Government will hit debt limit as soon as July, CBO says

WASHINGTON — The federal government will run out of cash to pay all its bills sometime between July and September unless the statutory debt limit is lifted, the Congressional Budget Office warned Wednesday.

The report by the nonpartisan budget scorekeeper could put pressure on a divided Congress to reach a deal to increase, or at least suspend, the debt limit before adjourning for the annual August recess.

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, triggered by what’s known as a “debt issuance suspension period,” are set to end June 5.

The new CBO projection suggests Congress might have a little more time to spare beyond June, but not necessarily. The projected exhaustion date for federal borrowing remains “uncertain,” the CBO said, 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.

And if the debt limit is not raised or suspended before the Treasury’s “extraordinary measures” are exhausted, “the government would have to delay making payments for some activities, default on its debt obligations, or both,” the CBO said.

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

The budget office’s timing projection is more in line with private forecasters who’ve been skeptical that Treasury will run out of emergency cash — which stood at $501 billion as of Monday — 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 firm sees a “safe harbor” with estimated tax receipts arriving June 15 and a new infusion of extraordinary measures on June 30. But Wrightson ICAP said there remains “tail risk” that Congress would need to act by early June given “Treasury’s financial position will be at a low ebb from June 6 to June 14” after Treasury’s debt issuance suspension period ends.

House Republicans are insisting on spending cuts to accompany any debt limit increase with a goal of balancing the budget within a decade or so.

There are few indications as to how the impasse will ultimately be resolved, though both sides say there’s no appetite for “default” and that short-term patches are on the table to buy time.

Democrats are rejecting demands for cuts, arguing that GOP pledges to protect Social Security and Medicare from cuts would leave the rest of the federal budget with such steep cuts that such a plan couldn’t even pass the House.

“The math doesn’t add up,” Senate Majority Leader Charles E. Schumer, D-N.Y., said in floor remarks Wednesday. “I worry that the dangers of slipping into default will only increase as the toxic dynamic in the House GOP gets worse day by day. That’s why it’s so important that now, early on, the House Republicans show us their plan.”