US Treasury Secretary Janet Yellen warns of potential default as federal tax collection falls short

US Treasury Secretary Janet Yellen announced Monday that the federal state has collected less tax than expected.

By Le Figaro with AFP

Published on 01/05/2023 at 22:51update on 02/05/2023 at 00:48

The United States got a little closer to a potential default on their public debt after having collected less taxes than expected, thus advancing towards the moment when the country will no longer be able to meet all its obligations, warned Monday, May 1, US Treasury Secretary Janet Yellen. In a letter addressed to the Republican Speaker of the House of Representatives, Kevin McCarthy, and made public by the Treasury, the American Minister of Finance indeed estimated that the debt wall could be reached “from June 1st”. “Our best estimate is that we will no longer be able to meet all of the government’s obligations by the start of June, and potentially as early as June 1”she wrote to the Republican leader.

This does not mean a default as of next month, but the United States, which until now had been able to avoid closing services by playing on the various accounting lines, would find itself this time in a much more precarious economic situation. In concrete terms, the Treasury would be forced to choose between its various constrained expenditures, which could force it to severely limit some, in particular those relating to health or retirement benefits, in order to be able to continue to fulfill its obligations relating to its future maturities related to its debt.

“Impossible to predict”

“It is impossible to predict with certainty the exact date when the Treasury will no longer be able to pay government bills and I will continue to update Congress in the coming weeks as information becomes available”, added Janet Yellen. In a statement, the Congressional Budget Service (CBO) confirmed the Treasury estimates, ruling that “To the extent that the income declaration campaign has been weaker than initially anticipated, we now believe that there is a significantly higher risk that the Treasury will no longer have the necessary funds by early June”.

The American Congress must regularly vote in order to raise the federal debt ceiling, a procedure carried out 78 times since the beginning of the 1960s, most often without any particular debate. But this year, the Republicans, who have had a slight majority in the House since the beginning of 2022, refuse to grant what they consider to be a blank check in favor of the administration of President Biden and want instead that an increase in this ceiling is coupled with a drastic cut in federal spending. However, the federal government reached its ceiling of 31,000 billion dollars in mid-January, forcing the Treasury to take a first series of measures, above all accounting, in order to remain at the level reached.

A default “would cause an economic and financial catastrophe”

On the side of the White House, Joe Biden has repeated several times that the raising of the ceiling must be carried out unconditionally, believing that the debt was the result of the policies carried out in the past by all the administrations, from both parties. In a press release, the presidency announced that Joe Biden called Kevin McCarthy on Monday to invite him to a meeting on Tuesday, May 9, in the presence of the main Democratic and Republican officials in Congress. Last Wednesday, the House of Representatives voted on a text proposed by McCarthy providing for a $4.5 trillion cut in federal spending over the next ten years in exchange for a $1.5 trillion cap increase, or a March 31 review clause. 2024, which would therefore make the debt one of the main themes of the presidential campaign for the November elections of the same year.

After the publication of Janet Yellen’s letter, the Republicans’ Twitter account in the House also recalled that “the law “Limit, save, grow” will limit Washington’s reckless spending. The text is unlikely to be voted on by the Senate, controlled by the Democrats by a slight majority. “It’s time to put partisan interests aside and do what’s right and necessary for the American people and avoid the first government default that would crash markets, raise costs for families and challenge their lives. savings for retirement», said Monday in a joint statement the Democratic leaders in Congress Chuck Schumer (Senate) and Hakeem Jeffries (House). The two parties must, however, reach an agreement quickly: the current parliamentary session provides for only 12 days of debate on Capitol Hill by June 1.

Failure “would cause an economic and financial catastrophe”Mrs. Yellen had alerted on April 25.