CBO Warns of Catastrophic Default if Debt Limit Not Raised in Time
The Congressional Budget Office (CBO) released a report on Wednesday warning that the U.S. government risks a catastrophic default between July and September if the nation’s debt limit isn’t raised in time. The report comes as House Republicans and the White House have yet to find common ground on raising the borrowing cap.
The Congressional Budget Office (CBO) reported that its forecast of the total deficit over the 2023-2032 period has increased by $3.1 trillion, primarily resulting from recently passed legislation and revisions to the CBO's economic outlook, such as higher predicted inflation and interest rates. The U.S. gross domestic product is projected to experience a cumulative deficit of $20.2 trillion, or 6.1%, between 2024 and 2033.
According to the CBO, the total deficit over the next ten years is expected to be $3 trillion higher than the estimate they made in May. The primary reason for this is due to modifications in the economic outlook and the introduction of new laws, which increases the cost of interest and the amount spent on necessary programs. This year, the deficit is equal to 5.3% of the total output of all goods and services produced in the country, and is expected to increase The agency stated that this figure is “significantly larger” than the 3.6% of GDP that deficits have averaged over the past fifty years.
The CBO blamed the uncertain date on upcoming revenue collections, especially how much the U.S. collects in taxes by the April due date. A shortfall in the amount of money taken in could lead to the U.S. running out of funds before the month of July. Per the CBO, real economic growth is projected to “stop” in 2023 due to the Federal Reserve's raised interest rates. The forecast is for inflation to decrease in the current year and the unemployment rate to increase until the start of 2024, indicating a deceleration in economic growth.
No agreement has been reached between House Republicans and the White House regarding the impasse surrounding the debt ceiling. Republican legislators are insisting on cuts to expenditure in return for an increase in the debt ceiling, while Vice President Biden is asking the GOP to discuss decreasing spending without making use of the debt ceiling as leverage.
The Congressional Budget Office’s (CBO) report serves as a stark reminder to Congress that immediate action must be taken in order to avert a disastrous default. However, House Republicans and President Joe Biden have not achieved much in terms of settling their disagreements about handling the budget cap.
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1. “U.S. deficits are set to surge over next decade, Congressional Budget Office says” Axios, 15 Feb. 2023, https://www.axios.com/2023/02/15/cbo-deficit-debt-ceiling-2023
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3. “Debt limit forecast says US could be in default by summer. Here's how that could impact you” USA TODAY, 15 Feb. 2023, https://www.usatoday.com/story/news/politics/2023/02/15/cbo-debt-ceiling-social-security-payments/11251749002/
4. “Debt ceiling: CBO finds government could be at risk of default ‘between July and September’” Yahoo News, 15 Feb. 2023, https://news.yahoo.com/debt-ceiling-cbo-finds-government-could-be-at-risk-of-default-between-july-and-september-193301099.html
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