Reaching the US Debt Ceiling Could Affect Social Security Benefits

U.S. Treasury Secretary Janet Yellen speaks as U.S. President Joe Biden holds a meeting with business leaders and CEOs about the debt limit at the White House in Washington, on Oct. 6, 2021. (Kevin Lamarque/Reuters)

On Jan. 19, 2023, the U.S. government again reached its debt ceiling. Congress sets the limit, and once reached, no more debt can be incurred without paying on the national debt. Disagreements have left Congress trying to figure out how to proceed. Many are afraid that it will affect Social Security and Medicare payments.

In the past, after reaching the debt ceiling, Congress just raised it higher. This practice quickly settled the issue and let the government get into even more debt. If the debt limit was not raised, the government would have to shut down temporarily until another solution was agreed upon.

The United States has never defaulted on international debt before, but now it appears it may be a possibility. Finance.Yahoo reports that it may make the government choose between paying the debt owed and not making Social Security payments.

Current Party Positions on a Debt Ceiling Solution

House Republicans are completely opposed to raising the debt ceiling without having some spending cuts. This move would make it even harder for the government to agree since it may include cutting Social Security and Medicare payments.

Democrats have floated the possibility that they want to eliminate the debt ceiling. Republicans, however, have said they would never agree to it.

The Treasury Department Takes Measures to Meet Immediate Needs

Treasury Secretary Janet Yellen announced to Congress that “special measures” have been taken to avoid default on the U.S. debt. Although taking these steps, she also said that the funds the Treasury Department is drawing on will likely run out sometime in early June.

The money, Yellen says, is coming from two large retirement accounts. They include the Civil Service Retirement and Disability Fund, which benefits retired or disabled federal employees, and the Postal Service Retiree Health Benefits Fund, which gives postal service retirees health benefit payments.

Yellen also said that using the money does not increase the debt limit because it is invested in special-issue Treasury securities. Once Congress raises the debt limit, the money can be restored to the accounts.

The Fourteenth Amendment and National Debt

The 14th Amendment of the U.S. Constitution, Section Four, declared that it was illegal for anyone to “question” the validity of the national debt. The New York Times says the wording is ambiguous—but the general meaning is that the existence of the national debt and America’s responsibility to repay it cannot be ignored.

Proposals to Solve the Debt Ceiling Crisis

One proposal to solve the debt crisis problem, Reuters said on Jan. 22, was to change the way the national debt limit is determined. Instead of choosing a fixed dollar amount, use a percentage of the national economic output. Reuters says the national debt is about 125 percent of one year’s production. Most countries other than the United States do not have a debt ceiling.

In the past, whenever there were debt ceiling problems, there was resistance, then debate, and, finally, a new debt ceiling was set. This time it looks different.

The Rapid Recent Increase of the Debt Ceiling

The debt ceiling has continued to rise at a rapid rate ever since former president Ronald Reagan’s terms in office in the 1980s. According to NPR, he raised the debt limit more than a dozen times, to $2.8 trillion. Each president since has raised it higher. George W. Bush raised it in 2008 to $11 trillion; Barack Obama raised it to $18 trillion in 2015; and Donald Trump increased it to $22 trillion in March 2019. During the pandemic, there was no limit. Finally, in 2021, the debt ceiling was set at $31.4 trillion.

Yellen Draws From a Third Source of Money

Treasury Secretary Yellen says that a third source of revenue has now been tapped—the G Fund. This fund, the Government Securities Investment Fund, is used to support special-issue Treasury securities that go toward reducing the debt limit. Stopping the investments lets the government issue more Treasury notes, bonds, and bills.

Reuters reported that even though this third source of money will enable the government to pay its bills through early June, it still requires, Yellen said, the government to increase its debt ceiling. By law, the government must repay any money removed from this fund.

Cuts to Social Security and Medicare Not Originally Planned

Although the arguments in Congress could easily change to avert financial disaster, the Republicans first said they will not propose any cuts to Social Security or Medicare. They also did not intend to delay paying for the military or the national debt.

As of Tuesday, Yahoo says that the Republicans are now saying that Social Security, Medicare, Veterans Administration benefits, and even funding for the military are all open for discussion. Their goal is for a balanced budget, but no specific plan as to how to reach it has been forthcoming.

President Biden Claims No Compromise of Raising the Debt Ceiling

President Joe Biden, Yahoo says, is hoping to get bipartisan support to increase the debt limit. He is currently refusing to compromise on this issue. One reason for his interest in raising the debt limit is that it is close to the time for Biden to announce whether or not he will run again for president.

Trump is also advising in the matter. BusinessInsider reveals he has warned the Republicans not to touch Medicare or Social Security benefits. It would be for the same reason—it would likely be political suicide for the Republicans in the next presidential race.

Despite Trump’s warning to the GOP, it appears that there may cuts to Social Security and Medicare in the future. As June approaches, both sides may be willing to compromise more because neither side wants a government shutdown or national debt payments to stop. It would ruin the economy of the United States—and it would ultimately affect the world.

The solution to the debt crisis is not yet apparent concerning what Congress will do. If you are receiving Social Security, Medicare benefits, or Social Security disability insurance, you will want to watch the news to see how this issue is finally resolved.

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