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Without legislation lifting the debt ceiling, the U.S. government may soon be unable to pay its debts. But for some unexpected reasons, the “X-date” might be on an expedited timeframe.
The Congressional Budget Office had predicted that the X-date would occur between July and September of this year. However, this month, Janet Yellen, the treasury secretary, wrote to House Speaker Kevin McCarthy stating that the treasury anticipated that it wouldn’t be able to continue paying all of the government’s obligations as early as June 1, 2023. This week, she reaffirmed the same timeline.
Although the Treasury Department hasn’t specifically said why there was a shortfall in tax collection, analysts have suggested two major issues may have contributed. One reason could be the decline in the value of stocks and cryptocurrencies. According to Wells Fargo’s senior economist Michael Pugliese, capital gains taxes, which are sums owing on earnings from the sale of investments, were a big component of the tax puzzle that failed this year.
Pugliese states that the government received an exceptionally high amount of capital gains taxes last year as a result of a market boom. The value of equities, plus other assets including cryptocurrencies and the housing market have declined during the past year. Pugliese stated, “Most forecasts anticipated a decline this year.” However, capital gains tax income was significantly lower than most analysts had predicted.
The unforeseen natural calamities may also have reduced the federal government’s tax revenue this year. Because of catastrophic hurricanes and other natural catastrophes, counties in several states, including Georgia, Tennessee and Alabama, received a tax payment deferment. Additionally, the IRS most recently delayed the deadline for California residents to pay their taxes to October 16, 2023, as a result of severe winter storms, flooding and mudslides experienced between December last year and March this year.
According to Moody analytics chief economist Mark Zandi, California’s payments may have had a disproportionate impact on the federal government’s lack of tax income. This is a result of California being one of the largest states and having a large population of affluent individuals. Zandi adds that the U.S. government was extremely surprised by the capital gains deficit and tax payment deferrals, which undoubtedly helped advance the default date.
“Naturally, there is no way to foretell it. The U.S. was unable to forecast that natural calamity because it occurred out of the blue,” he said.
The crypto sector is coming out of its “winter,” so companies such as Marathon Digital Holdings Inc. (NASDAQ: MARA) could soon be able to make a bigger contribution to the nation’s tax basket so that the government continues paying its debts and availing the needed services to all Americans.
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