Thoughts on CBO's New Debt Limit Report

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Thursday, November 21, 2013

Last month, the Bipartisan Policy Center (BPC) projected that after the debt limit is reinstated on February 8, 2014, the Treasury Department will be able to employ extraordinary measures to continue paying its bills in full and on time until sometime between late February and mid-March.

A new report by the Congressional Budget Office (CBO) out yesterday may have created confusion about the timing of the next debt limit event. That report states:

CBO projects that [extraordinary measures] would probably be exhausted in March. However, the timing and magnitude of tax refunds and receipts in February, March, and April could shift that date of exhaustion into May or June.

BPC believes that while extraordinary measures lasting until May or June is not an impossibility, we maintain – using current trends and our projections of government spending and revenues – that those measures are much more likely to be exhausted in late February or early to mid-March. Treasury Secretary Jack Lew has also stated that extraordinary measures are likely to last for about a month after the debt limit is reinstated on February 8.

During that time of year, tax refunds are a major variable in BPC’s model. If refunds are lower than anticipated and revenues are significantly greater, then Treasury may be able to cover all of its obligations in February and March without a debt limit increase or suspension, in which case, all obligations could be covered until May or June. This scenario would require a large deviation from our current expectations, and we view that possibility as unlikely.