The debt ceiling could hit the U.S. by February 15 — half a month earlier than previously expected, according to a new study by the Bipartisan Policy Center.
The analysis suggests that the federal government may unable to pay all of its bills sometime between February 15 and March 1.
Congressional Republicans have announced their intention to refuse to raise the debt limit — an aggregate limit applied to nearly all federal debt that has in years past been treated as a formality — without concessions on spending cuts by the Obama administration. The Department of the Treasury has previously stated that special accounting schemes known as “extraordinary measures” could keep the federal government solvent until the beginning of March. Officials at that agency have been unable to pinpoint a precise date at which the money would stop flowing. BPC’s numbers suggest the cutoff date may be up to two weeks earlier than expected by many members of Congress and the government.
Our numbers show that we have less time to solve this problem than many realize, "said BPC senior economic policy director Steve Bell. "It will be difficult for Treasury to get beyond the March 1 date in our judgment." The study takes into account two factors not previously considered: confusion surrounding end-of-year tax policy that could lead to delays in filing revenues, as well as the overall pace of economic growth.
If Congress fails to act, the study suggests that the Treasury has two options: pay some bills, but not others, or pay each day as the funds become available. The first would force the department to prioritize which of over 100 million accounts get paid, which is both questionably legal and possibly infeasible due to the structure of the Treasury’s computer systems. The second would possibly lead to day-by-day shutdowns in federal programs, including the withholding of IRS tax refunds.
“Handling all payments for important and popular programs (e.g., Social Security, Medicare, Defense, military active duty pay) will quickly become impossible,” the BPC said. Shooting past the debt ceiling would result in an immediate 39% contraction in federal spending and cause “widespread uncertainty” as disbursements go unpaid. Many citizens could find themselves not receiving previously assured government checks.
Of course, if the government defaults entirely, the consequences would be far worse. Federal Reserve chairman Ben Bernanke said that going past the cutoff date “would no doubt have a very adverse effect very quickly on the recovery. I’m quite certain of that.”
Contraction would have other unforeseeable effects as well. The BPC estimates the ten-year cost to taxpayers of 2011’s debt ceiling fight at around $18.9 billion, thanks to elevated interest rates and a credit downgrade.