Treasury Has $600 Billion Left to Finance the Government: How Long Will It Last?
This blog post details BPC’s narrowed debt limit “X Date” projection. If you need to get up to speed on debt limit basics, check out one of our explainers before reading on.
If you haven’t heard much about the debt limit of late, you’re not alone. But that is surprising, because unless Congress acts in the coming months, the failure to raise the debt limit could become an economic event of global proportions. Of course, in the past, Congress has always extended the debt limit in time to avert the worst of these consequences, but with the political temperature in D.C. rising to the boiling point, counting on a bipartisan deal these days is no sure thing.
With the 2019 tax season now in the rearview mirror, BPC has updated its projection of the debt limit “X Date” to October or early November 2019. This forecast narrows our earlier forecast of Fall 2019. As a reminder, the “X Date” is BPC’s term for the point at which the federal government can no longer meet all of its financial obligations in full and on time.
The debt limit was reinstated from its latest suspension on March 2, 2019. Since then, the Treasury Department has been deploying so-called “extraordinary measures,” or accounting maneuvers, that buy limited additional time. BPC estimates that Treasury has approximately $600 billion in cash on hand and remaining extraordinary measures, which will allow for the government to continue full operations for several additional months.
Prior to the 2019 tax season, our debt limit projections carried elevated uncertainty. This was the first tax year fully reflecting the Tax Cuts and Jobs Act of 2017, which meant a lack of evidence on what both income tax refunds and tax revenues would look like. In fact, analysts’ estimates of the effects of the tax bill on tax refunds were all over the map. In the end, total tax refunds actually decreased slightly compared to 2018 (by about 2 percent, or $6 billion, as of April 26). All else equal, relative to base expectations, this had the effect of pushing the “X Date” range modestly further back. On the revenue side, Treasury collected roughly $12 billion more in individual income tax receipts (excluding withheld individual income taxes) from the beginning of tax season through the end of April, compared to the same period last year. This made little difference in BPC’s projection.
The Congressional Budget Office’s latest projection, from before tax season, estimates that the “X Date” will most likely arrive sometime around the turn of the fiscal year, which ends September 30. CBO’s projection is broadly consistent with BPC’s updated, and prior, forecasts.
The graphic below depicts BPC’s updated forecast:
As always, BPC’s debt limit forecast carries uncertainty. Changes in economic conditions or fiscal policy could affect the “X Date” range.
One thing is certain: If policymakers fail to extend the debt limit, the federal government will default on some of its obligations. This will put not only the full faith and credit of the United States on the line, but puts at risk services and benefits for millions of Americans, including seniors and veterans. We’ve been here before, and unless the debt limit is reformed, we’ll be here again. That is why BPC is working to chart a new course and develop policies that would replace this broken process with a more responsible approach to federal finances. The United States needs to control its debt but, ironically, a debt limit is not the right way.
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