WASHINGTON — Absent an early deal to raise the nation’s debt ceiling, the federal government could run out of ways to pay creditors and Social Security recipients by mid-February, earlier than expected, according to a new analysis released Monday.
Among the unpleasant choices to help stave off a default on U.S. government bonds could be temporarily halting tax refunds, or choosing to pay the Chinese government and other bondholders rather than send Social Security checks to elderly recipients, according to the authors of the report.
“Think about what we’re talking about here,” said Steve Bell, director of economic policy for the Bipartisan Policy Center, outlining the very real possibility that the United States, whose dollar is the world’s reserve currency, could follow in the footsteps of basket-case governments such as Argentina or Greece and fail to pay its creditors.
The New Year’s deal between Congress and the Obama administration to avoid the so-called fiscal cliff did not include anything on raising the nation’s debt ceiling of $16.4 trillion, which the Treasury Department said was hit on Dec. 31, 2012. Without a new debt ceiling, the government lacks the ability to borrow in order to pay the debt it already has incurred and owes. It could be forced to determine an order on who gets paid first, China or the elderly, in the event no deal is reached.
To buy more time, the Treasury is tapping into about $200 billion in emergency borrowing authority, described as “extraordinary measures” that allow the agency to raise additional cash to pay creditors. Lawmakers have been talking as if the debt-ceiling fight would be resolved in March along with a deadline to prevent about $109 billion in automatic government spending cuts from taking place.
But the government is likely to run out of ways to juggle accounts before that, mostly likely between Feb. 15 and March 1, according to the center.
And on March 1 alone, there are $83 billion in payments due, about $45 billion owed to Social Security recipients and doctors who are owed Medicare payments for services rendered.
One of the big question marks is whether the Internal Revenue Service could or would be used to bridge funding shortfalls by delaying tax refunds due to millions of Americans.
The Obama administration could delay those refunds if necessary, the center said. By law, the IRS does not have to pay interest on any refund owed taxpayers until 45 days after the tax filing deadline, which this year is April 15.
The administration could, hypothetically, delay tax refunds until the end of May.