U.S. could hit debt-ceiling crisis this summer unless deal is struck

The U.S. Congressional Budget Office (CBO) on Wednesday said the U.S. Treasury Department will exhaust its ability to pay all its bills sometime between July and September, unless the current $31.4 trillion US cap on borrowing is either raised or suspended.

In a three-page report, the non-partisan CBO cautioned that an historic federal debt default could occur before July if revenues flowing into the Treasury in April when most Americans typically submit annual income tax filingslag expectations.

The pace of incoming revenues, coupled with the performance of the U.S. economy in coming months, makes it difficult for government officials to predict the exact date when the Treasury could begin to default on many debt payments without action by Congress.

"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," the CBO report noted. "As a result, the government would have to delay making payments for some activities, default on its debt obligations, or both."

In a separate budget and economic outlook, the CBO said annual federal budget deficits will average an eye-popping $2 trillion US from 2024 through 2033.

Republicans threateningto blockdebt ceiling lift

The report provided a sobering accounting of the tab from the last few years of robust spending by Washington on COVID-19 pandemic relief, infrastructure improvements, steps to mitigate climate change and other actions.

Undoubtedly, it will stoke Republican accusations that the Biden administration's spending must be reined in, even though the need to raise the debt limit is the result of previously approved spending and tax cuts, some under Democratic President Joe Biden's Republican predecessor, Donald Trump.

Republicans, who control the House of Representatives, want to withhold a debt limit increase until Democrats first agree to deep spending cuts. Democrats in turn say the debt limit should not be "held hostage" to Republican tactics over federal spending.

WATCH | Biden gets jeered by Republicans over debt ceiling:

Biden calls for lifting of the debt ceiling

2 years ago

Duration 4:15

U.S. President Joe Biden used the state of the union to call on the U.S. Congress to lift the debt ceiling, calling out the Republicans for wanting to 'take the economy hostage,' eliciting jeers and heckling in return.

Social Security, Medicare at centre of debt debate

After hitting the $31.4 trillion borrowing cap on Jan. 19, Treasury Secretary Janet Yellen said the Treasury can keep up payments on debt, federal benefits and make other outlays at least through June 5 using cash receipts and extraordinary cash management measures.

So far in 2023, not a day has gone by on Capitol Hill without lawmakers jousting over the debt limit, as Democrats press for a quick, clean increase in Treasury borrowing authority and Republicans insist on first nailing down significant reductions in future government spending.

Social Security and Medicare, the government's popular pension and health care programs for the elderly, are at the centre of the debt limit and government funding debate, as both parties also jockey to define the contours of the 2024 presidential and congressional election campaigns.

"There has been a Republican drumbeat to cut Social Security and Medicare," Senate Majority Leader Chuck Schumer, a Democrat, told reporters on Tuesday.

Republican Senate Minority Leader Mitch McConnell has laboured, without much success so far, to smother such talk.

"Let me say one more time. There is no agenda on the part of Senate Republicans to revisit Medicare or Social Security. Period," he said at a news conference.

The CBO's 2023 baseline budget forecast reveals its first comprehensive analysis of federal deficits in the wake of recent spending legislation, including Biden's $430 billion US climate and health care act and a military-heavy $1.66 trillion US government funding package with more aid to Ukraine.

Most Americans do not closely follow Washington's debt ceiling saga, but they still worry it could hurt their finances, according to a Reuters/Ipsos public opinion poll conducted Feb. 6-13.

Fifty-five per cent of U.S. adults said they have heard little or nothing about the debate, but three-quarters of respondents said Congress must reach a deal because defaulting would add to their families' financial stress, largely through potentially higher borrowing costs.