Your Social Security Payment Is At Risk 

Social Security is being used as a bargaining chip in discussions about raising the debt ceiling. Analysts, however, warn that a collapse in those discussions and a U.S. default pose the greatest threat to the program and its 66 million participants.

The debt ceiling imposes a statutory limit on how much the government may borrow to cover ongoing operations. Treasury Secretary Janet Yellen announced “exceptional measures” on January 19 when the government’s debt hit $31.4 trillion. These stopgap measures to keep the books balanced won’t last forever, and the United States might run out of borrowing capacity as early as June if Congress doesn’t act.

Money and Debt at the Federal Reserve

Simply put, raising the debt limit ensures that the government has the money to pay its existing debts; it does not grant it the authority to spend new money. Experts predict that Republicans will try to negotiate concessions from Democrats in exchange for their vote, given the political Risk involved for the party. Conservatives within the Republican Party’s Republican Study Committee have pushed to raise Medicare eligibility and the Social Security full retirement age.

In contrast, McCarthy stated unequivocally on Sunday’s “Face the Nation” that Social Security and Medicare were off limits for negotiation.

The bulk of Republican legislators recognize it’s a losing electoral issue and won’t go near it, says Brian Gardner, Stifel’s senior Washington policy expert. Gardner said that the Republicans’ most conservative members don’t have enough influence to sway the entire party on benefit cuts.

On February 1. Republican Senator Josh Hawley introduced the Keep Our Promise Act to exempt Social Security and Medicare from the debt ceiling. 

In light of the present economic crisis, President Biden is not likely to endorse legislation for raising the debt ceiling if it includes spending reductions. Chris Krueger, a Washington strategist at Cowen, claims that the talks pose “zero genuine risk” to the Social Security program. But if there’s a breakdown in communication during the negotiations, then everything is off the table. 

The United States has never defaulted before. Therefore nobody knows what would happen if the United States does default. Even under a short-term default scenario, the elderly would be most vulnerable, but everyone in the United States would feel the repercussions.

Experts say that because of the stalemate in Washington, default is a distinct possibility. While the odds of a default are small, Gardner warns that they are too great to ignore.

If the United States cannot get access to fresh loans, it will be forced to curtail spending. According to Yellen, the Treasury cannot favor one payment method over another. If the government wanted to prioritize Social Security recipients over bondholders, it would violate their obligations even if the will existed.

In default, you cannot protect any one group of people, says Kathleen Romig, Center for Budget and Policy Priorities director of Social Security and Disability Policy.

According to an article by Center on Budget and Policy Priorities senior fellow Paul N. Van de Water, published in September 2021 as the United States neared another debt limit, the Treasury’s inability to prioritize payments could delay the payment of Social Security benefits, which are primarily funded by payroll taxes. Delays in Social Security benefits, even for a short period, would devastate the millions of retirees and handicapped people who rely on them.

Depending on when a default happens, it’s possible that the impact on Social Security recipients will vary. This is because the timing of Social Security payments varies from recipient to recipient, and distribution is staggered based on the recipient’s birth date. 

Default is the absolute worst-case scenario. However, it is more likely that Congress would reach a last-minute solution to raise the debt ceiling, avoiding default. A showdown over the debt ceiling on this scale has not occurred since 2011, and such bravado would have cost dearly then as it would again. The S&P 500 lost 16.8% from July 22 to August 8, 2011, and didn’t completely recover for another six months. According to U.S. credit rating agencies, there will be market upheaval again because of the unknown. The recent market volatility may encourage legislators to work toward a compromise.

Even under ideal conditions, Social Security’s clock is ticking. The trustees estimate that the retirement trust will be depleted by 2034, at which point the program could provide just around 77% of promised payments. If Congress doesn’t strengthen the program by increasing taxes and reducing benefits for future recipients, cuts will be made to current beneficiaries. Those already receiving benefits and retiring within the next decade would not be affected by any changes.

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