'Significant Risk' of Default in Early June, CBO Warns

What’s On the Table in Debt Limit Talks

White House and congressional staffers continue to discuss a potential deal to raise the debt ceiling, and the parameters of a possible deal are reportedly beginning to emerge, raising glimmers of hope that D.C. leaders may be able to avoid a calamitous default.

“Lawmakers have eyed a deal that would both raise the debt limit and enact new limits on federal spending, and could include measures such as permitting reform to spur energy production and rescinding unused covid aid money,” The Washington Post reported.

The two sides are reportedly also negotiating over how long any debt ceiling extension should last. Democrats are seeking to delay another fight for two years, according to reports, and Republicans are pressing for larger spending restrictions in exchange.

Yet with less than three weeks to go before a possible June 1 deadline — and even fewer legislative days on the House and Senate calendars — the talks reportedly remain very far from any agreement, and critics on both sides are already raising concerns. For example, GOP Rep. Dusty Johnson of South Dakota, an ally of House Speaker Kevin McCarthy, told reporters that most Republicans likely wouldn’t back spending caps that lasted only two years, as Democrats reportedly want. Republicans have been seeking caps for the next decade, which liberals are sure to reject.

Potentially complicating matters further, some key Republicans are indicating that they want to add border legislation to their list of demands for a debt deal, according to Politico. “The House has now added more to the mix,” Rep. Garret Graves, a Louisiana Republican who is also a close ally of McCarthy’s, told Politico on Friday.

And Rep. Chip Roy of Texas, a member of the conservative House Freedom Caucus, similarly signaled that immigration measures were now key items on the GOP wish list. “I think this is now a central part of any debt ceiling or spending debate for the remainder of the year,” he told Politico. “Every day that the president continues to dilly dally, in my mind, the price goes up, not down. … You want a debt ceiling increase? You want to go fund the operations of government? Then fix the damn border, Mr. President.”

House Republicans on Thursday passed an immigration bill that included new restrictions on asylum seekers and renewed construction of a border wall — legislation that has no chance of advancing in the Democratically controlled Senate.

As staff-level negotiations continue, so does the verbal jousting. In a letter to colleagues Friday, Senate Majority Leader Chuck Schumer warned of the economic risks of a default and pointed to a recent Washington Post-ABC poll that found that 58% of Americans believe that the debt limit and budget talks should be handled separately, as Democrats have insisted. “This is too important for brinksmanship and reckless ultimatums,” Schumer wrote. “I urge you to implore our Republicans colleagues: Take Default Off the Table.”

A day earlier, McCarthy had insisted to reporters that Biden isn’t interested in a deal. “In whatever talks we have, you can tell right then he doesn’t want a deal. He wants a default,” McCarthy said.

The bottom line: The second meeting between Biden and the “Big Four” congressional leaders is expected next week. Biden is also scheduled to leave Wednesday for a meeting of G7 leaders in Japan.

“There is still so much work ahead and members who are on the sidelines of these now tightly held negotiations are placing a lot of faith in their respective leadership to cut a deal at a scale that McCarthy and Biden have never done together before,” CNN’s Lauren Fox writes.

And if the X-Date is really in early June (see more on this below), a deal may have to be reached by late next week to leave the House and Senate enough time to draft and vote on the bill.

There is a “significant risk” that the U.S. could run out of cash in just a few weeks, the Congressional Budget Office warned Friday — and there may not be any clarity on the outlook until the default date is nearly upon us.

“The Congressional Budget Office projects that if the debt limit remains unchanged, there is 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,” the nonpartisan federal agency said Friday. “The extent to which the Treasury will be able to fund the government’s ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June.”

CBO also said there would be no way to avoid missing payments of one kind or another. “If the debt limit is not raised or suspended before the Treasury’s cash and extraordinary measures are exhausted, the government will have to delay making payments for some activities, default on its debt obligations, or both,” the agency said.

Shai Akabas, director of economic policy at the Bipartisan Policy Center, told The Washington Post that the report underlines just how uncertain conditions could be over the next few weeks. “We’re pretty confident Treasury is going to be on thin ice in early June, we just don’t know how thin that ice is,” he said.

If the Treasury in the end has enough cash to get through June, then the next deadline is probably in late July or August, CBO said. As Politico’s Caitlin Emma and Jennifer Scholtes note, that timeline could mean trouble for lawmakers’ month-long summer break in August as they are forced to stay in Washington to deal with the debt limit crisis.

Digging into the numbers: Looking at the full fiscal year, CBO estimates that the Treasury is obligated to spend between $1.9 trillion and $2.2 trillion. Through April, the seventh month of the fiscal year, the U.S. has spent about $1.1 trillion and expects to take in about $500 billion more, leaving a gap of $300 billion to $600 billion.

