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The Congressional Budget Office said Wednesday that the federal government would be unable to fully pay its obligations sometime between July and September if Congress does not address the debt ceiling sooner.
This occurs when the agency expects the Treasury Department to end up using its ability to borrow additional funds. extraordinary measures,
However, the CBO stressed in its report that its projection is uncertain because the timing and amount of revenue collected and money spent may differ from its projections. For example, if income tax receipts in April come in less than expected due to last year’s stock market crash, the extraordinary measures may expire soon and the government may run out of money before July.
The CBO is expected 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. At that point, the agency may be able to narrow down a more specific deadline.
The CBO report is yet another warning to Congress that it needs to act soon to avoid a catastrophic default. But House Republicans and President Joe Biden has made little progress So far as to iron out their differences on the handling of the budget cap.
The agency also released its 10-year budget and economic outlook, in which it projected large increases in the federal budget deficit and debt over the next decade. The country’s fiscal picture has deteriorated substantially due to increased federal spending and higher interest rates approved by both parties.
In addition, the CBO estimates that inflation-adjusted economic growth will “stall” in 2023 due to the Federal Reserve raising interest rates. It expects inflation to decline this year and the unemployment rate to rise in early 2024, indicating a slowdown in economic growth.
“Over the longer term, our projections suggest that fiscal policy changes should be made to address rising interest costs and reduce other adverse consequences of high and rising debt,” CBO director Philip Swagel said in a statement.
America hit credit limit Compelled the Treasury Department to take extraordinary measures to enable the federal government to pay its bills on time and in full, as stipulated by Congress on January 19. Actions are primarily accounting maneuvers behind the scenes.
In a letter last month to House Speaker Kevin McCarthy, Treasury Secretary Janet Yellen said the measure would last through June 5, but that estimate is subject to “considerable uncertainty.”
House Republicans and the White House have yet to find much common ground to settle their impasse over borrowing limits. GOP lawmakers are demanding spending cuts in exchange for raising the debt ceiling, while Biden is calling on Republicans to negotiate spending cuts without holding the debt ceiling hostage.
Meanwhile, the President said on Wednesday that he would release the budget proposal next month. Reducing the deficit by $2 trillion over 10 years, He has pushed for tax increases on the wealthy and large corporations.
The data in the outlook – including a nearly doubling of the debt held by the public by 2033 – will provide fodder for GOP lawmakers in their current crusade to cut spending.
But the CBO report quickly prompted accusations from business circles on both sides of the aisle that the other party was to blame for the nation’s financial predicament — with Democrats blaming Republican interest. tax cuts and Republicans are pointing spending package Enacted by Biden and Democratic leaders in Congress.
It also has federal budget watchdogs sounding the alarm.
“Today’s CBO report should provide an important dose of reality for politicians making promises they can’t deliver,” said Maya McGinnis, chair of the Committee for a Responsible Federal Budget. “Our debt is headed for a new record in just five years, while interest costs will triple over the next decade.”
The CBO’s projection reflects the major hurdles facing Biden and Congress in strengthening the nation’s finances.
Its estimate for a 2023 budget deficit is $1.4 trillion, about $400 billion more than last May. The agency projects the shortfall will reach $2.7 trillion in 2033.
The deficit is 5.3% of GDP this year and rises to 6.9% in 2033. This is “significantly large” compared to the 3.6% of GDP that the deficit has averaged over the past five decades, the agency said.
The CBO now estimates that the cumulative deficit over the next decade will be $3 trillion more than last May’s estimate. This is primarily due to new legislation and changes in the economic forecast that boost interest costs and spending on mandated programs.
Meanwhile, federal debt held by the public is expected to rise from 98% of GDP this year to 118% in 2033—the highest level ever recorded—as interest costs and mandated spending increase revenue and the economy’s growth. Let’s leave behind. It is expected to reach 195% of GDP by 2053.
The surge in mandatory spending will be driven by rising costs for Social Security and Medicare as the US population ages. Federal health care costs are also rising.
“The fiscal trajectory is untenable,” Swagel said at a news conference on Wednesday.
But he also said that there is no point when “we will have a Wile E. Coyote moment.”
Legislation enacted by Congress since May prompted the CBO to raise its deficit estimates to $1.5 trillion over the next decade, but much of that stems from an expansion of bipartisan bills. Health care benefits for veterans exposed to toxic burn pits and increasing defense spending.
The CBO projects that net interest expense will increase from $475 billion in 2022 to $1.4 trillion in 2033. it is already boomed Because of which federal reserve interest rate increase last year.
“The national debt is roughly the size of US economic output and growing rapidly,” said Bill Hoagland, senior vice president at the Bipartisan Policy Center. “Both sides agree: we are on an unsustainable path and reform is needed.”
CBO expects american economy To slow down this year, it forecast real GDP growth of 0.1% in the fourth quarter from a year earlier. It then sees a rebound in 2024 with real GDP growing at 2.5% for that comparable period.
Economic projections show that inflation is easing, falling below 4% by the end of the year and reaching the Federal Reserve’s 2% target by 2026. CBO expects Unemployment to reach 5.1% by the end of the year from its current 53-year low of 3.4%.
The CBO’s projected economic trajectory aligns with projections released by the Fed in December, which show slowing GDP, easing inflation and rising unemployment. At the time the central bank projected that real GDP growth, inflation and unemployment for 2023 would be 1.2%, 2.8% and 4.4%, respectively.
The Fed will update its economic projections at its policy meeting next month.
This story has been updated with additional information.