In an alarming new development, the ongoing debt ceiling crisis in the United States is being further exacerbated by climate change. As President Joe Biden grapples with Republican lawmakers over the decision to raise the nation’s debt ceiling, a series of climate-fueled disasters have unexpectedly pushed the government towards a potential unprecedented default on its debt this summer.
Climate change has played a significant role in the timing of federal tax collection this year, with the past year witnessing over a dozen billion-dollar disasters in various states. To provide some relief to the affected residents, the Internal Revenue Service (IRS) has offered them additional time to file their taxes. Florida and California, two of the hardest-hit states, together account for over a quarter of federal revenues.
With millions of taxpayers postponing their filings due to these disasters, the federal government is receiving less money than anticipated. Under normal circumstances, the government would borrow money to compensate for the imbalance between tax revenue and spending. However, since the U.S. has reached its self-imposed debt ceiling, the global economy now hinges on the Treasury’s cash flow over the next few weeks.
The debt ceiling, established around a century ago, has been raised multiple times by Congress, usually without any controversy. However, Republicans have recently used the debt ceiling authorization as a high-stakes bargaining chip to demand concessions they couldn’t otherwise pass through Congress. As a result, they have refused to support the customary debt ceiling increase unless Biden agrees to cuts in federal spending that have already been approved by Congress. Among the controversial options being considered is a repeal of the Inflation Reduction Act, a critical climate law designed to keep the U.S. in line with its Paris Agreement targets.
With the debt limit reached in January, the Treasury Department has been paying daily bills using only the cash it has on hand. If lawmakers don’t raise the debt ceiling soon, the Treasury will run out of cash and be forced to default on its debt. This could lead to catastrophic consequences, including missed payments for veterans and Social Security recipients, increased borrowing costs for credit cards and mortgages, and a complete upheaval of global financial markets.
The uncertainty surrounding when the Treasury will run out of cash complicates negotiations between Biden and House Speaker Kevin McCarthy. Federal disaster declarations have made it even more difficult to predict the so-called “x-date” of default. A few extra days of revenue could mean the difference between a safe resolution and a chaotic default, but the impact of climate change on tax revenue has created numerous bumps in the road.
As the debt ceiling crisis continues to unfold, it’s crucial to recognize the unexpected role that climate change has played in this precarious situation. Addressing the climate crisis and implementing effective policies not only serves the environment but also helps mitigate the potential economic consequences that could arise in the future.