The federal government will likely run out of cash in early to mid-October if debt limits are not changed, the Congressional Budget Office said Thursday.
That would lead to delays of payments for the government’s programs and activities, a default on its debt obligations, or both, the CBO said in its report to Congress titled “An Update to the Budget and Economic Outlook: 2017 to 2027.”
The federal debt limit, which had previously been set at $18.1 trillion, was suspended from Nov. 2, 2015, through March 15, 2017. On March 16, 2017, the limit was raised to $19.8 trillion. The CBO said at that point that the Treasury Department no longer had room to borrow under standard operating procedures. To avoid breaching the ceiling, Treasury began employing measures to allow continued borrowing. However, CBO warned that “If the debt limit remains unchanged, those measures will be exhausted and the Treasury will run out of cash in early to mid-October.”
CBO projects that over the next decade, if current laws remained generally unchanged, that budget deficits would eventually follow an upward trajectory in relation to the nation’s economic output, and federal debt would rise.
In its report, the CBO is less sanguine about the growth in the U.S. economy. It says economic growth is projected to remain modest, averaging slightly above 2% through 2018 and averaging somewhat below that rate for the rest of the period through 2027. If growth follows that track, that would be below historical norms for the American economy and under the predictions made by President Trump. The president’s budget proposal projected that growth would rise to 3% over a decade.
The accelerated growth in spending for retirement and health-care programs aimed at older people and rising interest payments on the government’s debt are behind the projected rise in deficits that will not be offset by moderate growth in revenue collections, said the CBO. Those accumulating deficits would drive up debt held by the public from its already high level to its highest percentage of gross domestic product (GDP) since shortly after World War II.
The budget deficit is expected to climb to $693 billion in 2017 from $585 billion in 2016. The CBO attributes this to slow growth in revenue collections through May and expected lower collections for the rest of the year.
The budget shortfall increases to 3.6% in 2017 from 3.2% of gross domestic product in 2016. The CBO projects the shortfall to reach 5.2% of GDP in 2027.
As required by statute, CBO’s 10-year projections incorporate the assumption that current laws in regard to taxes
and spending will remain unchanged. The baseline is not intended to be a forecast of budgetary outcomes. It is meant to provide a neutral benchmark that policymakers can use to assess the potential
effects of policy decisions.