The White House and Congress received some rare good budget news on Wednesday: The likelihood of the government facing a catastrophic default in June has dwindled thanks to US taxpayers.
New data on the 2023 tax season showed that revenue was still well behind last year’s pace, but not as sharply as before, likely ensuring the Treasury Department’s “drop dead” date — if it weren’t on government debt anymore repay or can pay all of the government bills on time — will arrive at the end of July.
The Treasury Department has been juggling various ways to get below the $31.38 trillion debt ceiling since January, but the scope for those accounting maneuvers has shrunk. Earnings ahead of schedule for the 2023 income tax season raised the prospect that a bottom in cash balances in the second week of June could be more dangerous than previously thought.
“I now have a pretty high level of confidence that they will get through June 15th. There is of course still uncertainty. A wild card is the impact of government trust funds on debt, which is subject to constraint,” Nancy Vanden Houten, the lead US economist at consultancy Oxford Economics, told HuffPost.
“I think it’s gotten less squeaky.”
Another researcher, Lou Crandall, chief economist at analytics firm Wrightson ICAP, also said the new data points away from June, but he’s not ready to count them out yet.
“Today’s numbers may reduce the risk of an ‘X-date’ in June, but it’s too early to take it off the table for good,” he said. Crandall had worried he would have to increase his probability of a default date in June after Monday’s data of 20%, but “today’s numbers mean I don’t.”
“I think it’s gotten less squeaky.”
– Nancy Vanden Houten, Lead US Economist at Oxford Economics
The analysts were reportedly at Goldman Sachs, who had raised a red flag in June last week Downgrading the June opportunity as well as.
The Treasury reported that it received $45.1 billion on Tuesday in so-called “unwithheld” taxes, basically income tax payments from people who waited until this year’s April 18 tax deadline to pay. This is above that $39.2 billion on comparison date in 2022.
Why does the Tuesday after tax day mean so much? The Internal Revenue Service processes the check payments it receives in paper form at multiple centers across the country, processing them seven days a week during tax season.
“On Tuesday, checks processed over the weekend are good money for the government,” Crandall said.
For the full month, however, tax receipts are still down from 2022 levels at $129 billion compared to $170 billion a year earlier.
“On Tuesday, checks processed over the weekend are good money for the government.”
– Lou Crandall, Chief Economist, Wrightson ICAP
There have not yet been any substantive talks on raising the debt limit between the White House and House Republicans, though the House GOP said Wednesday muscled by a bill of massive spending cuts and a debt ceiling increase by next year. The White House and Democrats have said the bill is going nowhere.
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 could soon brief Congress on his own projections as his debt managers meet next week with an advisory panel of Wall Street firms that regularly buy his debt. However, Vanden Houten and Crandall agreed that the most likely date for Treasury borrowing to hit a wall is late July.
“I see no way to avoid a crisis if there is no increase or suspension of the debt limit by early August,” said Vanden Houten.