The U.S. government could run out of money to pay all of its bills by early September if Congress doesn't rush to raise the debt ceiling, a think tank said Monday, a time frame that could force Congress to act much sooner than planned.
The Bipartisan Policy Center said that the Treasury Department could breach the borrowing limit in two months because the government has brought in far less tax revenue this year than was projected. BPC uses economic models to forecast the government's abilities to pay its bills, and its estimates are often studied by the White House and congressional leaders.
In May, it had projected that Treasury would have until October or November before it ran into debt ceiling problems.
Congressional negotiations to raise the debt ceiling had bogged down in recent weeks, with some congressional leaders hoping to package a debt-limit increase with a broader budget package. But those talks have faltered amid disagreements with the White House, and it was unclear when they planned to hold a vote.
But if lawmakers heed BPC's warning about the debt ceiling, they could be forced to raise the borrowing limit before a lengthy break in August.
"They might want to seriously consider quicker action than waiting until early October," said William Hoagland, a senior vice president at BPC.
Hoagland said tax revenue, particularly those paid by corporations, has lagged far behind estimates and has provided Treasury much less cash than expected. When the government collects less money in taxes, it has less money to pay its bills. Typically it would address this by borrowing more money, but its ability to do this is limited because Congress hasn't raised the debt limit.
Even though there have been numerous political showdowns over the debt ceiling, Congress and the White House have not breached the limit before. Financial experts have projected that failing to raise the debt ceiling could lead to a stock market crash and a spike in interest rates. The Treasury is expected to run a deficit of roughly $900 billion this year because spending far outpaces tax collection, and borrowing costs would also shoot higher.
BPC officials said it was difficult to pinpoint when exactly Treasury would run out of money. While they said there was a "significant" chance the government would run out of funds in the first half of September, they said the more likely scenario is that it would have enough funds until sometime in October. If Treasury can make it through early September, it is expected to receive billions of dollars in tax revenue payments that are due in late September, giving it a bit more flexibility. They said it's difficult to pinpoint precisely when the debt ceiling would be breached because hundreds of billions of dollars come in and out of the government each month.
The government makes millions of payments each month, ranging from Social Security benefits to interest payments on its debt. During a debt ceiling standoff with Congress, the Obama administration considered prioritizing payments so as to minimize the disruption for financial markets. But Democrats and Republicans have stressed that there is no way to contain the fallout from a debt ceiling breach given how U.S. debt is considered to be one of the safest investments.
BPC officials outlined twin risks if the debt ceiling isn't increased. They said it could lead to a cessation of benefits for millions of Americans, particularly the elderly, but also a stock market crash that could hurt the investments also of millions of Americans.
Congress is expected to go into recess for much of August and not return until after Labor Day weekend in early September. Treasury Secretary Steven Mnuchin has urged Congress to raise the debt ceiling for months, but his overtures have not been met with much enthusiasm by Democrats or Republicans. He has also told lawmakers that the debt ceiling could be breached in September.
"We just want to raise the red flag to be very cautious and careful about what action they may want to take before too long," Hoagland said Monday.
In 2018, Congress suspended the debt ceiling until March 2019. Since that date has already passed, Treasury has taken numerous steps to avoid defaulting on obligations by moving money around or delaying certain costs. But Treasury will eventually run out of ways to buy more time.
The U.S. government spends more money than it brings in through revenue, and it covers the difference by borrowing money. It borrows money by issuing debt, but it can only issue debt up to a limit set by Congress.
This article was written by Erica Werner and Damian Paletta, reporters for The Washington Post.