How tornadoes, crypto, and landslides pushed back the default deadline

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New York CNN—

The US government is racing towards the day when it will no longer be able to pay its bills unless Congress passes legislation raising the debt ceiling. However, this so-called X date may be on an accelerated timeline for unlikely reasons.

Earlier this year, the Congressional Budget Office estimated that Date X would come between July and September, but in a letter to House Speaker Kevin McCarthy this month, Treasury Secretary Janet Yellen wrote that after Having reviewed recent federal tax receipts, our best estimate is that we will not be able to continue to meet all government obligations by early June, and potentially as early as June 1. She reiterated that same schedule this week.

Although the Treasury Department did not explicitly give a reason for its shortfall in tax revenue, experts said two main factors may have caused a shortfall.

Capital gains tax, which is money owed on profits from the sale of investments, was an important piece of the tax puzzle that failed this year, according to Wells Fargo senior economist Michael Pugliese.

Pugliese said last year capital gains taxes paid to the government were exceptionally high due to a market boom.

Stock prices have gone up a bit, the crypto boom, all these different things. This has led to very large increases in capital gains tax revenue, he said.

However, stocks and other assets like cryptocurrencies and the housing market have seen their valuations decline over the past year.

I think most forecasters were expecting a drop this year, Pugliese said. However, he said capital gains tax revenues were still lower than most experts had expected.

What matters is that they didn’t come in strong enough to make sure we could get to late July or early August, which was the hope, he added.

Another factor that may have lowered federal government tax revenue this year: unexpected natural disasters.

Counties in several states, including Tennessee, Alabama and Georgia, have been granted tax payment deferrals due to severe storms and other natural disasters. Most recently, the IRS extended the deadline for California residents to pay taxes until October 16 due to severe winter storms, flooding and mudslides late last year and beginning of this year.

The California payments may have had an outsized effect on the federal government’s tax revenue crunch, said Mark Zandi, chief economist at Moodys Analytics.

California is one of the biggest states, with a lot of wealthy people, and that really saps the tax revenue coming in, he told CNN.

Zandi added that the shortfall in capital gains and tax payment deferrals came as a real surprise to the US government and likely helped bring the default date forward.

Of course, there is no way to predict this. It was a natural disaster out of nowhere, and the United States could not have foreseen it.

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