The United States risks defaulting on payment obligations as soon as July if lawmakers fail to resolve a gridlock and raise the federal borrowing limit, according to Congressional Budget Office estimates released on Wednesday.
The forecast by the nonpartisan office comes as Republicans threaten to block the usually rubber-stamped approval for raising the nation’s credit limit, if Democrats do not agree to steep budget cuts in the future.
The debt limit, or debt ceiling, is the maximum amount of debt that the US Treasury Department can issue to the public or other federal agencies.
“If the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023,” CBO Director Phillip Swagel said on Wednesday in a statement.
In January, the US hit its $31.4 trillion borrowing cap, prompting the Treasury to start measures that allow it to continue financing the government’s activities.
The Treasury earlier said its cash and “extraordinary measures “would likely last until early June.
“CBO estimates that under its baseline budget projections, the Treasury would exhaust those measures and run out of cash sometime between July and September of this year. The Deficit Control Act requires CBO to project spending,” the CBO said.
Swagel told reporters on Wednesday after the agency released the long-term projections: “The fiscal trajectory is unsustainable. Our spending is outpacing our revenue. At some point, something has to give.”
The CBO also projects that the deficit will total $18.8 trillion over the next 10 years — 20 percent more than the estimate in May of $15.7 trillion.
Debt held by the public is projected to rise in relation to the size of the economy each year, reaching 118 percent of GDP by 2033 — which would be the highest level ever recorded, the CBO said in its 10-year budget and economic outlook report.
The White House accuses Republicans of taking the economy “hostage” in order to posture as fiscally responsible.
US President Joe Biden said on Wednesday that he would not let Republicans hold the nation “hostage”.
“I will not negotiate whether or not we pay our debt,” Biden said in remarks to the International Brotherhood of Electrical Workers in Lanham, Maryland. “I will not allow this nation to default.”
On Tuesday, Democratic Senate Majority Leader Chuck Schumer told reporters: “We’re continuing to speak to how bad it would be to allow the nation to default. … It’s going to affect every American family badly.”
At the start of February, Republican Speaker of the House of Representatives Kevin McCarthy said talks with Biden on the debt ceiling had gone well.
However, it is hard for either party to say where they can find significant reductions unless they go into areas such as Social Security, Medicare, Medicaid or other government-subsidized healthcare, which are usually politically untouchable.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said that lawmakers should be open-minded and consider changes across the board in order to lower deficits.
“Everything should be on the table to get our unsustainable fiscal problems under control,” she said in a statement.
The $31.4 trillion debt is “the product of policy choices and economic shocks”, according to The New York Times.
“Tax cuts signed into law by Presidents George W. Bush, Barack Obama and Donald J. Trump reduced government revenues. Wars in Iraq and Afghanistan started under Mr Bush were not offset by tax increases. Mr Obama, Mr Trump and Mr Biden signed trillions of dollars of emergency spending to combat the 2008 financial crisis and the 2020 pandemic recession,” the paper reported.
Charles Abraham, US financial services practice leader at Mazars, an audit, tax and advisory firm, told Newsweek in January, “A default would lead to a significant deterioration in the faith and credit of the United States of America and could spark a global recession.”
Song Guoyou, deputy director and professor of the Center for American Studies, Fudan University, in a guest op-ed for Xinhua News Agency on Jan 29, wrote: “Suppose the US fails to reach an agreement on its debt ceiling in the short term.
“In that case, it would cause increased volatility in the international financial markets and inevitably impact the stability of the world economy. Other countries would be forced to suffer the consequences of America’s persistent political ailment.”
Agencies contributed to this story.