The U.S. Treasury said that it could run out of money to pay all of the government’s bills as soon as June without a debt limit increase, prompting Biden to call for the meeting with leaders including Republican House Speaker Kevin McCarthy on May 9.
Treasury Secretary Janet Yellen said in a letter to Congress that the agency will be unlikely to meet all U.S. government payment obligations “by early June, and potentially as early as June 1” without action by Congress.
Biden called McCarthy in Jerusalem, where he is on a diplomatic trip, as well as House Democratic leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer and Republican leader Mitch McConnell to set up the meeting.
House Republicans passed a bill to raise the debt limit last week that includes steep spending cuts which the Democratic-controlled Senate and Biden say they will not approve. Failing to act before Treasury’s new June 1 date could force the United States into an unprecedented default on some bills.
Biden has steadfastly said he will not negotiate over the debt ceiling increase, but will discuss budget cuts after a new limit is passed. Congress has often paired debt-ceiling increases with other budget and spending measures.
The new potential “X-date,” which takes in to account April tax receipts, is largely unchanged from a previous estimate, issued in January, that the government could run short of cash around June 5. But Yellen also added some wiggle room. “Federal receipts and outlays are inherently variable, and the actual date that Treasury exhausts extraordinary measures could be a number of weeks later than these estimates,” she wrote to lawmakers. “It is impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills, and I will continue to update Congress in the coming weeks as more information becomes available,” she wrote, urging Congress to act quickly to raise the limit.
After hitting the $31.4 trillion borrowing cap on Jan. 19, Yellen previously told Congress that Treasury would keep up payments on debt, federal benefits and make other spending by using extraordinary cash management measures. One such step Treasury is taking is suspending the sales of securities that state and local governments use to temporarily hold cash.
In 2011, a similar debt ceiling fight took the country to the brink of default and prompted a downgrade of the country’s top-notch credit rating. This time, negotiations may be even more difficult, veterans of 2011’s face-off say.
SPENDING CUT DEMANDS
The Republican-led House of Representatives passed a bill on April 26 that would raise the debt ceiling in exchange for deep cuts to healthcare for the poor and other budget cuts that the Department of Transportation says would shut hundreds of air traffic control towers. The bill also would slash tax incentives for solar and other climate-friendly energy sources.
The Republican bill would implement $4.5 trillion in spending cuts – or about 22% – in exchange for a $1.5 trillion increase in the U.S. debt limit. It has no chance of passing the Democrat-controlled Senate and the White House has said Biden would veto the legislation.
Budget analyst Shai Akabas at the Bipartisan Policy Center said the short deadline underscored the urgency of finding a solution to the bitter partisan standoff, and that it dashed hopes that the Congress could negotiate through the late summer months.
A potential default within weeks “is not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy,” he added.
BREATHING ROOM
Yellen’s vagueness on the actual default date is due to some fiscal events in June that could buy some breathing room.
If Treasury can make it past early June benefit payments, it could take in significant cash from quarterly estimated tax payments due on June 15, analysts say. Then Treasury could float until June 30, when it would be able to tap $143 billion in borrowing by suspending reinvestment of maturing securities held by the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefit Fund.
Along with tax receipts, that borrowing would allow it to pay bills well into July.
Nonetheless, the U.S.’s debt ceiling battles are likely to persist for years to come, with benefit programs like Social Security and Medicare accounting for the largest category of the budget and projected to grow dramatically as the population ages.
As the current debate heats up, Biden and his administration are using the proposal from McCarthy to tag Republicans as an economic threat, sending cabinet officials and senior advisers on a media tour to talk about local impacts.