When Is the Debt-Ceiling’s ‘X-Date’? Sooner Than Expected Because of a Disappointing Tax Season.

McCarthy wants to get the bill passed by April 28, and is acting like he has the Republican votes he needs to do that. Still, there’s enough dissent that it’s not a foregone conclusion. South Carolina Rep. Nancy Mace has said she’s “leaning no,” while New York Rep. George Santos has indicated that he might vote against it. Other Republicans are also said to be on the fence, which is bad news for McCarthy, who can only lose four votes and still get the plan passed.

And then comes the hard part. If the act gets out of the House, it will then get sent to the Senate, which is controlled by the Democrats. There is no chance that it will accept McCarthy’s plan, and what gets returned to the House is likely to remove many of the Republicans’ most partisan asks, complicating things even more. “The moment of maximum peril will come when the Senate does send its debt ceiling bill to the House,” writes Capital Alpha’s James Lucier. “Though we are agnostic on the content, we are sure that it will be less than the House Republicans want, and it will include some elements that they do not like.”

If a compromise isn’t reached, then the Treasury Department, which is using “extraordinary measures” to avoid going over the limit, will have to resort to even more extreme measures—like shutting the government down to avoid having to meet payrolls or closing the national parks—before the U.S. is forced to default on its debt. That has the potential to upend the financial system, raise the cost of borrowing for the U.S., and damage the economy.

Estimates for when the Treasury will run out of cash have ranged from as soon as mid-June to as late as September, but right now it’s looking closer to the former than the latter. Blame tax season. For those doing the math, tax day was always going to be a big deal because it brings an influx of cash into the Treasury’s coffers, giving it more money to make ends meet. The money is still coming in, and if enough does, the U.S. could make it to mid-June, when more tax receipts are due.

After examining Treasury data, Goldman Sachs economist Alec Phillips estimated that if receipts were 30% lower than in 2022, the X-date would be hit in late July. But if they decline 35% or more, the Treasury could run out of money in early June. In an April 19 report, he estimated that receipts were down about 31% from a year ago.

Either way, the X-date—and all the chaos it could bring with it—looks closer than many had realized. “A U.S. default has suddenly gone from a distant threat to an imminent crisis, thanks to disappointing receipt data released by the Treasury Department this week,” writes Greg Valliere, chief U.S. policy strategist at AGF Investments.

The stock market might not be bothered by the debt-ceiling shenanigans, but that doesn’t mean financial markets are ignoring it. The yield on the four-week Treasury, which matures before the X-date is expected to be hit, has fallen from 4.6% at the end of March to 3.68% on April 19, while the yield on the three-month Treasury has risen from 4.68% to 5.01%, as investors sell the bills inside the possible default zone and buy those that aren’t.

“Neither one of these moves are material at the moment, but they are a sign that the debt ceiling is coming into the market’s view, and if past is prologue that will inject some substantial short-term volatility into the markets,” writes the Sevens Report’s Tom Essaye.

Of course, it may not come to that. Capital Alpha’s Lucier gives McCarthy’s plan a greater than 50% chance of passing by April 28, given that Mace typically ends up voting with the party and Santos is, well, Santos. “The prospects of increasing the debt limit to avoid a default on U.S. debt are improving,” he explains. “The process is also speeding up, for now at least.”

And if the race does end in a wreck, at least investors will get a chance to buy stocks on the cheap. “Brinkmanship is not good for the market but may present opportunities if things get carried away enough to move people to the sidelines,” writes Louis Navellier of Navellier & Associates.

If nothing else, it would shake the stock market out of its doldrums.

Write to Ben Levisohn at Ben.Levisohn@barrons.com