Just how much longer the federal government can keep paying its bills on time and in full depends greatly on this year’s tax collections.
With tax season coming to a close for many filers on Tuesday, the Treasury Department will soon know the amount of tax revenue it has received for 2022 and for the first estimated payment of this year.
That cash is crucial now because the US hit its debt ceiling in January and can’t continue to borrow to meet its obligations unless Congress raises it. Meanwhile, Treasury is avoiding default, which would happen this summer or early fall, by using a combination of cash on hand and “extraordinary measures,” which should last at least until early June, Treasury Secretary Janet Yellen said in January.
This year’s tax haul will also give House Republicans and the White House a better sense of how much more time they have to negotiate a solution to the debt ceiling drama. Talks are at a standstill, but a shortfall could prompt an acceleration in discussions.
It’s hard to forecast tax collections, but most experts say it’s unlikely they’ll come in higher than expected like they did last filing season, buoyed by a strong stock market and faster economic growth in 2021.
“There’s just considerable uncertainty around how much tax revenue the Treasury will get,” said Bernard Yaros, economist at Moody’s Analytics, noting the hefty haul from levies on capital gains in 2021. “That’s not going to be the case given how poorly financial markets did last year.”
The full tally won’t be known for a few more weeks, at which time the Treasury Department and other observers are expected to update their estimates of when the government could start to default on its obligations. The current forecasts vary, with most pegging the summer or early fall.
Congress will be watching very closely….
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