The U.S. government will probably run out of cash to pay its bills at some point this fall, likely in October or November, if no action is taken, the nonpartisan Congressional Budget Office announced Wednesday.
This comes as the debate over raising or suspending the debt limit is breaking down on Capitol Hill. If lawmakers do not address the issue, the U.S. will be unable to pay its obligations fully — leading to delaying payments, defaulting on its debt obligations or both, the report warns.
The debt limit suspension expires on July 31, after it was suspended for two years under President Trump in 2019. The debt ceiling was previously $22 trillion, but as of the end of June, an additional $6.5 trillion had been borrowed, bringing the total amount of debt subject to the debt limit to $28.5 trillion.
The Treasury Department said in May it would use so-called "extraordinary measures" to avoid defaulting over the summer. The Congressional Budget Office said Wednesday those "extraordinary measures" could be exhausted earlier or later than the agency expects, because the timing and size of revenue collection and spending over the coming months could differ noticeably from what the federal agency has projected.
The pandemic has further complicated matters. Earlier this month, the Bipartisan Policy Center warned projecting the debt limit "X Date," that is, when the government can no longer meet its obligations after its suspension expires, will be more difficult to predict than it has been in the past, due to the "high uncertainty" of Treasury Department cash flows relating to COVID-19 relief and the speed of the recovery. Without congressional action, the center has also projected that date will arrive sometime in fall.
But despite the expiration of the suspension at the end of the month, Senate Minority Leader Mitch McConnell signaled Republicans would not be amenable to raising or suspending the debt ceiling because of what he referred to as "free-for-all for taxes and spending" favored by Democrats, who are working on a $3.5 trillion "human" infrastructure bill.
"I can't imagine there will be a single Republican voting to raise the debt ceiling after what we've been experiencing,"on Tuesday night. He said he thinks the answer is to put the provision to raise the debt limit in the reconciliation measure, which is also the vehicle for the Democrats' bill
Democrats have blasted McConnell's remarks — Senate Majority Leader Chuck Schumer called the comments "shameless, cynical, and totally political." Democrats say they want to address the debt ceiling as soon as possible. Senate Whip Dick Durbin accused McConnell of playing Russian roulette with the economy.
"I am not going to let anybody take our economy hostage," Senate Finance Chair Ron Wyden said Wednesday.
The debt ceiling was raised or suspended several times under former President Trump, in addition to his 2019 suspension. When he first took office, the national debt was over $19 trillion and more than $27 trillion by the time he left office.
Some Democrats, including Senator Richard Blumenthal have said they think the debt ceiling should be dealt with separately with a clean extension. Others have not decided.
If raising the debt limit were added to the reconciliation bill, it is expected to receive no Republican support. GOP lawmakers unanimously pushing back on the $3.5 trillion legislative package focused on President Biden's priorities, including child care, health care, eduction and combating climate change.
Raising or suspending the debt ceiling does not dictate how much the U.S. spends, only how much the country can borrow to pay existing debts. In the past, addressing the debt limit had garnered bipartisan support, but in 2011 Republicans, having reclaimed the House, used the debt limit in an effort to negotiate a debt reduction package. While a deal was eventually reached with the Obama administration, the markets reacted to the uncertainty. The credit rating agency Standard and Poor's also downgraded the U.S. credit rating for the first time, from AAA to AA+, claiming the partisan fighting over the debt had made the government's ability to manage its finances less stable.
In June,with Congress to raise or suspend the debt limit, arguing that for the U.S. to default on its debts would be "unthinkable."
"Failing to increase the debt limit would have absolutely catastrophic economic consequences," Yellen said during a Senate hearing. "It would be utterly unprecedented in American history for the United States government to default on its legal obligations."
When asked about the looming deadline on Tuesday, White House press secretary Jen Psaki said the president expects Congress will vote to raise the debt limit "as they have three times under the past administration."
What is the debt ceiling?
"The debt limit—commonly called the debt ceiling—is the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agencies. The amount is set by law and has been increased over the years to finance the government's operations." — Congressional Budget Office