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With Tax Revenues Lower Than Expected, Debt Ceiling Default Date Could Come as Early as June

S.J. Steinhardt
Published Date:
May 1, 2023

The United States has already hit its $31.4 trillion debt limit, but accounting maneuvers have allowed the country to continue to pay its bills. The date when it will run out of cash is unknown, The New York Times reported, but it could be sooner than originally projected.

That so-called X-date depends on tax receipts. The Bipartisan Policy Center, which tracks federal revenues, projected in February that Congress would need to raise or suspend the debt ceiling at some point between summer and early fall in order to avoid a default. The specific date would primarily depend on how quickly tax revenues are being received.

Not quickly enough, it seems. Economists at Wells Fargo wrote in a note to clients last week that tax collections appear to be weaker than expected, meaning that the X-date could be as soon as early June, thought they continue to believe early August is the most likely default deadline.

“A low but not insignificant probability of a U.S. default is still very concerning, and we would think the last thing Treasury officials want is an X-date that sneaks up on Congress,” they wrote.

Goldman Sachs economists projected last week that the Treasury Department could have around $60 billion in cash remaining by the second week of June. That would allow the government to keep making its payments until late July.

But the arrival of revenue in the form of tax receipts could be affected by the weather. The IRS extended the April 18 filing deadline to October in several states due to natural disasters such as flooding and mudslides. Farmers also received extensions.

This coming week, the Treasury Department is expected to send a letter to Congress with a more precise estimate of when it could start running out of cash. It could also announce new measures intended to stave off a default.

In the case of a default, “[h]ousehold payments on mortgages, auto loans and credit cards would rise,” Secretary Janet Yellen told the Sacramento Metropolitan Chamber of Commerce. “And American businesses would see credit markets deteriorate. … On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”

Analysts at Beacon Policy Advisors predicted that if a default could actually happen as soon as June, then Congress would be more likely to pass a short-term suspension of the debt limit through October.

While investors are showing signs of concern, “[t]his has caused some heartburn among policymakers but not enough to move the negotiating needle in a meaningful way,” the Beacon analysts wrote. “There needs to be a bigger market response and a more definitive X-date to get negotiations going in full.”

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