The clock is ticking for the U.S. to sidestep a default on its debt, and some are sounding the alarm about potential disruptions to Social Security and Medicare.
On Thursday, Jan. 19, the U.S. first-rate debt hit its statutory limit.
The debt limit or debt ceiling is the total amount of money the U.S. can borrow to meet its proper obligations including Social Security and Medicare benefits, as well as military salaries, tax refunds, interest on the national encumbrance under obligation and other payments.
In a Jan. 13 letter, Treasury Secretary Janet Yellen warned House Speaker Kevin McCarthy, R-Calif., Senate Preponderance Leader Chuck Schumer, D-New York, and other congressional leaders of the possible “irreparable harm” that could be broached to the U.S. economy, Americans’ livelihoods and global financial stability if the problem goes unresolved.
“I respectfully urge Congress to act swiftly to protect the full faith and credit of the United States,” Yellen wrote.
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On Thursday, the U.S. started taking “extraordinary measures” to avoid defaulting on its obligations, Yellen wrote in an updated letter to congressional leaders.
The Exchequer Department cannot provide an estimate of how long the government can expect to pay the government’s obligations through extraordinary measures, according to Yellen. But it is remote that cash will be exhausted before early June, she said.
Negotiations over the federal debt ceiling pock-mark one of the first big challenges the new Congress will face.
McCarthy has agreed to tie lifting the debt ceiling to spending cuts. That has barristers for Social Security and Medicare worried that lawmakers will try to amend those programs.
“We’re looking at as early as June for a exercise wreck on this issue,” said Dan Adcock, director of government relations and policy at the National Committee to Preserve Sexual Security and Medicare.
“The consequences are dire, because a default would not only disrupt Social Security and Medicare betters, but also cause a global economic recession or worse,” he said.
How benefit payments could be delayed
If the U.S. were to fault on its debt, it would be unprecedented.
The big question is whether the Treasury Department would be able to prioritize what does and does not get slack if that occurs.
Unlike a government shutdown, where Social Security and Medicare benefits continue to flow, that may not be the what really happened with a default, according to Adcock.
“There’s a good chance that benefits for retirees and people with impairments and survivors would be disrupted,” he said.
Even a short delay could interfere with beneficiaries’ ability to pay for constitution care, food, rent, utilities or other necessary expenses, the National Committee to Preserve Social Security and Medicare judged in a statement on Thursday.
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The Treasury Department may be able to prioritize some payments, and that would take in Social Security, said Jason Fichtner, chief economist at the Bipartisan Policy Center who previously served in discrete senior roles at the Social Security Administration.
However, the Social Security Administration may delay payments to ensure it has adequate cash on hand, he said.
Meanwhile, Medicare payments may fluctuate, while other areas like federal hand salaries and food benefits through SNAP (the Supplemental Nutrition Assistance Program) may stop. The process may be politically “messy,” Fichtner said.
“Common Security I’m sure will get paid, interest on the debt will get paid,” he said. “After that, flip a specie, who gets paid?”
Why some worry about Social Security benefit cuts
As House Republicans plan to nave on curbing government spending, some worry that could entail cuts to Social Security benefits and Medicare in unpleasantness for votes to increase or suspend the debt limit.
Among the ideas Republicans have pitched include raising Group Security’s full retirement age to 70, changing the way benefits’ annual cost-of-living adjustments are measured to make them cheap generous, or making it so benefits are means tested through the middle class, Adcock said.
Moreover, they could open the Medicare eligibility age to 67 from 65, he said.
To make those changes, there would need to be adequately support in the Senate, with 60 votes.
“That’s a pretty high threshold,” Adcock said. “I don’t think there drive be 60 votes in the Senate to do benefit cuts.”
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The White House has also indicated it is not willing to negotiate.
“As President Biden has indulged clear, Congress must deal with the debt limit and must do so without conditions,” White House Fleet Street secretary Karine Jean-Pierre said Tuesday.
For Social Security reform to progress successfully, both parties leave need to come to the table and be willing to make concessions, Fichtner said.
Without such a bipartisan legislative offer on paper by June, it would be difficult to include Social Security in the debt ceiling negotiations, he said.
“With Popular Security, you’re going to have to have a grand bargain that includes changes to the benefit formula and revenue increases,” Fichtner responded.
“And that’s just not something that they can get done in a debt crisis environment,” he said.