The Congressional Budget Office (CBO) said the US Treasury could exhaust its funds by July leading to a default on American debt unless Congress raises the current $31.4 trillion debt ceiling.

The head of CBO, Phillip Swagel, warned on Wednesday that if IRS tax revenues fall short of its estimates, then “the extraordinary measures could be exhausted sooner, and Treasury could run out of funds before July.” 

The IRS is scheduled to receive the report on tax revenues in April.

The budget office now projects that the annual federal budget deficit over the next 10 years will reach $18.8 trillion despite its earlier estimates released last May that the figure would be 20% lower at $15.7 trillion.

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In short, the output of the US economy will equal the public debt by 2024 and is expected to rise [public debt] to 118% of the economy by 2033.

US Treasury Secretary Janet L. Yellen announced last January - upon reaching the debt limit - that "extraordinary measures" will be taken to prevent defaulting on debt and that the Treasury would temporarily suspend payments that aren't urgent and divert the money for more pressing needs i.e. services needed to keep the government operating.

Unless US President Joe Biden authorizes a new debt ceiling, which should be approved by Congress beforehand before the measures are exhausted, “the government would have to delay making payments for some activities, default on its debt obligations, or both,” added Swagel, noting that the agency will project a new estimate next May that includes the tax revenue of 2022.

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Back in 2011, a protracted congressional struggle on raising the debt ceiling triggered a financial crisis that resulted in the US losing its top triple-A credit status from a major credit rating agency: Standard & Poors.

In February 2022, US national debt hit a record high of over $30 trillion. Debt had increased by around $7 trillion over the span of the pandemic. As a result of the trillions spent containing the virus, financial experts assessed that the new maximum would be reached many years sooner than what the country's government had projected.

According to the CBO, the 20% jump in the federal deficit project for the next decade is linked to several factors, including the cost of legislation passed by Congress last year, increasing costs of Medicare, Social Security, and future interest payments on a rising national debt, in addition to retiree and veteran benefits.

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The tax revenue, according to the budget office, will not be able to keep up with rising costs, while some tax revenues are expected to decline, such as gas taxes, as an increased number of citizens are switching to electric vehicles.

The gap between what the government spends and what it earns in tax revenues is expected to reach $1.4 trillion, while over the next decade, the annual deficit will average $2 trillion as tax return.

Meanwhile, the agency projected that tax revenue will not keep pace with these rising costs, and certain tax revenues are expected to fall, like those from gas taxes as more Americans drive electric vehicles.

Despite repeated bipartisan reassurance to the American public that the US will not default and that an agreement will be reached before the deadline, it is yet unknown how the bill will pass through a Republican-dominated Capitol Hill and Democratic-controlled Senate.

The question of what the law will look like is also of concern as a large number of Capitol Hill Republicans believe that Congress should pass extreme cuts to federal spending before they vote in favor of raising the debt limit.

According to Republicans, the debt ceiling and annual federal spending are indistinguishably linked, the same way household debt is a product of household spending.

However, Democrats argue that most of the federal spending is used to fund necessary expenses, such as Social Security payments or interest on the national debt, and that government spending can't be slashed like the household budget.

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