As President Joe Biden tangles with Republican lawmakers over whether to raise the nation’s debt ceiling, a key question looms over the negotiations: When, exactly, will the U.S. government run out of money? No one knows the answer, but one factor is making it harder to pin down: climate change. A barrage of climate-fueled disasters has slowed down the pace of federal tax collection, pushing the government closer to an unprecedented default on its debt this summer.
There are countless factors that determine how much tax revenue the federal government receives on any given day, but one major factor this year is climate change. The past year saw more than a dozen billion-dollar disasters in as many states, and the Internal Revenue Service has offered tax relief to residents of these states, giving them an extra few months to file their taxes. The worst-affected states include Florida and California, which suffered respectively from Hurricane Ian and a series of “atmospheric river” storms this winter. Together the two states account for more than a quarter of federal revenues.
Because millions of taxpayers have been able to delay their filings due to disasters, the federal government is receiving less money than it otherwise would at this time of year. In ordinary circumstances, this wouldn’t be a problem, since the government borrows money to make up for an uneven balance between tax revenue and spending, usually by issuing bonds. But because the U.S. has reached its self-imposed debt ceiling — an arbitrary limit on how much of that borrowing the government can do — the fate of the global economy depends on how much cash the Treasury receives over the next few weeks.
This limit was established around a century ago, and Congress has raised it dozens of times, typically without controversy. But in recent years Republicans have seized on debt ceiling authorization as a high-stakes way to extract concessions that they don’t have the votes to pass through Congress.
Since assuming control of the House of Representatives this year, Republicans have refused to endorse the customary debt ceiling increase unless Biden agrees to cuts in federal spending that have already been appropriated by Congress. Though the exact conditions that will satisfy enough Republicans to vote for an increase are unclear, a variety of controversial options are on the table — including a repeal of the Inflation Reduction Act, the climate law intended to keep the U.S. in line with its Paris Agreement targets.
The U.S. reached the current debt limit in January. Since then, the Treasury Department has been paying daily bills using only the cash it has on hand. If lawmakers don’t raise the debt ceiling soon, the Treasury will run out of cash and have no choice but to default on its debt. This would have disastrous and unprecedented consequences: Veterans and Social Security recipients would miss payments, borrowing costs for credit cards and mortgages could jump, and global financial markets would enter a tailspin.
Biden and House Speaker Kevin McCarthy met this week to discuss a debt ceiling increase, but a big problem for both sides is that no one knows for sure when the Treasury will run out of cash. Treasury officials have said that a default could arrive as early as June 1, but the federal government is so large that it’s impossible to predict how much money it will receive from taxes any given day. The best that officials can do is give a ballpark estimate of when the so-called “x-date” of default will arrive. Federal disaster declarations have made that prediction even more difficult.
“The disaster declarations are playing a heightened role [in determining the x-date] because they are shifting normal revenue patterns of the government and spreading them across the year, as opposed truncating them into tax season,” said Rachel Snyderman, a senior associate director for economic policy at the Bipartisan Policy Center, a nonprofit think think that has been studying the debt ceiling timeline.
If lawmakers had started negotiating a debt limit increase earlier in the year, Snyderman said, this uncertainty wouldn’t be a big deal. But with the “x-date” now potentially just weeks away, the ups and downs of federal revenue collection have become extremely important.
A few extra days of revenue could mean the difference between a safe resolution and a chaotic default: If the government can make it to June 15 without running out of money, it will receive a large chunk of cash from quarterly tax filings, which should stabilize revenue for a few weeks. Then, at the end of June, the Treasury will be able to access another $143 billion in borrowing authority, which could help stave off default until the beginning of August.
But if May tax revenues remain lower than projected, the government will never reach that mid-June revenue influx at all. Without a debt limit increase, an “x-date” is inevitable, but the revenue delays could push that date earlier and earlier, heightening the risk of default.
“Shifting the breach date a few days one way or the other is important this close to the finish line,” said John Buhl, a spokesperson for the Tax Policy Center, a nonpartisan think tank.
Though they are hardly the biggest factor in the debt ceiling crisis, this is why the disaster delays matter: By failing to raise the debt limit, Congress has made the government vulnerable to every little bump in tax revenue — and climate change has created quite a few bumps.
