When Could the U.S. Default Without a Debt Ceiling Deal?
Day-to-day cash flows In June show how Treasury may have to choose which bills to pay
In a matter of weeks, the U.S. could become unable to pay the nation’s bills. President Biden and House Speaker Kevin McCarthy (R., Calif.) plan to continue to meet this week after an impasse over raising the debt ceiling broke off talks Friday morning.
This fiscal year the federal government will spend about $1.5 trillion more than it collects in revenue. It covers that deficit by borrowing. If Congress doesn’t raise the debt ceiling, the federal government won’t be able to meet all of its spending obligations, such as interest on existing debt, Social Security benefits or military salaries. That would represent an unprecedented default with unknown and potentially serious economic consequences.
The chart below shows how that could happen. Using cash flow estimates from the Bipartisan Policy Center, it shows how the Treasury’s cash balance rises with revenue and falls with payments.
The chart above assumes the Treasury starts June with a cash balance of zero, though it might be higher. The X-date is reached when that cash balance is projected to fall below zero, forcing the Treasury to halt some payments.
Shai Akabas of the Bipartisan Policy Center warns that the Treasury could struggle to pay bills and stay below the debt ceiling even before that point, because as cash levels drop, “it becomes very difficult for them to juggle everything.”
Projected overall revenue and expenditures by Treasury, June 1 to 30
Revenue
Tax revenue
$495 billion
Dept. of
Transportation
15
Expenditures
Interest
on public
debt
Medicare
Medicaid
Dept. of
Education
Federal
salaries
$126 billion
52
21
18
14
Military
salaries
Other spending
114
12
Dept. of Defense
33
Dept. of
Agriculture
11
Social Security
Military
retirement
101
Dept. of Health &
Human Services
11
27
SNAP
10
Veterans' benefits
25
SSI
10
Federal
employees
insurance
IRS
individual
tax refunds
Dept. of
Veterans
Affairs
Source: Bipartisan Policy Center
8
7
7
Revenue
Expenditures
Tax revenue
Medicare
$495 billion
$126 billion
Social Security
101
Medicaid
52
Dept. of Defense
33
HHS
27
Veterans'
benefits
Dept. of
Education
Federal salaries
Dept. of
Transportation
Interest on
public debt
Military salaries
Dept. of Ag.
Military retirement
SNAP
SSI
Federal employees
insurance
Dept. of
Veterans Affairs
Other spending
114
IRS individual
tax refunds
Source: Bipartisan Policy Center
Revenue
Expenditures
Tax revenue
Medicare
$495 billion
$126 billion
Social
Security
101
Medicaid
52
Dept. of
Defense
33
HHS
27
Veterans'
benefits
Dept. of
Education
Federal
salaries
Dept. of
Transportation
Interest on
public debt
Military salaries
Dept. of Ag.
Military retirement
SNAP
SSI
Federal employees
insurance
Dept. of
Veterans Affairs
Other
spending
IRS individual
tax refunds
114
Source: Bipartisan Policy Center
Write to Greg Ip at greg.ip@wsj.com and Andrew Mollica at andrew.mollica@wsj.com
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