Congressional Budget Office Director Phillip Swagel revealed on Wednesday that the federal government could “run out of funds” between July and September.
The federal debt ceiling, an arbitrary cap on the national debt established by Congress, exceeded the statutory limit of nearly $31.4 trillion last month, prompting Treasury Secretary Janet Yellen to launch “extraordinary measures” intended to continue funding the government through the month of June. Swagel, whose agency is tasked with providing analyses of budget and economic information to Congress, said in a statement that lawmakers should address the debt limit before the government defaults on obligations.
“We project that, if the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted between July and September,” he said. “The projected exhaustion date is uncertain because the timing and amount of revenue collections and outlays over the intervening months could differ from our projections. In particular, income tax receipts in April could be more or less than we estimate.”
President Joe Biden and House Speaker Kevin McCarthy are presently engaged in negotiations to lower federal spending ahead of any changes to the debt ceiling. Republican lawmakers struck a deal with McCarthy under which the party’s new majority will introduce a budget that must refrain from increasing the debt limit in the name of fiscal responsibility.
“If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government would be unable to pay its obligations fully,” Swagel added. “As a result, the government would have to delay making payments for some activities, default on its debt obligations, or both.”
Policymakers at the Federal Reserve have increased target federal funds rates substantially over the past several months, resulting in higher interest rates across the economy as central bankers attempt to quell inflationary pressures. Interest payments on the national debt are therefore slated to be larger than defense expenditures within the next five years, according to a projection from Moody’s Analytics.
The national debt currently exceeds $31.5 trillion. Swagel said “newly enacted legislation and changes to the economic forecast that boost interest costs and spending on mandatory programs” mean that the cumulative deficit between 2023 and 2032 is slated to increase by $3 trillion. “The increase in mandatory spending is driven by rising costs for Social Security and Medicare,” he continued. “As the cost of financing the nation’s debt grows, net outlays for interest increase substantially.”
Biden and McCarthy have nevertheless vowed not to discuss amendments to Social Security and Medicare. The two programs marked 46% of the federal budget during the last fiscal year alongside other health initiatives, according to data from the Treasury Department. Both trust funds managed by Social Security are slated to be insolvent by 2035, according to a report from the Congressional Research Service. The agency recommended increasing payroll taxes or reducing payouts to avoid an automatic reduction for all recipients.
Biden claimed during his most recent State of the Union address that he oversaw “the largest deficit reduction” in the nation’s history during his first two years in office. Although he presided over a decline in the deficit from $3.1 trillion in fiscal year 2020 to $1.4 trillion in fiscal year 2022, according to data from the Office of Management and Budget, he failed to mention that the record spending occurred due to legislation passed in response to the lockdown-induced recession. The deficit last year still exceeded those witnessed in the years before the crisis.