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Think tank out with new debt limit timing projection

Bipartisan Policy Center says Treasury could run out of borrowing room before August congressional recess

From left, Senate Majority Leader Charles E. Schumer, D-N.Y., Debbie Stabenow, D-Mich., Patty Murray, D-Wash., and Sheldon Whitehouse, D-R.I., attend a news conference Feb. 15 on potential House GOP-backed budget cuts related to the debt ceiling.
From left, Senate Majority Leader Charles E. Schumer, D-N.Y., Debbie Stabenow, D-Mich., Patty Murray, D-Wash., and Sheldon Whitehouse, D-R.I., attend a news conference Feb. 15 on potential House GOP-backed budget cuts related to the debt ceiling. (Tom Williams/CQ Roll Call)

The government will run out of cash to pay its bills by “summer or early fall” unless Congress lifts the statutory debt limit, the Bipartisan Policy Center estimated Wednesday.

The report by the independent think tank, a respected monitor of Treasury debt, marks at least the third assessment calling on a divided Congress to reach a deal to increase, or at least suspend, the debt limit before adjourning for the annual August recess.

“I am optimistic that today’s projection provides Congress and President Biden with a window of opportunity to come together and work out a deal,” Shai Akabas, the center’s director of economic policy, said in a statement. “They owe it to every hardworking American and small business owner to avoid the costs and risks associated with dragging this out to the 11th hour.”

Akabas said the relatively wide range of the so-called x date for when the government’s borrowing capacity will be exhausted underscores “the considerable uncertainty in our nation’s current economic outlook.”

The forecast “will depend heavily on 2022 tax collections in a fragile post-pandemic economy with low unemployment, persistent inflation, and recession fears,” the center said in statement. And if tax season revenue falls short of expectations, the center raised the possibility of a “‘too close for comfort’ situation prior to quarterly tax receipts due on June 15.”

Akabas said at a briefing Wednesday that his group should have a good sense of the results of tax season in early May, though it will be following earlier indications over the next few months. 

Treasury Secretary Janet L. Yellen last month began deploying “extraordinary measures,” such as suspending investments in certain federal trust funds, to keep from exceeding the $31.4 trillion statutory borrowing cap. Yellen estimated at the time that those accounting tools may not last beyond early June. The agency’s current crop of extraordinary measures is set to end June 5.

The Congressional Budget Office estimated last week that Treasury would exhaust its borrowing capacity sometime between July and September.

But the nonpartisan budget scorekeeper also said the projected exhaustion date for federal borrowing remains “uncertain” because tax revenues and spending in coming months could differ from the agency’s assumptions.

If income tax receipts in April fall short of expectations, “the Treasury could run out of funds before July,” the CBO said in its report.

Congress last raised the debt ceiling in December 2021, by $2.5 trillion.

Since Republicans took control of the House last month, they have insisted that any increase in the debt limit should be coupled with spending cuts. Speaker Kevin McCarthy, R-Calif., has promised his caucus to cut next year’s discretionary spending down to fiscal 2022 levels, requiring a reduction of about $130 billion, or 8 percent.

Democrats have rejected such cuts or any attempt to negotiate fiscal restraints as part of a debt limit increase. They have said the economy should not be “held hostage” when bills must be paid on time to avoid rattling financial markets or risking a technical default on U.S. obligations.

Rachel Snyderman, the Bipartisan Policy Center’s senior associate director, said Wednesday the center is also monitoring any changes to legislative policy that could affect the x date.

Although no major legislation is expected in a divided government, any new emergency spending, such as a disaster supplemental for hurricane aid, could affect the timing, she said. 

“Hurricane season, for example, that runs June to November, squarely sits within the x date range, so if there were any disaster supplemental or other emergency spending package, that would significantly impact the x date,” Snyderman said. 

The timing projections from both the CBO and the Bipartisan Policy Center are more in line with private forecasters who’ve been skeptical that Treasury will run out of emergency cash and extraordinary measures by early June.

The “base case” outlined by Wrightson ICAP, an investment research firm that monitors the Treasury market closely, is that borrowing room will run out by late July or early August. The base case outlook from Goldman Sachs Group Inc. sees Treasury hitting the debt ceiling slightly later in the summer, at some point in early to mid August.

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