularly after lawmakers from both parties approved new money to care for veterans and boost the military, as well as the persistent problems of high inflation and rising interest rates. Together, the economic forces have made spending and borrowing more expensive for the government — much as it has for millions of families nationwide.
Those factors are also expected to cause further drag on the U.S. economy, according to the CBO, resulting in a “halt” to growth this year in inflation-adjusted gross domestic product, a measure of the country’s output. But the report predicted that the economy’s growth would rebound next year as prices decline and unemployment rises.
“Our fiscal situation, which we already knew was bad, has deteriorated significantly,” said Marc Goldwein, the senior vice president at the Committee for a Responsible Federal Budget, which advocates for deficit reduction.
The new data added fuel to an intense debate in Washington, where the return of divided government has revived a set of familiar fights over fiscal austerity. Even after adding trillions to the nation’s debt when they controlled Congress under President Donald Trump, Republicans have swept back into power in the House on a pledge to reel in federal spending.
“I think it really removes this narrative the president has been pushing, which is we shouldn’t have any conversation at all,” said Rep. Kevin Hern (Okla.), the leader of the Republican Study Committee, the largest bloc of GOP lawmakers in the House. “We need to sit down and have an adult conversation about the direction of spending in this country.”
But the political stalemate has taken on greater urgency since January, when the United States officially reached the debt ceiling. The event has forced the Treasury Department to begin taking what it calls “extraordinary measures” to move money around rather than borrowing more of it, to pay for spending Congress has already approved.
At the time, Treasury Secretary Janet L. Yellen warned that the accounting moves may only give lawmakers until early June to raise or suspend the country’s borrowing cap. Offering its own updated analysis on Wednesday, the CBO said it could not provide an exact date for when the Biden administration would exhaust its emergency measures, citing vast uncertainty around tax collections. But the budget office still had an ominous warning that a dip in revenue could speed up the clock, meaning the Treasury “could run out of funds before July.”
Entering the fight, House Republicans led by Speaker Kevin McCarthy (Calif.) have pledged to use the debt-ceiling issue as political leverage, particularly in pursuit of spending cuts. The move marks a return to the GOP’s brinkmanship from 2011, when conservative tea party lawmakers tangled with President Barack Obama and pushed the country to the brink of default — though Republicans years later repeatedly helped Trump raise the borrowing limit.
Republicans have promised to focus their cuts on domestic programs and agencies, including those that address health, labor and education. But the party has yet to articulate specific monetary demands or release a budget, despite promising to produce a blueprint that balances the federal ledger over the next decade — an exceedingly tough task given the CBO’s assessment.
“Democrats’ reckless spending is plunging our country into deeper debt & jeopardizing our economy,” McCarthy tweeted after the CBO released its findings. “A blank check for more spending will destroy our country.”
On Wednesday, the CBO found the adoption of the Inflation Reduction Act, a package to lower health-care costs and combat climate change that Biden signed into law last year, would reduce the deficit over the next decade, even though Republicans have argued otherwise.
Biden has met with McCarthy to discuss the issue, but the president has maintained publicly that he will not haggle over one of the nation’s most fundamental responsibilities. His administration has repeatedly warned that a failure to raise the debt ceiling could send shock waves across the global economy, potentially causing a U.S. recession, after a similar showdown with Republicans in 2011 harmed the nation’s credit rating.
The president has not issued his budget, either, though the White House has promised to release it in early March. Speaking later Wednesday at a union facility in Maryland, Biden said his blueprint — which is expected to include tax increases targeting large corporations and the wealthy — would contribute toward “cutting the deficit by $2 trillion over 10 years.”