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Here’s why it’s so hard to figure out the debt ceiling ‘X date’

Treasury Secretary Janet Yellen
Greg Nash
Treasury Secretary Janet Yellen answers questions during a Senate Subcommittee on Financial Services and General Government hearing to discuss the President’s FY 2024 budget for the Department on Wednesday, March 22, 2023.

Many people are asking why it is so hard to figure out the actual date the federal government will not be able to pay all its bills if a debt ceiling deal is not reached. There are several reasons.

First and foremost, the Treasury Department is not being transparent with Congress and the American people regarding its estimation process and the related numbers. The lack of transparency and the fact that Treasury Secretary Janet Yellen has said that the limit could be reached “as soon as June 1” has led to speculation on the actual date. Clearly, the Treasury Department needs to be more forthright regarding its methods and estimates to help avoid undue speculation and calm the markets.

Second, several estimates must be made to project the date, and some of them are difficult to determine. For example, the Treasury must start with the general fund cash balance and estimate the revenues it expects to receive each day. This is challenging, especially for the first half of June. Importantly, quarterly estimated tax payments are due no later than June 15. This will result in a large cash flow intake that will provide more time. If individuals and corporations make their estimated tax payments before June 1, that will help. I have already made my required payments to lead by example.

Third, Treasury has to estimate the payments (and the specific amounts) that are due to be paid each day. This is challenging, and some things are easier to estimate. For example, Treasury should have a good handle on estimated payroll costs and interest payments on Treasury securities. This leaves a range of other obligations that are scheduled for payment. Some can be delayed but may result in penalties under the Prompt Payment Act.

Finally, there has been a considerable amount of misinformation and disinformation in connection with the debt ceiling. The 14th Amendment requires timely payment of Treasury securities and related interest payments, but it fails to guarantee any other payments. In addition, the Social Security and Medicare Trust Funds hold several trillion dollars in Treasury securities that are guaranteed by the 14th Amendment and are included in the debt ceiling calculation. The Treasury Department can make timely payments relating to these programs until the related Trust Funds securities are exhausted (e.g., 2034 for the combined Social Security program and 2028 for Medicare Part A).

Hopefully, President Biden and Speaker McCarthy will reach an agreement soon. We must not default on our federal obligations. They should look to the House Problem Solvers Caucus bipartisan debt ceiling proposal, which includes some key elements that are needed, including a statutory Fiscal Sustainability Commission to restore sanity and long-term fiscal sustainability.

In the final analysis, the debt ceiling and other statutory approaches have failed to constrain the growth of the federal government and federal debt burdens. Statutory approaches can be repealed and have generally not stood the test of time. Therefore, when we resolve this debt ceiling debate, we should take steps to repeal and replace the debt ceiling with a constitutional amendment that will constrain debt/GDP levels to reasonable and sustainable levels.

Other countries, such as Switzerland and Germany, adopted this approach, and we should too. HCR 24, which has been introduced by House Budget Committee Chairman Jodey Arrington (R-Tex.), is designed to help this become a reality. It deserves strong bipartisan support. 

David Walker served as U.S. comptroller general from 1998 to 2008 and is a founding board member of the Federal Fiscal Sustainability Foundation.

Tags 14th Amendment Congress debt ceiling Janet Yellen Janet Yellen Treasury Department

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