This week on Facing the Future, we heard fresh analysis on the “X-date” when the federal government may default on its obligations if President Biden and Congressional leaders cannot agree on an extension or suspension of the statutory debt limit. Providing that analysis was Rachel Snyderman, Senior Associate Director of business and economic policy at the Bipartisan Policy Center (BPC). The BPC just came out with a new, comprehensive report on Tuesday estimating that the X-date will fall somewhere between early June and early August, depending on a number of factors. Joining the conversation were The Concord Coalition’s policy director Tori Gorman and chief economist Steve Robinson.
You are probably seeing a lot of news coverage of bipartisan debt limit talks that are heating up as we are getting very close to a possible default. So just to review if there is any lingering confusion: by statute, Congress sets the maximum amount of money the Treasury is allowed to borrow to fund government operations. The current statutory debt limit is $31.4 trillion, which the government reached on January 19th of this year. Since then, Treasury has been employing so-called extraordinary measures to push back the X-date, but Treasury Secretary Janet Yellen has warned those will run out as early as June 1st, which has injected greater urgency into the discussion.
Snyderman says pinpointing the exact X-date requires taking a close look at the daily cash flow of the federal government through publicly available information.
“We are combing through the daily financial statements of the Treasury Department that really look at every single agency, what’s coming in the door, and what’s going out – looking at what those tax revenues are that are coming into the IRS every day and which programs and services are being paid out to Americans,” said Snyderman. “We use historical data as well to understand when during the year we see potential changes in revenue and spending. So for example, April is always a month when we traditionally bring in more revenues …because of tax collection and tax season. But then we see throughout the summer months, like July and August for example, are pretty heavy spending months where a lot of payments and bills are coming due that the United States must meet in full and on time. We also look at current economic growth projections provided by the Congressional Budget Office, and try to also anticipate some of the inherent uncertainty in the economy. We’re in a really fragile economy right now.”
Ironic, then, that Congress and the Biden administration are teetering on the edge of an unprecedented default again, with both short and long-term bad economic consequences likely to follow. Lower than expected revenue collection so far this tax season has the potential to accelerate the arrival of the X-date, but there are some factors during the month of June that might give Treasury a little more breathing room. Snyderman says Yellen will face some important decisions in the next month.
“There is a one-time additional payment of $145 billion that she can tap into if we’re able to get to June 30th …without hitting the X-date,” said Snyderman. “That would create significant room under the debt limit, and that could potentially support government operations through July and potentially into early August as well. So what’s really going to be a focus for the next few weeks is how those tax revenues are coming in through the remainder of May as we then look to see how does June shape up. We eagerly await that daily …Treasury statement that comes out to see how our forecast matches up with the actual data.”
The BPC report contains a detailed calendar for the summer showing exactly what payments are due when, so if we do default, what payments may actually be missed. It is not a pretty picture, and it is not clear if Social Security and Medicare payments will continue without delay, if there is no deal to extend the debt limit. Snyderman says Congress needs to take these dates on the calendar seriously.
“Lawmakers need to look at this range, as there’s risk across it, and they do really need to act well in advance of that range, to ensure that the full faith and credit of the United States is upheld. As we encroach on that range or cross into it, they really are choosing politically to play with fire every day with the full faith and credit of the United States,” said Snyderman. “We provide this analysis so the public can really understand wow, even if I don’t receive a certain type of benefit payment, looking for example that funding to the Department of Transportation or to the Department of Education could be delayed, and that could impact your local infrastructure and schools. But as we see too, borrowing costs for the government rise when we are in debt limit episodes because investors get increasingly spooked at holding U.S. debt. They want higher returns on holding that debt, because we are seen as riskier borrowers. U.S. taxpayers are immediately on the hook to foot the bill for those rising costs for the government to borrow.”
And the more money we spend on higher interest payments, the less the federal government has to allocate towards defense, education, healthcare, and other important priorities. There’s also a fairly strong possibility that a default would inject considerably more uncertainty into the financial markets and send interest rates even higher for everything from mortgages to car loans to credit cards. Not to mention how profoundly this may impact the value of investment portfolios and retirement savings. Meanwhile, we wait to see if Democrats and Republicans can take the steps to avoid such a scenario and raise the debt limit.
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join our guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
