According to recent projections by
analysts, the US federal government
could default on its debt earlier than
anticipated, possibly in the first half of
June, due to weaker than expected
capital gains revenue collected by the
Internal Revenue Service. Debt ceiling
observers have been closely monitoring
tax season to understand how the
ongoing debt ceiling crisis could unfold
in the coming weeks and months.
Without a deal in Congress, the
government could be unable to pay its
bills, which could have cascading effects,
leading to market turbulence and even a
recession. The experts are expecting
more clarity by early May, and the odds
are increasing that Congress will need to
reach a deal within weeks.
The Wrightson ICAP estimates that the
Treasury's remaining fiscal resources
would run below $100 billion from June
6 to June 13, leading to a June default if
the tax revenue collected during this
time is weaker than expected. The
Treasury Department's ability to stay
afloat through June would depend on
the remainder of the April tax receipts,
especially in capital gains.
Experts have been focused on June as
the first significant debt ceiling deadline.
Earlier this year, Treasury Secretary
Janet Yellen projected that "it is unlikely
that cash and extraordinary measures
will be exhausted before early June."
Talks in Congress have stalled, with
Republicans blaming the White House
for the stalemate, while Biden officials
have called for a simple increase in the
debt ceiling, which Republicans are
unable to agree on.
This highlights the need for a deal in
Congress to avoid a possible default,
which could lead to significant economic
consequences. It emphasizes the need
for close monitoring of tax season and
the importance of capital gains revenue
to the government's ability to pay its
bills. It also mentions the impact of a
default on the financial markets and the
broader economy, which could be
severe.
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