U.S. Has Until at Least September to Lift Debt Cap, Analysts Say

  • Treasury says spending growth in May outpaced revenue gains
  • Mnuchin sees backup plans for debt decision after August

Mnuchin Says Markets Want U.S. to Raise Debt Ceiling

The U.S. probably has enough borrowing capacity until at least September even as slower revenue and rising spending widens the budget deficit, according to analysts.

The U.S. budget gap increased to $88.4 billion in May from $53 billion a year earlier, according to Treasury Department figures released Monday. Revenue rose 7 percent while spending climbed 19 percent, the data showed.

“We estimate the Treasury will hit the debt ceiling sometime in early September,” Wells Fargo economists Michael A. Brown and Michael Pugliese said in an emailed note on Monday. “We expect that Congress will act on the debt ceiling before the August recess to alleviate the need to rapidly address the issue upon their return.”

While the government hit its borrowing limit in March, it’s been relying on special accounting maneuvers to stay under the current debt ceiling of nearly $20 trillion.

Only Congress can increase the legal limit on how much the government can borrow. The debate on raising it has grown fraught in recent years as lawmakers used the debate as a leverage for spending controls. Treasury Secretary Steven Mnuchin has called for a ”clean” vote on the legislation that has no strings attached. Congress may look to pair the debt-increase bill with conditions.

‘Backup Plans’

Mnuchin has urged lawmakers to raise the debt ceiling before they break for recess in August, but last week the secretary said he has “backup plans” if it takes longer.

Tax revenue this fiscal year has grown by 3 percent less than the Congressional Budget Office had projected. Mnuchin has said anticipated tax cuts the Trump administration has promised this year may help explain the revenue slowdown, but that he’s not concerned.

The wealthy may have deferred recognizing as much as 20 percent of their taxable income last year, according to independent estimates, a move that is legal and allows them to delay paying taxes on non-wage earnings including capital gains.

President Donald Trump’s administration has vowed to slash taxes for individuals and businesses this year.

The Bipartisan Policy Center projected on Monday that the U.S. will need to increase the debt ceiling by October or November to avoid a payment default, in an updated forecast reflecting the May cash flow data from Treasury.

Treasury’s cash balance may fall as low as $40 billion in the first two weeks of September, below the precautionary minimum of $150 billion, according to Lou Crandall, chief economist at Wrightson ICAP LLC. Crandall sees the the “drop-dead date” to raise the ceiling in the month of October, as opposed to earlier forecasts of sometime in October or November.

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