U.S. could face debt-ceiling crisis this summer without deal, CBO warns
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[February 16, 2023]
By David Lawder and Richard Cowan
WASHINGTON (Reuters) -The Congressional Budget Office on Wednesday said
the U.S. Treasury Department will exhaust its ability to pay all its
bills sometime between July and September, unless the current $31.4
trillion cap on borrowing is raised or suspended.
In a report issued alongside its annual budget outlook, the non-partisan
CBO cautioned that a historic federal debt default could occur before
July if revenue flowing into the Treasury in April - when most Americans
typically submit annual income tax filings - lags expectations.
The pace of incoming revenue, coupled with the performance of the U.S.
economy in coming months, makes it difficult for government officials to
predict the exact "X-date," when the Treasury could 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 would be unable to pay its
obligations fully," the CBO report said. "As a result, the government
would have to delay making payments for some activities, default on its
debt obligations, or both."
Separately, the CBO said annual U.S. budget deficits will average $2
trillion between 2024 and 2033, approaching pandemic-era records by the
end of the decade - a forecast likely to stoke Republican demands for
spending cuts.
Meanwhile, CBO estimated an unemployment rate of 4.7% this year, far
above the current 3.4%.
CBO Director Phillip Swagel attributed the rise to higher interest rates
that particularly are hitting the housing industry, coupled with slowing
business investment.
The sobering analysis reflects the full impact of recent spending
legislation, including investments in clean energy and semiconductors
and higher military spending, along with higher healthcare, pension and
interest costs. It assumes no change in tax and spending laws over the
next decade.
"Over the long term, our projections suggest that changes in fiscal
policy must be made to address the rising costs of interest and mitigate
other adverse consequences of high and rising debt," Swagel said in a
statement.
The need to raise the debt ceiling is driven by past spending laws and
tax cuts, some enacted under Democratic President Joe Biden's Republican
predecessor, Donald Trump.
Republicans, who control the House of Representatives, want to withhold
a debt limit increase until Democrats agree to deep spending cuts.
Democrats in turn say the debt limit should not be "held hostage" to
Republican tactics over federal spending.
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The U.S. Capitol building is seen on the
day of U.S. President Joe Biden's State of the Union Address to a
joint session of Congress on Capitol Hill in Washington, U.S.,
February 7, 2023. REUTERS/Elizabeth Frantz
After hitting the $31.4 trillion borrowing cap on Jan. 19, Treasury
Secretary Janet Yellen said the Treasury can keep up payments on
debt, federal benefits and make other outlays at least through June
5 using cash receipts and extraordinary cash management measures.
YEAR OF THE DEBT LIMIT
So far in 2023, not a day has gone by on Capitol Hill without
lawmakers jousting over the debt limit, as Democrats press for a
quick, clean increase in Treasury borrowing authority and
Republicans insist on first nailing down significant reductions in
future government spending.
Social Security and Medicare, the government's popular pension plan
and its healthcare program for Americans ages 65 and older, are at
the center of the debt limit and government funding debate, as both
parties also jockey to define the contours of the 2024 presidential
and congressional election campaigns.
"There has been 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 labored,
without much success so far, to smother such talk.
"Let me say one more time. There is no agenda on the part of Senate
Republicans to revisit Medicare or Social Security. Period," he said
at a news conference.
Most Americans do not closely follow Washington's debt-ceiling saga,
but they still worry it could hurt their finances, according to a
Reuters/Ipsos public opinion poll conducted Feb. 6-13.
In that poll, 55% of U.S. adults said they have heard little or
nothing about the debate, but three-quarters of respondents said
Congress must reach a deal because defaulting would add to their
families' financial stress, largely through potentially higher
borrowing costs.
(Reporting by David Lawder and Richard Cowan; Additional reporting
by Jason Lange; Editing by Leslie Adler and Paul Simao)
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