Debt limit forecast says US could be in default by summer. Here’s how that could impact you

WASHINGTON – The U.S. Treasury will run out of money to pay government bills such as Social Security and military paychecks this summer, but there’s no way to tell exactly what day yet, according to the nonpartisan Congressional Budget Office. 

If Congress doesn’t raise the debt limit – the amount the U.S. can legally borrow – the “extraordinary measures” the Treasury is taking to pay America’s bills will run out  between July and September, the CBO said in a new report Wednesday afternoon. 

But there is no “X-date” in the report to mark the threshold for when the U.S. will run out of cash.

The CBO blames the uncertain date on upcoming revenue collections, especially how much the U.S. collects in taxes by the April due date. If the country takes in less than expected, the U.S. could run out of money before July. 

CBO will issue a new debt limit outlook in April after tax collections, office Director Phillip Swagel said Wednesday afternoon.

What happens if the U.S. defaults on its debt?

The consequences of default would impact all Americans, forcing higher home and auto loan rates and credit card payments, officials have warned. 

Treasury Secretary Janet Yellen thinks she can use extraordinary measures to pay the bills until June 5.

If the U.S. defaults, it would be “catastrophic,” she said Tuesday at a National Association of Counties conference in Washington.

“On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security,” Yellen said.

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Economic outlook 2023

The CBO also released its 10-year economic forecast. 

Based on current economic conditions, the CBO predicts a budget deficit $3 trillion larger than its May prediction mainly because of newly enacted legislation and mandatory spending on Social Security and Medicare, Swagel said. 

The CBO also predicts “stagnant output, rising unemployment, gradually slowing inflation, and interest rates that remain at or above their levels at the beginning of the year – before the economy subsequently rebounds.”

“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” Swagel said in a statement. 

What is the debt ceiling fight?

The latest update comes as policymakers and President Joe Biden are negotiating to raise the debit limit, also called the debt ceiling. 

It’s a limit set by law that determines how much the federal government can legally borrow. When the limit is reached, the Treasury can’t borrow money to cover government expenses. 

To default on the debt would lead to massive economic consequences at home and abroad, according to analysts. 

House Speaker Kevin McCarthy has said Republicans would not let the country default on its debt, but they want federal spending cuts in exchange for their votes. 

“We will not pass a clean debt ceiling,” McCarthy said. 

Biden has said the debt limit needs to be raised without conditions. Threatening default would be “catastrophic” he said Tuesday at a National Association of Counties conference in Washington, D.C.

“Even coming close to default would raise borrowing costs, making it harder to finance key projects in your communities,” the president said. 

A deeper look:How Medicare and Social Security benefits factor into the Kevin McCarthy debt ceiling fight

Candy Woodall is a Congress reporter for USA TODAY. She can be reached at cwoodall@usatoday.com or on Twitter at @candynotcandace.