U.S. could hit debt-ceiling crisis this summer unless deal is struck

The US Congressional Budget Office (CBO) on Wednesday said the US Treasury Department will exhaust its ability to pay all its bills between July and September, unless the current $31.4 trillion US debt ceiling is raised or suspended.

In a three-page report, the non-partisan CBO cautioned that the historic Federal debt default could happen before July if revenues flow to the Treasury in April – when most Americans usually submit annual income tax filings – expectations lag.

The pace of incoming revenues, coupled with the performance of the US economy in the coming months, makes it difficult for government officials to predict the exact date when the Treasury can begin to default on many debt payments without action by Congress.

“If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government will not be able to pay its obligations in full,” the CBO report noted. “As a result, the government must suspend payments for some activities, default on debt obligations, or both.”

In a separate budget and economic outlook, CBO said the annual federal budget deficit will average $2 trillion from 2024 to 2033.

Republicans are threatening to block the debt ceiling

The report provides a staggering tab accounting from the past few years of robust spending by Washington on COVID-19 pandemic relief, infrastructure improvements, measures to mitigate climate change and other actions.

Of course, it will lead to Republican accusations that the administration of the Biden administration should be controlled, even if it should raise the debt limit as a result of payments and tax cuts that have been approved before, some under the Democratic president Joe Biden, Donald Trump.

Republicans, who control the House of Representatives, want to hold off on raising the debt limit until Democrats first agree to deep spending cuts. Democrats also say the debt limit shouldn’t be “held up” for Republican tactics on federal spending.

Social Security, Medicare at the center of the debt debate

After releasing the $31.4 trillion debt cap on January 19, Treasury Secretary Janet Yellen said the Treasury can keep paying the debt, federal benefits and make other outlays at least through June 5 using cash receipts and extraordinary cash management measures.

So far in 2023, not a day has passed on Capitol Hill without lawmakers fighting against the debt limit, as Democrats have pushed for a quick and clean cut in the Treasury’s debt authorization and Republicans have insisted on a significant reduction in government spending in the future.

Social Security and Medicare, the popular pension and health care programs for the elderly, are at the center of the debt ceiling and government funding debate, as both parties jockey to determine the contours of the 2024 presidential and congressional election campaigns.

“There is a Republican drumbeat to cut Social Security and Medicare,” Senate Majority Leader Chuck Schumer, a Democrat, told reporters on Tuesday.

Republican Senate Minority Leader Mitch McConnell has been working hard, without success so far, to address the talk.

“Let me say it again. There is no agenda from Senate Republicans to revisit Medicare or Social Security. Period,” he said at a press conference.

CBO’s 2023 budget estimates show the first comprehensive analysis of the federal deficit after new spending laws, including Biden’s $430 billion climate and health action and a $1.66 trillion government funding package heavy on aid to Ukraine.

Most Americans are not following Washington’s debt ceiling saga, but are still concerned that it could damage their finances, according to a Reuters/Ipsos public opinion poll conducted February 6-13.

Fifty-five percent of US adults said they had heard little or nothing about the debate, but three quarters of respondents said Congress should reach a deal because defaulting will add to the financial stress of families, generally through higher potential debt costs.