Washington DC – The Bipartisan Policy Center has updated its debt limit model and now projects that, absent action by Congress, the “X Date”—the day when the federal government can no longer meet all its obligations in full and on time—will likely arrive no earlier than the third quarter of 2023. This is much later than the January 2023 X Date others had previously suggested as a possibility.
“This debt limit time frame is further out than many policymakers expected as recently as several months ago, primarily reflecting the extraordinary growth in tax revenues so far this year. But that is no reason to be complacent,” said Shai Akabas, BPC director of economic policy. “We very well may have divided government come January 2023, making it imperative that congressional leaders work across the aisle to safeguard the full faith and credit of the United States before we hit the next crisis point.”
Last fall, a series of last-minute deals ultimately raised the limit to $31.4 trillion. In October 2021, just weeks before BPC’s predicted X Date, Congress reached agreement on a stop-gap measure that increased the debt limit by $480 billion and bought policymakers a few months of time to negotiate a longer-term solution. In December 2021, less than a week before the beginning of BPC’s X Date range, President Biden signed legislation raising the debt limit by an additional $2.5 trillion to its current level, ending the most recent standoff.
BPC’s modeling is updated with new budget and economic estimates from the Congressional Budget Office’s annual outlook, released last month. Because the latest legislation included a debt limit increase—rather than a suspension to a date certain—it’s unclear when the U.S. will reach the $31.4 trillion limit. BPC projects that could come as soon as the first quarter of calendar year 2023. After reaching the debt limit, the Treasury Department will begin deploying so-called “extraordinary measures” to allow the federal government to continue paying the bills. Once those measures are exhausted and the Treasury Department’s reserve account runs out, the federal government would reach the X Date and default on its obligations.
BPC’s X Date projection is subject to considerable uncertainty, given that the time frame remains more than a year away; even under a baseline scenario, the actual X Date could arrive substantially later than the third quarter of 2023. BPC’s projections could also change considerably in the event of major economic shocks, like a recession, or legislative actions that significantly alter fiscal policy.
“Our forecast is uncertain, but two facts are not,” said Akabas. “First, the debt limit has manifestly failed to restrain federal borrowing. Second, the limit has created periodic crises that have consumed Congress’ time and dragged the United States to the brink of defaulting on our obligations.”
Last fall, for the first time, bipartisan co-sponsors introduced legislation that would permanently reform how the debt limit is addressed. This would avoid the debt limit’s standing invitation to brinkmanship while forcing Congress to propose and debate solutions for the actual cause of debt—annual taxing and spending decisions.
Although Congress has thus far avoided the worst outcomes by increasing or suspending the debt limit before reaching the X Date, previous debt limit episodes have imposed real costs on all Americans. Investors have doubted the creditworthiness of the U.S. government, and taxpayers have been on the hook for increased interest rates on the federal debt. Future debt limit showdowns could lead to further downgrades of the United States’ credit rating and broad economic disruption.
Shai Akabas is available for comment.