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CBO sees ‘significant risk’ of debt limit breach before June 15

Budget office warns of economic "disruptions," higher borrowing costs if no action is taken

Congressional Budget Office Director Phillip L. Swagel, testifying before the House Budget Committee.
Congressional Budget Office Director Phillip L. Swagel, testifying before the House Budget Committee. (Caroline Brehman/CQ Roll Call file photo.)

The Congressional Budget Office on Friday warned of a “significant risk” the U.S. government will run out of cash and borrowing authority prior to June 15, when a big slug of corporate tax receipts is expected to provide a little more breathing room.

The report from the nonpartisan scorekeepers will likely keep the pressure on lawmakers to strike a deal to raise or suspend the debt limit before June 1, when Treasury Secretary Janet L. Yellen has said her agency can’t guarantee they’ll be able to pay all the nation’s bills on time. 

As the CBO put it, there’s “a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations.” Some big payments are due in early June, including pay and benefits for retired and active-duty military, veterans, federal employees and Social Security recipients. On June 15, interest payments on U.S. debt are supposed to go out.

Congressional inaction on the debt limit “would ultimately lead to delayed payments for some government activities, a default on the government’s debt obligations, or both,” the CBO said. “Those actions could result in distress in credit markets, disruptions in economic activity, and rapid increases in borrowing rates for the Treasury.”

The agency also released its midyear update on the federal budget outlook, seeing a slight deterioration in finances this fiscal year from its most recent forecast in February. However, the figures don’t include a fully revised revenue estimate, and tax collections have been lower than the CBO previously projected, which in part led to the new, quicker timeline for exhaustion of the borrowing cap.

Before accounting for more significant updates to tax revenue projections, the CBO says this year’s deficit is expected to rise to $1.54 trillion, or $130 billion higher than previously forecast. That’s up from $1.38 trillion in fiscal 2022.

The increase in fiscal 2023’s deficit is largely due to higher costs associated with the Biden administration’s new “income-driven repayment” plan for federal student loans, as well as higher outlays from the Federal Deposit Insurance Corporation related to recent high-profile regional bank failures.

The CBO pointed out that this year’s numbers could shift significantly if the Supreme Court strikes down Biden’s plan to cancel a portion of outstanding federal student loan debt. The agency estimates that would reduce this year’s anticipated deficit by close to $379 billion, though much of that improvement could be canceled out by lower revenue projections, leaving the fiscal 2023 shortfall around that $1.5 trillion mark.

Over the full 10-year budget window, the CBO’s estimates are little changed — deficits are $51 billion higher than forecast in February, a less than 1 percent increase. Still, deficits are expected to top $20 trillion during that time and the annual shortfall is expected to almost double, to $2.7 trillion in fiscal 2033.

Spending over the next decade is now expected to be slightly higher in a few categories: Other than student loans, the CBO expects bigger outlays for premium tax credits to help purchase health insurance on federal exchanges, and Social Security caseloads are higher than previously thought. And new veterans benefits under last year’s toxic exposure law are expected to be $73 billion more expensive over the next decade due to higher initial claims.

Finally, interest payments to service the rising debt are up an additional $108 billion over the coming decade compared with February’s estimate.

Offsetting those increases are anticipated reductions in Medicare spending, largely due to administrative actions regarding Medicare Advantage plans that result in a $223 billion spending reduction. And discretionary spending is expected to roll out more slowly than expected, including under the bipartisan infrastructure law enacted in 2021.

In the updated spending and deficit projections, the CBO estimated that over the period of 2024-33, the deficit will total $20.2 trillion, little changed from the February estimate. That would represent an increase of $51 billion, or less than 1 percent, over earlier projections.

The level of debt or borrowing from the public will reach $46.7 trillion by the end of 2033, the agency projects. That would bring it to 119 percent of the economy, the highest level of debt as a share of gross domestic product ever recorded. 

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