GOP Senators Say ‘Nobody Believes’ Yellen’s June 1 Debt Ceiling Deadline

Topline

Senate Republicans are casting doubt on Treasury Secretary Janet Yellen’s June 1 deadline for raising the debt ceiling—a sentiment that bolsters their bid to buy time to negotiate spending cut demands, and one that aligns with views among financial experts.

Secretary Janet Yellen leaves after an open session of a Financial Stability Oversight Council … [+] meeting at the Department of the Treasury on April 21, 2023 in Washington, DC. (Photo by Alex Wong/Getty Images)

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Key Facts

Yellen told Congress on Monday that the U.S. may be unable to pay its bills as soon as June 1, moving up the previous July-September deadline identified by the Congressional Budget Office in January, while citing lower-than-expected April tax collections.

She couched the statement by adding the deadline to raise the debt ceiling or risk a default “could be a number of weeks later than these estimates.”

Republican senators are banking on a later date, Axios reported, noting an extended timeline would give the party more leeway to negotiate spending cut demands with Democrats in exchange for agreeing to raise the federal government’s borrowing limit.

“Nobody believes” Yellen, Sen. John Kennedy (R-La.) told the outlet, adding that he thinks a late July or early August deadline is more realistic, while GOP Sens. Mitt Romney (Utah) and John Thune (S.D.) also said they believe a June 1 deadline is overly cautious, though Romney said he is against waiting until the last minute to raise the debt ceiling.

The sentiment aligns with some financial analysts’ estimates: Goldman Sachs wrote Monday that it believes the “Treasury is more likely than not to be able to pay all of its bills until late July without an increase in the debt limit,” but noted the deadline could move to early June if tax collections fall below expectations in the coming weeks.

The Treasury’s so-called X-date is not the date it actually runs out of cash, but instead “is the date at which the cash balance is projected to drop below some acceptable minimum,” Goldman wrote, noting that in 2015, the deadline assumed a $30 billion minimum balance, and in 2021, the cash balance dipped to $46 billion a few days before Yellen’s deadline.

What To Watch For

Even if the Treasury comes close to exhausting its resources during the first week of June, additional tax collections arriving ahead of the June 15 quarterly tax deadline would give it some wiggle room to continue paying its bills. On June 30, the Treasury could trigger a new round of “extraordinary measures” that would give it an additional $145 billion in headroom, Goldman reported, noting “there are likely only to be a few days in June where the Treasury appears to run a high risk of running short of funds.”

Crucial Quote

“Making too conservative a projection has downsides,” Goldman wrote. “Ahead of every debt limit deadline, there are some lawmakers skeptical of the deadline that the Treasury projects, presumably because they believe the estimates are overly cautious.” The firm added that this skepticism could prompt lawmakers to put off raising the debt limit past July, when there would be “far more severe negative consequences,” since the next round of tax collections wouldn’t come until September 15.

Key Background

Democrats and Republicans are deadlocked in negotiations over raising the federal government’s $31.4 trillion borrowing limit. Failing to do so could prevent it from paying its bills, including military salaries and Social Security payments, lead to a downgrade in the U.S. credit score and trigger an economic collapse. Congress is responsible for setting the debt limit and has raised it 78 times since 1960. This year’s negotiations are particularly fraught given the political dynamics under a split Congress and a slim GOP majority in the House, where Speaker Kevin McCarthy (R-Calif.) risks an ouster if he fails to meet right-wing lawmakers’ demands for policy changes and spending cuts in exchange for raising the debt ceiling. The lower chamber passed a bill last week that seeks to raise the borrowing threshold by $1.5 trillion through March of next year, while also implementing a host of Republican-backed spending cuts and policy priorities, including capping fiscal year 2024 spending at 2022 levels with a 1% increase in subsequent years, new welfare work requirements, a block on President Joe Biden’s student loan program and recouping unspent Covid-19 runding. The bill is currently before the Democrat-controlled Senate, where leaders are in lock-step with the White House’s position that it will refuse any debt ceiling bill tied to other conditions. Senators took their first official step toward addressing the debt ceiling bill in a hearing Thursday, where both parties reiterated their stances before breaking for recess for the weekend just before 4 p.m.

Tangent

At least one area of bipartisanship has emerged in the debt ceiling negotiations: Senators on both sides of the aisle have expressed a need to reform the process, Axios reported. Sen. Tim Kaine (D-Va.) told Axios he and Jeff Merkley (D-Ore.) are considering bringing to the floor legislation they introduced in 2021 that would give the White House authority to set the debt limit on an annual basis, but allow Congress to reject it via resolution. Republicans, including Kennedy and Thune, broadly expressed support for re-examining the process to Axios, but it’s unclear if the Kaine/Merkley bill has the support to pass the upper chamber. It never made it out of committee in the previous session of Congress.

GOP Senators Say ‘Nobody Believes’ Yellen’s June 1 Debt Ceiling Deadline—Here’s Why They Might Be Right