CBO predicts that US Treasury will default in August

The Congressional Budget Office warned on Wednesday that the U.S. Treasury could run out of cash by August 2025 if Congress fails to act on the debt ceiling.

The projection came straight from the CBO, which told lawmakers that unless the cap is raised or suspended, the government won’t have enough money to meet its legal obligations. That includes payments on federal debt, salaries, contracts, and benefits.

Since January 21, the Treasury Department has been using emergency accounting moves to stay under the $36.1 trillion debt limit, which officially took effect at the start of the year. These temporary actions—called “extraordinary measures”—have kept things running, but the department hasn’t given a clear timeline for how long they’ll hold.

CBO says cash may run out by May if revenue drops

“If the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will probably be exhausted in August or September 2025,” the CBO said. “The projected exhaustion date is uncertain because the timing and amount of revenue collections and outlays over the intervening months could differ from CBO’s projections.”

But the CBO didn’t stop there. The agency also flagged a scenario where the Treasury could run dry even earlier. “If the government’s borrowing needs are significantly greater than CBO projects, the Treasury’s resources could be exhausted in late May or sometime in June, before tax payments due in mid-June are received or before additional extraordinary measures become available on June 30.”

The last time this happened was in 2023 when the U.S. got dangerously close to default. During that fight, former Treasury Secretary Janet Yellen said breaching the limit would force the department to miss “some obligation.” Her replacement, Scott Bessent, who took over in January 2025, told Congress at his confirmation hearing, “The US is not going to default on its debt” while he’s in office.

Lawmakers now have a rough deadline—an X-date—based on the CBO’s projections. That’s the date when cash runs out, and decisions have to be made fast. It’s not just about theory anymore. This is about whether or not the government can keep the lights on and avoid financial collapse.

House GOP ties debt ceiling to Trump tax package

House Republicans have made it clear they want to fold a debt limit increase into a bigger package that would extend Donald Trump’s 2017 tax cuts. Many of those cuts are set to expire at the end of this year. The House already passed a budget plan last month that includes a $4 trillion increase to the debt ceiling, tying it directly to Trump’s tax agenda.

In the Senate, Majority Leader John Thune told reporters on Tuesday there’s “consensus forming” around attaching a debt ceiling measure to the GOP’s tax legislation. He said it could be passed using a reconciliation bill—something that would let Republicans bypass Democratic votes entirely. It’s unclear whether enough GOP senators are fully on board to push that through.

The last time the debt ceiling was suspended, back in 2023, both parties voted on it. That bipartisan approach isn’t guaranteed this time, and that has Wall Street, D.C., and pretty much everyone watching nervously.

This week, the Bipartisan Policy Center dropped its own estimate, placing the X-date somewhere between mid-July and October. Over on Wall Street, analysts are circling late July to late August as the likely window. A few predictions even suggest things could fall apart as early as late May.

How fast we get there depends on tax revenue. The April 15 filing deadline is right around the corner, and if tax collections come in lower than expected, things could unravel a lot sooner. Earlier this month, House Ways and Means Committee Chair Jason Smith said a breach could hit “as soon as mid-May” if the Treasury collects less than projected.

And there’s more happening inside the Treasury Department. A federal court filing revealed that the department is preparing to lay off a “substantial number” of its more than 100,000 employees as part of a government downsizing program launched by President Trump. The plan is linked to his executive order to enforce the Department of Government Efficiency—also known as DOGE.

According to the filing, the department is finalizing the layoff strategy. “Those plans will be tailored for each bureau, and in many cases will require separations of substantial numbers of employees through reductions in force (RIFs),” the document stated. This will affect major bureaus like the Internal Revenue Service, the U.S. Mint, the Bureau of the Fiscal Service, and the Office of the Comptroller of the Currency.

Treasury Secretary Scott Bessent said the DOGE initiative is focused on streamlining operations, not gutting them entirely. “DOGE stands for the Department of Government Efficiency, not the ‘Department of Government Elimination,’” he said.

The information came out in a set of sworn affidavits filed in court on Tuesday. Trevor Norris, a senior Treasury human resources official, confirmed that the agency is responding to a 14-day temporary restraining order issued by a Maryland federal judge. That order forced the government to reinstate thousands of federal employees who had been fired but were still under probation.

Those employees had been in their positions for less than one or two years, depending on their roles. The restraining order affects 18 different agencies, including all their component offices. The judge is still considering whether to turn that into a permanent injunction to protect their jobs.

Norris also said that when the next round of layoffs takes place, the cuts will “disproportionately affect” the reinstated workers. That’s because RIFs are based on seniority, and probationary employees rank last. He didn’t give any date for when the department expects to finalize or carry out those plans.

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