US will breach debt ceiling by fall without Congressional action

The United States will likely default on its $36 trillion debt sometime between mid-July and early October, according to the Bipartisan Policy Center.

That’s unless Congress raises the debt ceiling. If they don’t, the government runs out of money to pay bills, interest, and everything else. Default becomes unavoidable.

This is the first public X-date range since the Treasury started using so-called “extraordinary measures” after the debt ceiling reset on January 1. That forecast, trusted by lawmakers on both sides, just hit Capitol Hill and immediately became a major pressure point.

The GOP is now scrambling. They’re stuck between adding a debt ceiling hike to their party-line bill or sitting down for bipartisan talks with Democrats. Some Republicans say this forecast might finally get Mr. President Donald Trump to start caring about the issue.

Republicans struggle to decide how to deal with the debt ceiling

Republicans are building a massive legislative package. They want to pass trillions in tax breaks, plus hundreds of billions for military and border spending. But many fiscal conservatives inside their own party don’t want to touch the debt ceiling. They hate voting to increase the country’s borrowing power, even when default is on the table.

The Bipartisan Policy Center said if April tax receipts are weaker than expected, the US might run out of cash even earlier—in early June. That’s unlikely, they said, but it’s still possible. “The timing and strength of tax season are huge,” said Shai Akabas, director of economic policy at the center. “We’ll issue a tighter X-date range after the IRS gets most of the tax returns in April.”

They also said other variables could change the X-date. The strength of the economy, tariffs, and new legislation could push it earlier or later. The Department of Government Efficiency, run by Elon Musk, is also trying to cut spending and increase cash flow. That might help, or not, depending on how fast the numbers shift.

Then there’s the quarterly tax haul in mid-June, when corporations and self-employed workers drop tens of billions into federal coffers. The Treasury Department could also squeeze more borrowing power out of a federal retirement fund in late June. Another wave of cash is expected in mid-September, right before the default deadline window ends.

CBO warns of exploding debt if Trump tax cuts are extended

The Congressional Budget Office (CBO) plans to release its debt ceiling projection Wednesday. Meanwhile, Treasury Secretary Scott Bessent told Congress he’ll deliver his own estimate by mid-May. But the real panic is tied to another number: what happens if Trump’s tax cuts become permanent.

Trump’s Tax Cuts and Jobs Act, his top economic policy move from his first term, is set to expire at the end of this year. But he wants to keep it going. So do most top Senate Republicans. The CBO was asked to do the math on what that would mean for the national debt. The answer? Nothing good.

If the tax cuts stay and no other major changes are made, debt held by the public would shoot past 214% of GDP by 2054. If borrowing costs also increase by just 1 percentage point, the number hits 204% by 2047, then blows past 250% by 2054. Right now, debt held by the public is about $29 trillion. Total debt is $36 trillion.

That debt already costs the US more than $1 trillion a year just to service. That’s more than what the country spends on the Pentagon. It’s not going to get cheaper either. “Macroeconomic feedback effects would further increase interest rates and, therefore, lead to even worse fiscal outcomes,” warned the Peter G. Peterson Foundation.

Some Republicans still support making the cuts permanent. Others don’t. One unnamed GOP lawmaker requested the CBO estimate to settle the argument. But even under the CBO’s baseline, which assumes the cuts expire (a long shot), debt would still hit 166% of GDP by 2054, up from 99% today. That breaks records. The only other time debt got that high was right after World War II.

Analysts say US faces a debt crisis and might not recover

A White House official told Fortune that the Trump administration’s plan is to push supply-side reforms like energy expansion, deregulation, and more spending cuts. They say that’ll grow the tax base and bring inflation down, giving the Federal Reserve room to cut interest rates. That means lower borrowing costs. That’s their theory.

The official also said Trump wants to boost revenues through tariffs. They claim his China tariffs during the first term brought in hundreds of billions without causing inflation or hurting growth.

But none of that addresses the elephant in the room: what happens when the debt goes past 200% of GDP? According to the Penn Wharton Budget Model, that crosses the line into “unsustainable.” Their October 2023 report said US debt can’t go past 200%, even with perfect market conditions.

That’s the outer bound. A more realistic number is closer to 175%. Beyond that, it assumes investors still believe the US will eventually fix its books. Once that faith is gone, markets can break at even lower ratios.

Japan isn’t a good comparison either. They’ve got bigger debt, but also a high domestic savings rate, so they can absorb it. The US can’t. “This 200 percent value is computed as an outer bound using various favorable assumptions,” the report warned. “Even then, it assumes that financial markets believe that the government will eventually implement an efficient closure rule.”

Meanwhile, Ray Dalio, billionaire and founder of Bridgewater Associates, said the US is close to hitting the wall. “There may be restructurings of debt, there may be exerting pressures on countries to buy the debt,” Dalio said earlier this month at CONVERGE LIVE in Singapore. “There may be cutting the payments to some predator countries off for political reasons, there may be monetizations of debt.”

Dalio warned the US will soon be in a spot where it needs to sell more debt than global buyers are willing to purchase. That’s when, in his words, “shocking developments” hit. He said political and financial pressure could be used to push foreign countries into buying US debt they don’t want. And if they don’t? Well, the rest writes itself.

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