Tax season is over; revenues are down. And as the House moves to hold its first vote on legislation to address the debt limit, some new estimates put the day the federal government will run out of money to pay its bills sooner than economists initially expected.
While projections of the so-called “X date” have put it sometime over the summer, Treasury Secretary Janet Yellen said in January the U.S. would be able to avoid default through at least early June. At that time, the Bipartisan Policy Center estimated the date would likely arrive this summer or early fall.
Economists at Bank of America expect Yellen to update her guidance on the X date by early May and anticipate she will stick with the early June estimate. But with tax revenues down, economists at multiple banks have started moving up their own estimated timelines for the threat of a default.
“The April tax data thus far has come in on the lower end of our expectations,” they wrote. “However, we reserve full tax date judgement until IRS check processing slows to a trickle.”
Bank of America has moved up its X date projection to Aug. 1 but acknowledged it could slip into late July.
Goldman Sachs economists have also noted the potentially shifting timeline, pointing out that tax receipts are running 35%, or $138 billion, below last year.
“At this rate, an early June deadline looks nearly as likely as the late July deadline we project,” they wrote.
Their economic research team continues to put the debt limit deadline in late July, but they noted if tax receipts continue to undershoot in the coming days, the odds tilt “slightly in favor” of an early June deadline. The Treasury is expected to receive another round of tax payments around the mid-June estimated tax deadline, which the bank economists believe would provide sufficient funds through the end of June.
The latest Wells Fargo report keeps the projection for the X date as early to mid-August, calling the timeline “still the most probable outcome.” But their team notes a small risk that the Treasury could hit the X date in the first half of June.
In their recent analysis, Moody’s Analytics also acknowledged the X date may come sooner than its mid-August estimate earlier this year.
As House Republican lawmakersto address the looming deadline with while slashing roughly $4.5 trillion in government spending, it appears dead on arrival in the Senate even if it passes. As of Wednesday, it was not clear Republicans had the votes in the House.
As the clock ticks down, Yellen has urged Congress to not wait until the last minute to raise or suspend the debt limit and avoid default. In a speech Tuesday, Yellen reiterated her warning that defaulting on the debt would.
“Household payments on mortgages, auto loans and credit cards would rise. And American businesses would see credit markets deteriorate. 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. “In the longer term, a default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly.”
Yellen has previously dismissed the ability of the Treasury Department to prioritize some government payments over others should the U.S. reach the debt limit. She called it a default by another name.
Yellen and other financial experts have warned even coming close to the X-date could have economic consequences costing billions. During the debt ceiling fight in 2011, Standard & Poor’s announced the first U.S. credit-rating downgrade even as lawmakers and the Obama administration were able to reach a last-minute deal. The Government Accountability Office estimated the delay in raising the debt limit led to a $1.3 billion increase in the cost of Treasury borrowing that year alone.