The U.S. Treasury stands to run out of cash as soon as October if the debt limit isn’t lifted in the coming weeks, the Congressional Budget Office warned Wednesday, lending urgency to an issue that’s seemingly at a standstill in Washington as Democrats and Republicans remain at a standoff over the cost of President Joe Biden’s lofty infrastructure ambitions.
In accordance with the Bipartisan Budget Act of 2019, Congress is facing a deadline of August 1 to either raise the current debt limit, which is the maximum amount of debt the Treasury can issue to the public and other federal agencies, or extend its in-place suspension.
The Treasury would need to take “extraordinary measures” to finance the government’s activities if no action is taken, CBO cautioned Wednesday, saying the department’s few options include cutting off investments to federal retirement, health benefits and disability funds for civil servants and federal government retirees.
However, even those measures would only help briefly, CBO continued, estimating the Treasury would probably run out of cash in the first quarter of the next fiscal year, which begins on October 1, and most likely by October or November.
If the Treasury runs out of cash, CBO says the government would effectively be unable to pay its obligations—forcing it to delay making payments, default on debt obligations or both.
The report came hours after Sens. Chuck Schumer (D-N.Y.) and Mitch McConnell (R-Ky.), who lead their respective parties in the chamber, sparred over raising the debt limit, with McConnell saying he can’t imagine “a single Republican” voting in favor given the government’s heightened spending during the pandemic.
Schumer hit back on the Senate floor, saying McConnell’s statements on the debt limit are “shameless, cynical and totally political,” and saying the current national debt, which stands at $28.5 trillion, is “Trump debt” and “Covid debt.”
In addition to holding standalone votes to either raise or suspend the debt limit (which would require some Republican support), Democrats could include a debt ceiling proposal in a budget reconciliation bill to pass on one-party lines, though the fate of such a bill is uncertain and negotiations could last beyond September.
“Unless legislation is enacted to raise or suspend the debt limit, the Treasury must take extraordinary measures to continue funding government activities after August 1,” CBO warned in the report. “Even then, such measures will be available only for a limited time.”
“I can’t imagine a single Republican in this environment that we’re in now—this free-for-all for taxes and spending—to vote to raise the debt limit,” McConnell told Punchbowl News in a Wednesday interview. “I think the answer is they need to put it in the reconciliation bill,” he added, referencing a $3.5 trillion infrastructure package Democrats hope to pass without Republican support.
$35 trillion. That’s how much CBO projects the nation’s debt will swell to by the end of this year—before adjusting for fiscal stimulus.
Amid inflation concerns that have rattled markets in recent months, the gap between government spending and revenue has swelled to more than $2.2 trillion in the 2021 fiscal year—less than last year’s $2.7 trillion at this time, but far more than historical deficits of less than $1 trillion. A larger deficit typically means the government is taking on more debt, which can ultimately limit the government’s willingness–and ability–to increase spending in order to curb economic downturns, or fight pandemics. According to the Treasury, Congress has either raised, extended or revised the definition of the debt limit 78 times since 1960, and it’s never failed to act on the debt limit when necessary. Still, the Treasury has had to implement “extraordinary measures” temporarily when Congress fails to act quickly, including most recently in 2013, when the government suspended investments in retirement funds and took unprecedented steps to restructure its debt