Why this year’s tax season is critical to the debt ceiling debate

Apr 18, 2023, 6:30 AM | Updated: 8:43 am

a tax form, 1040, is often used to file taxes...

Tax day is April 18, 2023. (Photo credit: Getty Images.)

(Photo credit: Getty Images.)

(CNN) — 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.

Why it matters to lawmakers

Congress will be watching very closely.

“If cash flows are dramatically short of expectations and could result in the need to act in June, then things will start moving very quickly once we get into May,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, of negotiations. “Whereas if they feel like they have an additional month or two or more, then they’ll likely take up that time, as we’ve seen them do time and again in the past.”

House Speaker Kevin McCarthy on Monday previewed a plan to raise the debt ceiling into next year, which he hopes House Republicans can pass in coming weeks. It would also entail cutting domestic, non-defense federal spending to 2022 levels, imposing or tightening work requirements on safety net programs and rescinding certain unused Covid-19 relief funding, among other provisions.

The measure is not expected to pass the Democratic-controlled Senate, but if McCarthy can get it through the House, President Joe Biden would be open to meeting with the California Republican again, a senior White House official said.

Just how much time they have remains to be seen. If the tax revenues coming in this month are enough to sustain bill payments into June, then it’s unlikely the federal government will default until much later in the summer. Treasury will get another injection of funds from second quarter estimated tax payments, which are due June 15, and from extraordinary measures that become available at the end of the month.

“What we’re looking more for is, do we get enough revenue by Tax Day to allow the secretary to say with confidence that the federal government will not default on its debt before June 15?” said Rohit Kumar, co-leader, Washington National Tax Services at PwC, and former deputy chief of staff for Senate Republican Leader Mitch McConnell.

Related: IRS warns of tax scams as filing deadline rapidly approaches

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Politics + Government

Former U.S. President Donald Trump returns to the courtroom after a break on the first day of his t...


First day of Trump hush-money trial ends with no jurors picked

The first criminal trial of any former U.S. president began as Donald Trump vies to reclaim the White House.

21 hours ago

Former President Donald Trump leaves Trump Tower on his way to Manhattan criminal court....

Jennifer Peltz and Michael R. Sisak

Potential jurors called into courtroom for start of Trump’s historic hush-money trial

Former President Donald Trump has arrived at a New York court for the start of jury selection in his hush money case.

1 day ago

Republican presidential candidate, former President Donald Trump speaks during a campaign rally....

Josh Boak and Jonathan J. Cooper

Trump goes after the judge and prosecutors in his hush money case in last rally before trial begins

Former President Donald Trump spoke about his hush money case at his most recent rally before the trial begins on Monday.

2 days ago

President Joe Biden boarding Air Force One at Andrews Air Force Base, Md., Friday, April 12, 2024, ...


Biden will meet with his national security team as fears rise of an Iranian strike against Israel

Biden to meet with national security team and monitor the situation in the Middle East after Iran promises retaliation after a suspected Israeli strike that killed 12 people

3 days ago

gabby petito shown, her death inspired a law meant to prevent other domestic violence deaths...

Heather Peterson

“Gabby Petito Act” signed into law in Florida

The "Gabby Petito Act" is similar to a law adopted in Utah last year.

4 days ago

Lt. Gov. Deidre Henderson...

Daniel Woodruff

New Utah school safety law earns praise from victims’ families, but cost concerns persist

Lt. Gov. Deidre Henderson ceremonially signed HB84 into law during an event Wednesday at the University of Utah.

4 days ago

Sponsored Articles

a person dressed up as a nordic viking in a dragon boat resembling the bear lake monster...

Bear Lake Convention and Visitors Bureau

The Legend of the Bear Lake Monster

The Bear Lake monster has captivated people in the region for centuries, with tales that range from the believable to the bizarre.


Live Nation Concerts

Artists coming to Utah First Credit Union Amphitheatre (formerly USANA Amp) this summer

Summer concerts are more than just entertainment; they’re a celebration of life, love, and connection.

Mother and cute toddler child in a little fancy wooden cottage, reading a book, drinking tea and en...

Visit Bear Lake

How to find the best winter lodging in Bear Lake, Utah

Winter lodging in Bear Lake can be more limited than in the summer, but with some careful planning you can easily book your next winter trip.

Happy family in winter clothing at the ski resort, winter time, watching at mountains in front of t...

Visit Bear Lake

Ski more for less: Affordable ski resorts near Bear Lake, Utah

Plan your perfect ski getaway in Bear Lake this winter, with pristine slopes, affordable tickets, and breathtaking scenery.

front of the Butch Cassidy museum with a man in a cowboy hat standing in the doorway...

Bear Lake Convention and Visitors Bureau

Looking Back: The History of Bear Lake

The history of Bear Lake is full of fascinating stories. At over 250,000 years old, the lake has seen generations of people visit its shores.

silhouette of a family looking over a lake with a bird in the top corner flying...

Bear Lake Convention and Visitors Bureau

8 Fun Activities To Do in Bear Lake Without Getting in the Water

Bear Lake offers plenty of activities for the whole family to enjoy without having to get in the water. Catch 8 of our favorite activities.

Why this year’s tax season is critical to the debt ceiling debate