Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics. Among other things, it discusses the politics of economic policy.
Regarding the debt ceiling, the limit on debt of $31.4 trillion was reached on January 19th of this year. The Treasury then began to take well-established “extraordinary measures” to borrow additional funds. We project that, if the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023.
The projected exhaustion date is uncertain because the timing and amount of revenue collections and outlays over the intervening months could differ from our projections. In particular, income tax receipts in April could be more or less than we estimate. If those receipts fell short of estimated amounts—for example, if capital gains realizations in 2022 were smaller or if U.S. income growth slowed by more in early calendar year 2023 than we project—the extraordinary measures could be exhausted sooner, and the Treasury could run out of funds before July.
If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government would be unable to pay its obligations fully. As a result, the government would have to delay making payments for some activities, default on its debt obligations, or both.
Conclusion
I will close with three key takeaways from our analysis.
- For 2023, we project stagnant output, rising unemployment, gradually slowing inflation, and interest rates that remain at or above their levels at the beginning of the year—before the economy subsequently rebounds.
- Noninterest spending substantially exceeds revenues in our projections even though pandemic-related spending lessens. In addition, rising interest rates drive up the cost of borrowing. The resulting deficits steadily increase the government’s debt.
- Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt.
