Financial crisis

How Elon Musk and Congress are courting a financial crisis

Between the cuts to the IRS that DOGE is prompting and congressional Republican infighting, the U.S. may crash into the debt ceiling sooner than expected.

By Hayes Brown

President Donald Trump’s first legislative whiff of this term came before he even took the oath of office. As president-elect, he called on Congress to pause the debt ceiling — or eliminate it entirely — as it worked to avert an end-of-the-year shutdown. Lawmakers completely ignored Trump on that front, leaving the debt ceiling in place and resolving to deal with it next year.

Now the debt ceiling deadline is looming, but no one in Congress or the White House seems particularly worried about it. Indeed, the Department of Government Efficiency’s hack-and-slash tactics and congressional infighting may have brought the default date closer. If default does happen, the economic fallout would be more likely to trigger a massive recession than the “Golden Age” that Trump has promised.

The U.S. government technically breached the debt ceiling back on New Year’s Day. At that time, outgoing Treasury Secretary Janet Yellen authorized “extraordinary measures” to keep payments flowing without breaching the legal limit. But, as the word “extraordinary” implies, the protocols Yellen activated can’t be used indefinitely. At some point, on a day ominously known as the “X date,” the U.S. government will be unable to borrow more money to cover its existing bills. With the full faith and credit of the United States no longer an ironclad guarantee, the resulting default would wreak havoc on the financial markets.

The Bipartisan Policy Center on Monday projected that the X date will hit sometime between mid-July and early October without congressional action. (The Congressional Budget Office is due to release its own forecast on Wednesday.) But the trusted nonpartisan think tank also cautioned that “if collections from tax season fall far short of expectations, there is a potential for heightened X Date risk in early June.” 

Here’s the thing, though: While the Bipartisan Policy Center called a revenue shortfall “quite unlikely,” the odds this year are higher than might otherwise be the case. The Washington Post reported last week that “Treasury Department and IRS officials are predicting a decrease of more than 10 percent in tax receipts by the April 15 deadline compared with 2024.” That would be equal to about $500 billion in missing revenue, or over half of the entire government’s nondefense discretionary spending.

There are a few likely reasons for the reduced tax revenue, including the destruction Trump and Musk have caused inside the IRS since January. While the staffing cuts under discussion wouldn’t be implemented until the April 15 tax filing deadline, almost 20% of IRS workers could be fired in the month after it. Most of those cuts would come from newly hired enforcement staffers (brought on as part of a Biden administration push to target tax dodgers) and workers at the Taxpayer Advocate Service, which helps people solve problems with their filings. That has spawned a growing concern that tax cheats will claim wildly inaccurate deductions or simply not pay their owed amounts, content with the knowledge that nobody will be available to audit them.

Unsurprisingly, the GOP-led Congress isn’t working as though there’s a major crisis in the works. Instead, the focus has been on producing a budget bill for the upcoming fiscal year. Though the House and the Senate have each passed their own versions, the two chambers have very different timelines for Trump’s priorities. The former condenses the entire Trump agenda, including a re-up of the 2017 tax cuts, into a single bill; the latter splits them in two, with the tax fight to come in the fall.

Speaker Mike Johnson, R-La., is hoping to have the differences between the two bills worked out and passed in the House again before April 10, after which there’s another two-week recess in the books for Congress. But, as Politico noted, “nearly every key decision remains unsettled,” including “how deep to cut into social safety-net spending, how to placate swing-seat lawmakers over a key tax break, how to account for the cost of extending existing tax cuts and how many more breaks they can pile on top.”

Those talks are already precarious enough that they don’t leave much room to deal with the debt ceiling as part of this bill. The question then becomes: when? The answer isn’t going to come from the White House any time soon, not while Trump is busy pouting that Congress didn’t listen to him in December. That’s only a slight exaggeration of his attitude, according to Republican Sen. John Kennedy of Louisiana: “I think the president is clearly aggravated having to deal with it. … And I don’t blame him. His attitude is: ‘Why didn’t y’all fix this before I took office?’”

But Trump is in office now, and the debt ceiling most certainly is his problem, especially since members of his party are the most reluctant to lift the debt ceiling at all. The truth is that this isn’t a fight that anybody wants, but as of now there’s no viable alternative that presents itself, either politically or legislatively. Congress will have to deal with this issue before an unprecedented default devastates any confidence in the American economy. The only certain thing is that Trump won’t make it easy to avoid catastrophe.