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COVID-19 relief, economic recovery hinder debt limit ‘X Date’ forecast

Uncertainty may add urgency to negotiations on suspending or raising the limit before the August recess

Rep. John Yarmuth, D-Ky., talks with reporters in the Capitol Visitor Center after a meeting of the House Democratic Caucus on June 29, 2021.
Rep. John Yarmuth, D-Ky., talks with reporters in the Capitol Visitor Center after a meeting of the House Democratic Caucus on June 29, 2021. (Tom Williams/CQ Roll Call)

The Bipartisan Policy Center said Thursday it’s facing uncertainty in predicting how long the Treasury Department will be able to continue paying the nation’s bills after the current debt limit suspension expires at the end of the month.

Shai Akabas, economic policy director of the public policy think tank, said the “X Date,” the day on which the country could no longer meet all its financial obligations, would likely arrive in the fall, “a broader range than normal for this point in the forecasting process.”

COVID-19 relief disbursements and the pace of economic recovery are hampering the organization’s usual, more specific predictions.

“The challenges of accurately forecasting the pandemic’s lingering effects on the economy and the ongoing federal response mean we may not have a clear picture until September, at which point Congress could have just weeks to act,” he said in a statement.

The ambiguity of predicting the default date could add urgency to congressional negotiations on suspending or raising the debt limit before lawmakers in both chambers leave Washington for the August recess.

Treasury Secretary Janet L. Yellen has not given a time by which Congress must address the debt limit but urged lawmakers last month to “raise or suspend the debt limit as soon as possible,” preferably before July 31.

In testimony before the Senate Financial Services Appropriations subcommittee, Yellen sought to remind lawmakers of the impacts of defaulting on the debt, calling it an “unthinkable” event that “would have absolutely catastrophic economic consequences.”

“And you know this is not about authorizing additional spending, this is simply about the government paying its bills, making good on the payments that are implied by the tax and spending decisions that Congress has made,” she added.

Others have given Congress more time to debate and address the debt limit.

Wrightson ICAP Chief Economist Lou Crandall wrote in a report released June 28 that his projections placed the “drop-dead” date in late November, though he cautioned that he could not “rule out the possibility that the Treasury might run out of cash earlier in the fourth quarter.”

Referring to Yellen’s warning that Treasury might run out of cash before Congress returns in September, Crandall wrote: “That’s not strictly impossible, but it is pretty far out in the tail of the probability distribution.”

Congressional leaders have not yet settled on a strategy for approving another suspension or increasing the debt limit once the current suspension expires on July 31.

There has been discussion about raising the limit through the budget reconciliation process that Democrats are planning to use to pass several of their priorities on climate change, health care and infrastructure.

House Budget Chairman John Yarmuth, D-Ky., said last week that no final decision had yet been made, and he was still weighing the options.

The “easiest” option, he said, would be for the budget resolution to deem that the debt limit is raised through the end of fiscal 2022. That would “spin off” a bill to the Senate, where lawmakers would need to hold a separate vote before it could head to President Joe Biden’s desk.

Yarmuth said Congress could also address the debt limit through reconciliation but that that would require members to vote to raise the debt limit to a specific amount instead of voting to suspend it through a certain date.

The uncertainty about whether the Treasury Department would be able to bridge the gap between July 31 and whenever Congress approves a reconciliation package could make addressing the debt limit that way less palatable to congressional leaders.

Following the August recess, the Senate will return Sept. 13 for a three-day workweek, with the House back in session Sept. 20.

Paul M. Krawzak contributed to this report.

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