U.S. Debt Will Likely Become a Major Issue in Washington
The Congressional Budget Office (CBO) warned of a sharp deterioration in the federal budget and estimates the federal government will exhaust its ability to borrow more money and will be in danger of defaulting on the national debt at some point between July and September, a tighter timeline than has been signaled by the Treasury Department.
“The projected exhaustion date is uncertain because the timing and amount of revenue collections and outlays over the intervening months could differ from CBO’s projections," CBO said. "In particular, income tax receipts in April could be more or less than CBO estimates. If those receipts fell short of estimated amounts — for example, if capital gains realizations in 2022 were smaller or if U.S. income growth slowed by more in early calendar year 2023 than CBO projected — the extraordinary measures could be exhausted sooner, and the Treasury could run out of funds before July.”
Upshot
CBO expects to revisit its projection in May after the current tax filing season closes and it has a clearer picture of how much federal tax revenue will come in this year. The office said that if receipts fall short of its estimates, the Treasury could run out of funds before July.
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“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” CBO Director Phillip Swagel said in a statement.
Among the stark figures released by the CBO Wednesday: The budget deficit for 2023 is now seen $426 billion worse than projected last May, at $1.41 trillion. Debt held by the public is seen climbing to $46 trillion by 2033, amounting to 118% of GDP — the highest in U.S. history. The budget office now predicts that federal interest costs will total $10.4 trillion over the next decade, up from $8 trillion. Those costs will be partially offset by about $1 trillion in increased tax revenues that stem from high inflation driving up nominal incomes for workers.
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In a tweet on Wednesday, House Speaker Kevin McCarthy (R-Calif.) again called for pairing discussions about spending cuts to raising the borrowing cap. Republican lawmakers are refusing to raise the limit — which caps the total amount of money that the federal government is authorized to borrow to fulfill its financial obligations — unless President Biden agrees to steep but unspecified spending cuts.
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Biden has repeatedly said that he will not negotiate over raising the borrowing cap, which simply allows the government to pay for expenses that Congress has already authorized. Biden hit back at Republicans on the debt on Wednesday, highlighting the new House majority’s plans to extend expiring tax cuts signed into law under Trump and repeal tax increases on high earners and corporations that Biden signed into law last year, which he said would add $3 trillion to deficits.
