Will US money run out? Understand what is at stake – 05/19/2023 – Market

In letters to Congress and warnings to business leaders about the catastrophic consequences that will follow if the United States defaults on its debts, Treasury Secretary Janet Yellen has repeated an important caveat several times.

She has no way of giving the exact date when the federal government will run out of money.

The United States hit its $31.4 trillion legal debt limit on Jan. 19, forcing the Treasury Department — which borrows large sums of money to pay the country’s bills — to start using accounting maneuvers known as debt relief measures. overtime in order to save money and avoid breaching the limit.

On Monday, Yellen reiterated warnings that the Treasury Department’s cash reserves could be depleted by June 1. Still, it is almost impossible to determine the exact date of the so-called Day X.

“These estimates are based on currently available data, and federal revenues, expenditures and debt may vary from these estimates,” Yellen told lawmakers in her letters. “The actual date when the Treasury will exhaust the extraordinary measures could be a few days or weeks later than the estimated dates.”

Although the US Treasury has the most sophisticated cash management system in the world and employs teams of highly trained economists, there is an enormous amount of payments going out and tax revenue coming into its coffers every day.

When the cash balance gets painfully low —as was the case on Wednesday (17th), when the general Treasury account started the day with a balance of less than $100 billion—it becomes even more difficult to predict the date X In many ways, this is due to the fact that the time when a default would occur is a moving target.

There are large bills due soon

Yellen has viewed early June as a crucial period since her first warnings to Congress about the debt limit in January. The reason: The federal government spends a lot of money in a short period, around June 1, and it’s impossible to predict exactly how much revenue will come in, and when.

In a report published Thursday, the Bipartisan Policy Center, a research organization that carefully tracks federal spending, estimated that the government will disburse $101 billion on June 1. Most of that money — $47 billion — will go to the federal Medicare health care program, while the rest will go toward veterans’ benefits, military pay and retirement, civil service retirement, and supplemental security income. On June 2, the government will have to pay $25 billion in Social Security benefits and $2 billion to the federal Medicaid health program.

During those two days, the government is expected to disburse around US$140 billion and collect only US$44 billion in taxes, which will leave the country’s coffers almost empty.

Tax collection is prorated and the volume of refunds is on the rise

A big problem this year is that tax revenues are coming in at a slower pace than anticipated.

Severe storms, floods and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service (IRS) to push back the deadline for filing tax returns in dozens of counties until October. , which normally falls on April 18.

Another surprising reason cash is lower than some budget experts project is that the IRS is starting to operate more efficiently. As a result of the $80 billion the agency received as part of the Reducing Inflation Act last year, it has been able to hire more staff and reduce the backlog of unprocessed tax returns.

Since the IRS has been processing returns faster, refunds are also being disbursed faster, which reduces the amount of cash available.

June 15th is a critical day

If Yellen can dig into the Treasury’s pockets and find enough pennies to pay the bills by June 15, America might be able to get a little breathing room.

That’s because June 15th is the day third-quarter tax payments must be made by businesses and individuals who are required to pay their tax bills throughout the year or who choose to make payments every three months to avoid having to pay large bills in April.

The Congressional Budget Service said in a report last week that the expected influx of quarterly fiscal revenues on June 15 and the availability of additional one-off measures would likely allow the administration to continue funding its operations through at least the end of July.

The government could receive approximately $80 billion in tax revenue that day. The Bipartisan Policy Center estimates that these funds could be enough to keep the federal government running through June 30. When that day comes, Yellen would also have some additional extraordinary measures at her disposal — a suspension of investments in retirement funds for federal workers — that would allow her to unlock an additional $145 billion and potentially delay a default until July.

It’s very difficult to predict

The lack of clarity about Date X makes it difficult for legislators to know how pressing the need for an agreement is. The government may not know how quickly the money is running out until just before the country has to face default.

But the pressure keeps building. Congress is likely to take days – if not weeks – to pass a bill to raise the debt ceiling. And even if President Joe Biden and House Speaker Kevin McCarthy reach an agreement, there’s no guarantee the House and Senate will easily pass the legislation.

The legislative calendar gets more and more complicated as the summer (third quarter) approaches.

McCarthy and Senator Chuck Schumer, Democrat of New York, the Senate Majority Leader, would need to get legislation reflecting an agreement passed in their legislative houses, and the number of days left to do so is dwindling fast. There are only six days of scheduled Chamber sessions until the end of the month. The Senate will only have five days of sessions and a recess is scheduled to begin at the end of May.

Translated by Paulo Migliacci