The White House and Congress got some rare good budget news Wednesday: The chances the government will face a catastrophic default on its debt in June dwindled, courtesy of the U.S. taxpayer.
New data on the 2023 tax season showed receipts were still well behind last year’s pace but not as badly as they had been, likely ensuring the Treasury Department’s “drop dead”date — when it can no longer make payments on the government’s debt or pay all of the government’s bills on time — will arrive in late July.
The Treasury Department has been juggling various ways of keeping below the $31.38 trillion debt limit since January, but headroom from those accounting maneuvers has been shrinking. Early receipts for the 2023 income tax season raised the prospect that a low point in cash on hand in the second week in June could be more of a danger than previously thought.
“I have a fairly high degree of confidence now that they can get past June 15. There is still uncertainty, of course. A wild card is the impact of government trust fund flows on debt subject to limit,” Nancy Vanden Houten, the lead U.S. economist at the advisory firm Oxford Economics told HuffPost.
“I think it’s become less of a squeaker.”
Another researcher, Lou Crandall, chief economist at analytics firm Wrightson ICAP, also said the new data pointed away from June, but he was unwilling to count it out yet.
“Today’s numbers may reduce the risk of a June ‘X date,’ but it’s still too early to take it off the table definitively,” he said. Crandall had been worried he would have to increase his probability of a June default date from 20% after data Monday, but “today’s numbers mean that I don’t.”
“I think it’s become less of a squeaker.”
- Nancy Vanden Houten, lead U.S. economist at Oxford Economics
Goldman Sachs analysts, having raised a red flag about June last week, were reportedly downgrading the possibility of June as well.
The Treasury reported it received $45.1 billion on Tuesday in what it calls “nonwithheld” taxes, basically income tax payments from people who waited until this year’s April 18 tax deadline to pay up. That’s above the $39.2 billion seen on the comparable date in 2022.
Why does the Tuesday after tax day mean so much? The Internal Revenue Service processes the paper check payments it receives in several centers across the country, running them seven days a week during tax season.
“Tuesday is when the checks that are processed over the weekend are good money to the government,” Crandall said.
For the whole month, tax receipts are still behind 2022 levels, though, at $129 billion versus $170 billion last year.
“Tuesday is when the checks that are processed over the weekend are good money to the government.”
- Lou Crandall, chief economist, Wrightson ICAP
There have been no substantive talks yet about raising the debt limit between the White House and House Republicans, though the House GOP on Wednesday muscled through a bill with massive spending cuts and an increase in the debt ceiling until next year. The White House and Democrats have said the bill is not going anywhere.
A default on the debt would be unprecedented and, given the dollar’s role as a global reserve currency, would likely mean an economic crisis.
Treasury Secretary Janet Yellen may update Congress on its own forecasts soon, as next week its debt managers meet with an advisory panel of Wall Street firms that regularly buy its debt. But Vanden Houten and Crandall agreed that the most likely date for when Treasury’s borrowing hits a wall is late July.
“I see no way to avoid a crisis in the absence of a debt limit increase or suspension by the beginning of August,” Vanden Houten said.