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'Living standards will go back in time': Hear how US debt default could impact your household
01:54 - Source: CNN
CNN  — 

House Speaker Kevin McCarthy and President Joe Biden likely have a little more time to work out a deal to avoid a catastrophic debt default, thanks to procrastinating taxpayers.

The Treasury Department got a surge of tax revenue earlier this week, which should provide it with the cash it needs to pay the federal government’s bills for a longer period of time. Until now, tax collections had been coming in much weaker than expected, leading analysts to predict that an early June default date was increasingly likely unless Congress acted.

Currently, it looks like Treasury will be able to cover the government’s obligations at least until the second half of July, according to reports released Thursday by Goldman Sachs and Oxford Economics.

When the US hit its debt ceiling in January, Treasury Secretary Janet Yellen informed Congress that cash on hand and “extraordinary measures” should last at least until early June. A variety of forecasters have estimated that the so-called X-date, when the US would default, would arrive over the summer or in the early fall.

Yellen is expected to update her projection in the near future as the department gets a clearer picture of how much it collected in tax revenue for 2022 and the first quarter of this year.

Stronger tax collections this week

Tax receipts were always expected to be below 2021’s robust levels, which were buoyed by a strong stock market that year. Until this week, however, April collections had been down around 35% compared with a year ago, which was greater than anticipated.

But they are now down about 29%, which is just a touch more than the level Goldman Sachs had assumed in its late July default scenario.

If collections stay on this trend, Treasury is expected to come within $60 billion of exhausting its resources in the second week of June but should be able to continue making all scheduled payments until the end of July, Goldman Sachs said in its analysis. Typically, about three-quarters of the payments due in April have been processed by now.

If tax collections are enough to keep Treasury’s coffers flush through early June, then it’s likely the government won’t default until much later in the summer. The agency will get another injection of funds from second quarter estimated tax payments, which are due June 15, and from an extraordinary measure that becomes available at the end of that month.

Oxford Economics said there is “a high risk” that the default date arrives in the second half of July if the borrowing cap isn’t addressed.

“We see no way Treasury can meet all its obligations in early August without action on the debt ceiling,” Nancy Vanden Houten, lead economist at the advisory firm, wrote in the analysis.

Little progress expected next week

Although House Republicans on Wednesday passed their bill to raise the debt ceiling by $1.5 trillion, the effort has yet to move the needle on talks with the White House. The package – which also includes a wish list of GOP priorities such as spending cuts and work requirements for safety net programs – is dead on arrival in the Senate, and the Biden administration is holding firm that it will not negotiate on addressing the borrowing cap.

“They haven’t figured out the debt limit yet,” Biden told reporters in the Rose Garden, referring to House Republicans. “I’m happy to meet with McCarthy, but not on whether or not the debt limit gets extended. That’s not negotiable.”

McCarthy told CNN on Friday that he has not heard from the White House since the House passed its package. He rejected the idea that he would cut a deal with the Biden administration and water down the legislation.

“Why are we compromising when we just sent him a bill? You know how Congress works. The House passes a bill, the Senate passes a bill and we go to conference,” he said.

The House is in recess next week, and McCarthy will be visiting Israel, where he will address its parliament on his first trip abroad as speaker.

CNN’s Lauren Fox, Manu Raju and Morgan Rimmer contributed to this report.