What could happen as US debt default approaches

After the U.S. technically reached the $31.4 trillion debt limit in late January, the Treasury Department started taking “extraordinary measures” to keep the country from defaulting. That wonky process, which involves accounting maneuvers that reduce certain types of government debt, gave the nation a borrowing cushion of about $800 billion at the beginning of February.

But the government has many bills to pay, including sending out money to support Medicare providers, veterans benefits, Social Security checks and assistance to state and local governments.

Federal taxes come due in April, sending billions into government coffers and ensuring the country is safe from default through most of the spring. The day when the country can no longer meet its financial obligations, known as the X-date, is heavily dependent on whether those tax receipts meet, exceed or fall short of expectations.

Predicting how much cash the government will bring in during tax season is always difficult. Last year, for example, estimates from Congress’ nonpartisan budget office lowballed by about $500 billion what turned out to be record-setting revenue. This year, a difference of a few hundred billion dollars could buy — or cost — the country several months of leeway.

By late spring, the pendulum typically shifts to the spending column. If tax revenue comes in low, the nation could come extremely close to defaulting. If tax season is particularly fruitful, the extra money could keep the U.S. from defaulting until late summer or early fall — and likely keep markets rosy in the meantime.

On June 15, quarterly tax payments are due, an influx that could help buoy the nation’s cash through July. While that revenue bump is smaller than the regular tax season, quarterly payments usually bring in tens of billions of dollars as corporations, self-employed people and some other taxpayers hand over their estimated dues.

On June 30, the Treasury Department is allowed to extract about $140 billion in borrowing power from a key federal retirement fund. The accounting maneuver doesn’t affect any workers’ savings or prevent any retirees from getting their cash.

The federal government tends to run a deficit in late summer. And, by all estimates, the U.S. is most likely to reach the brink of default in August or September.

That’s an unfortunate timeframe for Congress’ 535 lawmakers, who want to escape Capitol Hill for their scheduled August recess but also historically seem incapable of reaching a bipartisan deal well in advance of a hard deadline.

More quarterly tax payments roll in on Sept. 15. If the U.S. hasn’t run out of borrowing power by then — and if Congress still hasn’t raised the debt limit or passed a short-term patch — that mid-September revenue bump will add billions of dollars to whatever borrowing authority the country has left.

With no substantial revenue coming in during October, available cash will wane quickly at this point, if it even lasts that long.

The timeline is uncertain, highly subject to the whims of federal cash flow. Despite those dangers, congressional leaders and the White House are virtually nowhere in their discussions to lift the borrowing cap.