In letters to Congress and warnings to business leaders about the catastrophic consequences of a US default, Treasury Secretary Janet L. Yellen has repeatedly voiced an important caveat.
She cannot say exactly when the federal government will run out of money.
The United States hit its $31.4 trillion legal debt limit on January 19, forcing the Treasury Department, which borrows vast sums of money to pay the country’s bills, to perform accounting maneuvers known as extraordinary measures. to save cash and avoid exceeding the limit.
On Monday, Ms Yellen reiterated earlier warnings that the Treasury Department could exhaust its cash reserves by June 1. Still, pinpointing the exact day when the United States will reach the so-called X-date is nearly impossible.
“These estimates are based on data currently available, and federal revenue, expenditure and debt could differ from these estimates,” Ms Yellen told lawmakers in her letters. “The actual date that the Treasury Department exhausts the extraordinary measures could be a few days or weeks later than these estimates.”
While the Treasury has the world’s most sophisticated cash management system and employs teams of highly qualified economists, its coffers are a jumble of outgoing payments and incoming tax revenues. If its cash stash is sorely running low — as it was Wednesday — when the Treasury general account started with less than $100 billion, the X-date becomes even harder to predict. In many ways, this is because the timing of a default is a moving target.
Big bills are due.
Ms Yellen sees the beginning of June as a pivotal month since she first warned Congress about the debt ceiling in January. The reason: The federal government spends a lot of money around June 1st in a short time and it is not possible to predict exactly how much income will come in and when.
In a report released Thursday, the Bipartisan Policy Center, a think tank that carefully tracks federal spending, estimated the government would spend $101 billion on June 1. Most of that money — $47 billion — will go to Medicare, while the rest of it will go toward veterans’ benefits, military pay and retirement, public service retirement, and supplemental security income. On June 2, the government must pay $25 billion in Social Security benefits and another $2 billion for Medicaid.
It is estimated that the government will spend about $140 billion over these two days and bring in just $44 billion in tax revenue, leaving the treasury on steam.
Revenue stagnates while refunds flow.
A big problem this year is that tax revenues are coming in slower than expected.
Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push tax return deadlines from April 18 to October in dozens of counties.
Another surprising reason the coffers are getting tighter than some budget experts are predicting is that the IRS is starting to work more efficiently. Thanks to the $80 billion the agency received under the Inflation Reduction Act last year, it has been able to increase new hires and reduce the backlog of unprocessed tax returns.
Because the IRS processes returns faster, it also issues refunds faster and uses less available cash.
June 15 is a critical day.
If Ms. Yellen finds enough coins on the Treasury Department couch to pay the bills by June 15, the United States could have some breathing room.
That’s because June 15 is due for third quarter payments from businesses and individuals who have to pay their tax bills throughout the year or choose to make payments every three months to avoid April’s big ones invoices become due.
The Congressional Budget Office said in a report last week that an expected inflow of quarterly tax revenue on June 15 and the availability of additional extraordinary measures would likely allow the government to continue funding operations through at least the end of July.
The government could receive about $80 billion in tax revenue that day. The Bipartisan Policy Center estimates these funds could be enough to keep the federal government afloat through June 30. At that point, Ms. Yellen would also have some additional exceptional measures available — a suspension of investments in federal employee pension funds — that would allow her to free up an additional $145 billion and potentially delay a default well into July.
It’s too close to call.
The lack of clarity over the X-date makes it difficult for lawmakers to see the pressure they are under to reach an agreement. The government may not know how quickly the cash will run out until shortly before the country becomes insolvent.
But the pressure keeps increasing. It will likely take Congress days, if not weeks, to pass legislation raising the debt ceiling. And even if President Biden and Speaker Kevin McCarthy reach an agreement, there are no guarantees that the House and Senate will easily pass the bill.
As summer approaches, the legislative calendar becomes more complicated.
Mr. McCarthy and Senator Chuck Schumer, Democrat of New York and Majority Leader, would need to get legislation reflecting this agreement through their respective chambers, and time is running out to do so. The House of Representatives is scheduled to sit for just six days through the end of the month. The Senate is scheduled for just five sessions and is scheduled to be out of Washington starting Monday before Memorial Day weekend.
With lawmakers shying away from postponing their breaks, analysts have been watching the legislative plan closely as they try to read the tea leaves on the debt limit. If a deal isn’t signed by Memorial Day and Ms Yellen doesn’t announce that the X date is moving, it could increase the likelihood of a short-term suspension of the credit limit to give Congress more time to act.
“The congressional calendar is critical and will determine the urgency and passage dates for a bill, as has been the case in the past,” Henrietta Treyz, director of economic policy at Veda Partners, said in a note to clients this month.
