The federal government is on track to default on the national debt as soon as next month, according to an analysis released Tuesday by a prominent nonpartisan think tank.
The Bipartisan Policy Center (BPC) warned in a Tuesday report that the U.S. government could run out of cash by early June, in line with earlier estimates from the Treasury Department and Congressional Budget Office.
The so-called “X Date”— when the Treasury Department runs out of ways to keep the U.S. current on its debt — could fall anywhere between early June and early August, the BPC warned.
The BPC, which closely tracks the debt ceiling, previously forecasted in February that it was more likely Congress’s deadline wouldn’t be until the start of summer to early fall.
But Shai Akabas, director of economic policy at the BPC, also warned of the slight chance of a “very close-to-the-ground point” in early to mid-June at the time, noting the timeline also overlapped with a deadline for quarterly tax receipts.
In a call with reporters ahead of the Tuesday release, Akabas said a spate of tax filing extensions issued by states will deprive the federal government of revenue it would have normally had to stave off a default.
“They have less cash on hand, all else considered, and mean that the X-Date will be accelerated or come sooner,” Akabas said.
“This is in contrast to last year where revenues were wildly in excess of expectations, during tax season,” Akabas said. “And the combination of those means that this early June timeframe is now more of a risk than we foresaw back in February before these events took place.”
President Biden is expected to sit down with Speaker Kevin McCarthy (R-Calif.) and other congressional leaders later Tuesday to discuss how to address the debt ceiling. But there are deep divides in Washington over how to do that.
Republicans have drawn red lines around raising the roughly $31.4 trillion cap without fiscal reforms, while Democrats have called for a “clean” bill to raise the ceiling and for bipartisan budget talks to be carried out separately from debt limit negotiations.
And the longer the standoff lasts, the greater the potential risk, economists warn.
In remarks to reporters, Akabas warned of a “notable spike in the short term bill market for Treasury securities.”
“That was the highest that we’ve seen for any Treasury bills since the year 2000,” he said.
“This means that investors are seeing the risk that is associated with securities that are maturing around the X-date, and demanding higher interest rates, which results in interest costs for US taxpayers in order to hold those securities,” he continued.