Washington, DC – The Bipartisan Policy Center‘s latest debt limit forecast projects that the “X Date”—when the United States will no longer be able to meet all its obligations in full and on time—could arrive within weeks. BPC’s narrowed X Date range of early June to early August highlights not only the significant uncertainty of federal cash flows in a fragile economy but the urgency for lawmakers to act before the start of the window to avoid potentially catastrophic consequences associated with default. The projection, which incorporates data from the 2023 tax season, comes a week after Treasury Secretary Janet Yellen’s notification to Congress that the U.S. could be unable to meet all its obligations as early as June 1.
“The coming weeks are critical for assessing the strength of government cash flows,” said Shai Akabas, BPC director of economic policy. “If a solution is not reached before June, policymakers may be playing daily Russian Roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country. Even now, the looming deadline is raising costs to the government, and therefore to all taxpayers.”
In BPC’s prior projection on February 22, we underscored the importance of collections during the 2023 tax season to the timing of the X Date and cautioned that depressed revenues could force a “too close for comfort” situation prior to second quarter tax receipts due on June 15. Shortly after BPC’s February release, taxpayers in designated disaster areas—including most of California and parts of Alabama and Georgia—were granted an extended filing deadline of October 16; taxpayers in declared counties across several other states were also granted extensions. These unexpected delays exacerbate a weak overall tax season, increasing the odds of insufficient cash flow in early June.
The strength of government revenues through the remainder of May will materially impact whether the X Date falls near the beginning of BPC’s range, before a projected influx of quarterly tax receipts around June 15. If revenues can sustain operations through that date, Treasury would likely be able to forestall default through the crucial date of June 30, when approximately $145 billion in one-time, additional extraordinary measures become available by suspending investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. In such a scenario, the additional room created by these measures would support Treasury’s ability to make good on our obligations through at least early July and perhaps several weeks beyond.
Such costs are already materializing, as Treasury last week sold $50 billion of four-week securities scheduled to mature on June 6 at a record 5.84%—the highest yield for any Treasury bill auction since 2000—demonstrating an aversion among investors to hold debt maturing around the X Date. Managing Treasury security auctions and meeting all obligations will become increasingly challenging as reserves dwindle. Concerns are also mounting that the country could find itself in a similar position to 2011, when Standard & Poor’s downgraded the U.S. from its AAA rating.
“There must be a way to address our serious fiscal challenges without time and again putting the full faith and credit of the United States at risk,” said Akabas. “A comprehensive reform of the debt limit would minimize danger to the American public and help get us out of this vicious cycle.”
As always, BPC’s X Date projections are subject to significant uncertainty, since they rely on estimates of the hundreds of billions of dollars that flow in and out of the federal government each month.
We will update our projections in the coming days as additional data on the Treasury Department’s daily cash flows and available extraordinary measures become available.
Shai Akabas is available for comment. Find BPC’s latest debt limit analysis here.