US government could miss payments as soon as Dec. 21: Think tank

The think tank’s projection, based on updated official data on tax receipts and government spending, underscores the mounting pressure on President Joe Biden’s Democratic Party to find a way to raise the $28.9 trillion debt limit and avoid the economic calamity that could come with missed payments.

Congress passed legislation on Thursday to fund the government through mid-February, averting the risk of a partial government shutdown this week. But lawmakers have yet to address the fact that they have authorized more borrowing and spending than their debt limit allows.

“Congress would be flirting with financial disaster if it leaves for the holiday recess without addressing the debt limit,” said Shai Akabas, the Washington-based Bipartisan Policy Center’s director of economic policy.

If upcoming tax receipts are favorable, the center projected, the debt ceiling could become binding as late as Jan. 28.

On Tuesday, the nonpartisan Congressional Budget Office said the Treasury Department could start missing payments by the end of the month, while Treasury Secretary Janet Yellen said Washington can likely keep paying all its bills through at least Dec. 15.

Once the Treasury Department hits its borrowing limit, it will only have incoming tax receipts to pay its bills. And because it borrows nearly 40 cents for every dollar it spends, the Treasury would start missing payments owed to lenders, citizens or both.

Shock waves would ripple through global financial markets. Domestic spending cuts would push the U.S. economy into recession as the government misses payments on everything from Social Security benefits for the elderly to soldiers’ salaries.

Biden’s Democrats hold razor-thin majorities in both houses of Congress, but Republicans have vowed not to cooperate on the debt ceiling, which could stymie attempts to lift borrowing limits under normal legislative rules.

With time running out, Democrats could raise the limit without Republican votes under a more time-consuming legislative process known as “reconciliation.”