As of the end of April, the Treasury had $316 billion in cash and expects to gain an additional $41 billion through “extraordinary measures” that defer certain types of payments, but the sum of required payments in May and June could exceed that total. “Because the financing needs in May and early June could exceed the cash and extraordinary measures available to the Treasury during that period—about $360 billion in total resources, by CBO’s estimate—there is a significant risk that the Treasury will exhaust all of its resources before June 15,” CBO said.

An influx of quarterly tax payments due in mid-June will provide a cushion if the Treasury can make it until then.

Yellen highlights default dynamics: Treasury Secretary Janet Yellen said Friday that the U.S. would have to default on some payments if Congress fails to raise the debt limit in time. “If Congress fails to do that, it really impairs our credit rating. We have to default on some obligation, whether it’s Treasuries or payments to Social Security recipients,” Yellen told Bloomberg Television. “That’s something America hasn’t done since 1789. And we shouldn’t start now. So we’ve not discussed what to do.”

Yellen dismissed reports that the Treasury has presented a plan to the White House on how it might prioritize payments in the event of a default. “[W]e are working full time to work with Congress to raise the debt ceiling,” she said. “That’s where our focus is.”

The Treasury chief also said that her department still cannot name a specific day on which it will run out of cash – a day that could arrive as soon as June 1, according to Yellen last week. “I will update Congress as we have available information,” she said. “As we get closer I may be able to provide more refined guidance.”

CBO Raises Deficit Projection to $1.5 Trillion for 2023

The Congressional Budget Office raised its estimate for the federal budget deficit in the current fiscal year by about $130 billion, saying Friday that the shortfall is now expected to total $1.5 trillion.

The 9% increase in the estimate is driven in part by weaker-than-expected tax revenues in April. Higher costs for student loan repayment plans, bank deposit insurance and interest payments also played a role.

Assuming no changes are made to the current fiscal trajectory, the annual deficit is projected to be $2.7 trillion by 2033, or roughly 6.9% of GDP. Over the next decade, CBO estimates that deficits will total $20 trillion as federal debt held by the public rises to $46.7 trillion.

Tweet of the Day

• Debt Ceiling: Still No Plan to Avoid a Default, but Major Shifts in Posture – CNN
• House Republicans Are Signaling They Now Want to Include Border Legislation in Their List of Demands for a Debt Ceiling Deal – Politico
• Debt Limit X-Date Could Still Crash Congress’ Summer Break – Politico
• Yellen Says ‘We Have to Default’ on Something If Congress Fails – Bloomberg
• This Time, the Debt Ceiling Crisis Really Could End in Disaster – Los Angeles Times
• Biden Faces Tough Decisions in Debt Ceiling Crisis – Los Angeles Times
• Congress Shouldn't Get Paid Until Debt Ceiling Is Addressed, House Democrat Says – CBS News
• ‘A System in Crisis’: Dysfunctional Federal Disability Programs Force the Poor to Pass Up Money – KFF Health News
• Biden Announces Two Historic Nominations to Fed Board – Washington Post
• Rail Workers See Benefits Cuts Due to Previous Debt Ceiling Deal – Washington Post
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• Think You Can Tame the National Debt? Play Our Budget Game – Washington Post

• Why We Don’t Entirely Know What Would Come After a US Debt Default – Zachary B. Wolf, CNN
• Defaulting on the Debt Could Be “Catastrophic” – or Worse – Leonard E. Berman, Tax Policy Center
• Not Worried Enough? A U.S. Default Threatens National Security, Too – Catherine Rampell, Washington Post
• The Judicial Deus Ex Machina Debt Ceiling Option – David Dayen, American Prospect
• The Second Phase of the Biden Presidency – David Brooks, New York Times
• The Republican Plan to Sneakily Cut Medicaid, Explained – Dylan Scott, Vox
• Republican Debt-Ceiling-and-Cuts Bill Would Cost States and Local Communities $1.3 Trillion – Whitney Tucker, Center on Budget and Policy Priorities
• How Biden Can Use Supreme Court Precedent to Win the Debt Ceiling Fight – Paul W. Kahn, Slate
• Little-Noticed Part of G.O.P. Bill Could ‘Make It Impossible to Regulate’ – Margot Sanger-Katz, New York Times
• There’s a Debt Limit Escape Clause That Doesn’t Include the 14th Amendment – Steve Robinson, The Hill
• Why Current US Recession Warnings Are Unlike All the Others – Nicole Goodkind, CNN Business
• The Pandemic Threat That Hasn’t Gone Away – Zeynep Tufekci, New York Times