The Congressional Budget Office (CBO) released a report on Wednesday that places the United States on a potential collision course with a first-ever default if Congress fails to broker a bipartisan debt agreement by July.
The CBO’s report noted that the federal government is set to become unable to fully pay its bills on time sometime between July and September, the nonpartisan Congressional Budget Office estimated, giving lawmakers several months to reach an agreement on lifting the debt limit and avoiding a default. The agency’s current crop of extraordinary measures, triggered by what's known as a “debt issuance suspension period,” are set to end June 5.
The CBO’s projection for the 2023 budget deficit is now $0.4 trillion more than it was in May 2022; the projection of the cumulative deficit over the 2023–2032 period is now $3.1 trillion (or about 20 percent) more, largely because of newly enacted legislation and changes in CBO’s economic forecast, including higher projected inflation and interest rates.
Debt held by the public as a proportion of estimated U.S. gross domestic product (GDP) is projected to increase from 98% of GDP in 2023 to 118.2% of GDP in 2033. Phillip Swagel, the Director of the Congressional Budget Office, stated that the trajectory of the federal budget will remain the same in the following decades, according to current budgetary policies, which would bring it to 195% of GDP by 2053.
According to Swagel, in the long run, changes in fiscal policy must be implemented in order to counter the increasing costs of interest and to prevent other negative effects caused by an excessive and increasing debt.
It is anticipated that inflation will decrease this year and remain at a reduced level until 2027. It is predicted by the agency that the figure will be higher over the next two years than what was anticipated in May of last year. It is predicted that the consumer price index will decrease from 7.1 percent in 2020 to 4 percent in 2021 and 2.4 percent in 2022.
House Republicans are demanding that any increase to the debt limit be accompanied by spending cuts, aiming to achieve a balanced budget within a period of approximately ten years. No clear signs have been seen as to how the deadlock will be resolved in the end, though both sides have stated that they have no intention of “defaulting” and are open to temporary solutions to buy them more time.
The Republican Party is advocating for substantial fiscal changes to be included with any law that increases the debt ceiling, yet both sides are facing difficulty in coming to an agreement on how to address the country's budget deficits.
0. “Debt-Limit Crunch Time, and Risk of Default, Hit as Early as July, CBO Says” Barron's, 15 Feb. 2023, https://www.barrons.com/articles/debt-limit-cbo-default-61fdd620
1. “CBO: Debt limit to hit as soon as July, budget picture worsens” Roll Call , 15 Feb. 2023, https://www.rollcall.com/2023/02/15/cbo-debt-limit-to-hit-as-soon-as-july-budget-picture-worsens
2. “U.S. has until July-September to avert debt-ceiling breach, CBO estimates” Seeking Alpha, 15 Feb. 2023, https://seekingalpha.com/news/3936604-us-has-until-july-september-to-avert-debt-ceiling-breach-cbo-estimates
3. “The Budget and Economic Outlook: 2023 to 2033” Congressional Budget Office, 15 Feb. 2023, https://www.cbo.gov/publication/58848
4. “US national debt to rise by $20 trillion over the next 10 years: CBO” Fox Business, 15 Feb. 2023, https://www.foxbusiness.com/politics/us-national-debt-rise-20-trillion-over-next-10-years-cbo
5. “CBO projects US will add $19 trillion to the national debt in the next decade” New York Post , 16 Feb. 2023, https://nypost.com/2023/02/16/cbo-projects-us-will-add-19-trillion-to-the-national-debt-in-the-next-decade/
6. “Deficit set to hit $1.4T this year amid persistent inflation, federal experts say” POLITICO, 15 Feb. 2023, https://www.politico.com/news/2023/02/15/inflation-persist-until-2026-federal-experts-00083033
7. “CBO says U.S. will breach debt ceiling ‘between July and September’” NBC News, 15 Feb. 2023, https://www.nbcnews.com/politics/congress/us-debt-ceiling-deadline-july-september-cbo-rcna70673
8. “US yearly deficits projected to average $2 trillion over next decade: report” The Hill, 15 Feb. 2023, https://thehill.com/business/3860026-us-yearly-deficits-projected-to-average-2-trillion-over-next-decade-report