Debt Ceiling Deadlock Risks Default in June: Here's How The CBO Says Government Can Keep Operations Going Until The End Of July

The debt ceiling issue is front and center amid warnings of an economic catastrophe if the limit is not raised before the government defaults. A Friday report from the Congressional Budget Office delves into the extent to which the government can hold off a default light of the budgetary projections.

What Happened: If the government's financing needs are within $300 billion before June 15, then it can rely on the tax payments due by the date, the CBO said in the May 2023 "Federal Debt and the Statutory Limit" report.

If the Treasury's cash and extraordinary measures are adequate to finance the government until June 15, potential quarterly tax receipts and extraordinary measures will likely keep the government from defaulting at least until the end of July, the report said.

If the debt limit is not raised or suspended, there is a "significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations," it added.

This is in line with Treasury Secretary Janet Yellen's comments that a default could occur as early as June 1. The timing of when the government will run out of funds isn't yet clear, she said in an interview with Bloomberg on Friday, adding that she would update Congress as the date approaches.

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The CBO report said, "The extent to which the Treasury will be able to fund the government's ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June.”

This is because the timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO's projections, it said.

The CBO also released updated budget projections for 2023 and beyond in a separate report. It now estimates the federal budget deficit would be $1.5 trillion for 2023, $100 billion more than what it estimated in February.

The government forecaster now expects annual deficits to nearly double over the next decade to $2.7 trillion in 2023.

Why It's Important: The debt ceiling is the maximum amount of debt the Treasury can issue to the public or other federal agencies. The ceiling is fixed by law, and whenever the ceiling was hit in the past, it was either suspended or raised.

The previous revision in the debt ceiling was in December 2021, when lawmakers raised it by $2.5 trillion to $31.4 trillion. When the ceiling was hit in January this year, the Treasury announced a debt issuance suspension period and started using "extraordinary measures" to borrow additional funds without breaching the debt ceiling.

Given the 2024 election cycle, political parties are showing reluctance in resolving the impasse, with President Joe Biden and Republican lawmakers at odds over a potential solution. GOP members want to add on several spending cuts to the bill meant to raise the debt ceiling, while the Biden administration opposes such a move and instead wants to tackle it by cutting wasteful spending on special interests and ensuring the wealthy pay their fair share.

A meeting between the president and key Republican leaders, including House Speaker Kevin McCarthy (R-CA) and Senate Minority Leader Mitch McConnell (R-KY), on Tuesday ended without any agreement.

The White House and Congressional leaders have now postponed a Friday meeting to continue negotiations over a debt deal.

Read Next: What Is The Debt Ceiling — And What Happens If Congress Can’t Raise It In Time?