Washington, DC – Following recent action by lawmakers to increase the debt limit, the Bipartisan Policy Center now projects that the “X Date”—when the U.S. will no longer be able to meet all its obligations in full and on time—will most likely arrive between mid-December and mid-February.
“The 11th hour deal to raise the debt limit just days before the X Date did stave off catastrophe, but it was only a temporary fix,” said Shai Akabas, BPC director of economic policy. “With another debt limit crisis on the horizon in a few short months, the clock is ticking for Congress to once again protect the full faith and credit of the United States.”
This new projection should not be misconstrued as reducing the urgency to act, as the risks of inaction increase every dayleading up to and during the X Date range. Moreover, an open policy issue (described below) could materially accelerate the timing toward the front end of BPC’s window.
This approximately two-month range is much wider than BPC’s projection from before the recent increase because the upcoming X Date is now further away. Additionally, as has been the case throughout the year, the COVID-19 pandemic and economic recovery have injected additional uncertainty into this year’s projections, contributing to the wider-than-normal range at this stage in BPC’s estimation process.
The Treasury Department reached its new $28.9 trillion limit last Friday, and is now once again financing the federal government through “extraordinary measures”—legally permissible accounting maneuvers that temporarily depress debt held in certain trust funds—and cash on hand.
The $480 billion increase enacted earlier this month was settled on to ensure that the X Date would not be reached before December 3, 2021, when appropriations for government agencies are set to expire and a partial government shutdown looms. Given the uncertainty inherent in debt limit projections, an increase by that amount also meant the X Date could arrive sometime later. Treasury Secretary Janet Yellen confirmed as much in her October 18, 2021, letter to Congress.
Prior to that letter, it was unknown whether the Treasury Department would continue or end the ongoing Debt Issuance Suspension Period (DISP), which has important ramifications for projecting the X Date range. Secretary Yellen clarified in her letter that the department has continued the ongoing DISP, rather than starting a new one after reaching the increased debt limit. Had the department declared the DISP over, BPC’s X Date range would likely fall a week or two earlier, because some of the room created by extraordinary measures would have disappeared.
“Another unusual factor this time around is the high degree of policy uncertainty,” said Akabas. “House passage of the Bipartisan Infrastructure Framework might result in a large transfer to the Highway Trust Fund that would accelerate the debt limit X Date.”
Specifically, the Senate-passed version of the bill includes a $118 billion transfer from the Treasury Department’s General Fund to the Highway Trust Fund. If the bill becomes law in the coming weeks, it is unclear when the department would have to move some or all of these funds. A full transfer would increase intragovernmental debt and hasten the X Date’s arrival, potentially in advance of our current projection window. (BPC’s X Date range is based on current law, so it does not presently incorporate that possibility).
Ultimately, failing to raise or suspend the debt limit in a timely manner would be a voluntary decision by lawmakers to stop paying some of the nation’s bills. This would be unprecedented in modern American history. While the Treasury Department may have the operational ability to prioritize certain payments—such as interest and principal payments on debt—crossing the X Date could force the federal government to miss or delay critical payments that Americans rely on, including veterans’ benefits, military and federal salaries, and Medicare reimbursement.
BPC will continue to update its projection as warranted by incoming federal cash flow data and policy developments.
Shai Akabas is available for comment.