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The clock is ticking for the U.S. to keep away from 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. excellent debt hit its statutory restrict.
The debt restrict or debt ceiling is the total amount of money the U.S. can borrow to fulfill its authorized obligations together with Social Security and Medicare advantages, in addition to army salaries, tax refunds, curiosity on the nationwide debt and different funds.
In a Jan. 13 letter, Treasury Secretary Janet Yellen warned House Speaker Kevin McCarthy, R-Calif., Senate Majority Leader Chuck Schumer, D-New York, and different congressional leaders of the potential “irreparable harm” that could come to the U.S. financial system, Americans’ livelihoods and world monetary stability if the issue goes unresolved.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen wrote.
On Thursday, the U.S. started taking “extraordinary measures” to keep away from defaulting on its obligations, Yellen wrote in an updated letter to congressional leaders.
The Treasury Department can not present an estimate of how lengthy the federal government can anticipate to pay the federal government’s obligations by means of extraordinary measures, in response to Yellen. But it is unlikely that money shall be exhausted earlier than early June, she mentioned.
Negotiations over the federal debt ceiling mark one of many first massive challenges the brand new Congress will face.
McCarthy has agreed to tie lifting the debt ceiling to spending cuts. That has advocates for Social Security and Medicare fearful that lawmakers will attempt to amend these applications.
“We’re looking at as early as June for a train wreck on this issue,” mentioned Dan Adcock, director of presidency relations and coverage on the National Committee to Preserve Social Security and Medicare.
“The consequences are dire, because a default would not only disrupt Social Security and Medicare benefits, but also cause a global economic recession or worse,” he mentioned.
How profit funds could be delayed
If the U.S. had been to default on its debt, it can be unprecedented.
The massive query is whether or not the Treasury Department would have the ability to prioritize what does and doesn’t receives a commission if that happens.
Unlike a authorities shutdown, the place Social Security and Medicare advantages proceed to circulation, that might not be the case with a default, in response to Adcock.
“There’s a good chance that benefits for retirees and people with disabilities and survivors would be disrupted,” he mentioned.
Even a brief delay could intrude with beneficiaries’ potential to pay for well being care, meals, lease, utilities or different crucial bills, the National Committee to Preserve Social Security and Medicare mentioned in a press release on Thursday.
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The Treasury Department could possibly prioritize some funds, and that would come with Social Security, mentioned Jason Fichtner, chief economist on the Bipartisan Policy Center who beforehand served in a number of senior roles on the Social Security Administration.
However, the Social Security Administration could delay funds to make sure it has sufficient money available, he mentioned.
Meanwhile, Medicare funds could fluctuate, whereas different areas like federal worker salaries and meals advantages by means of SNAP (the Supplemental Nutrition Assistance Program) could cease. The course of could also be politically “messy,” Fichtner mentioned.
“Social Security I’m sure will get paid, interest on the debt will get paid,” he mentioned. “After that, flip a coin, who gets paid?”
Why some fear about Social Security profit cuts
As House Republicans plan to give attention to curbing authorities spending, some fear that could entail cuts to Social Security advantages and Medicare in alternate for votes to extend or droop the debt restrict.
Among the concepts Republicans have pitched embody elevating Social Security’s full retirement age to 70, altering the best way advantages’ annual cost-of-living changes are measured to make them much less beneficiant, or making it so advantages are means examined by means of the center class, Adcock mentioned.
Moreover, they could increase the Medicare eligibility age to 67 from 65, he mentioned.
To make these modifications, there would have to be sufficient assist within the Senate, with 60 votes.
“That’s a pretty high threshold,” Adcock mentioned. “I don’t think there would be 60 votes in the Senate to do benefit cuts.”
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The White House has additionally indicated it shouldn’t be prepared to barter.
“As President Biden has made clear, Congress must deal with the debt limit and must do so without conditions,” White House press secretary Karine Jean-Pierre mentioned Tuesday.
For Social Security reform to progress efficiently, each events would wish to return to the desk and be prepared to make concessions, Fichtner mentioned.
Without such a bipartisan legislative proposal on paper by June, it can be troublesome to incorporate Social Security within the debt ceiling negotiations, he mentioned.
“With Social Security, you’re going to have to have a grand bargain that includes changes to the benefit formula and revenue increases,” Fichtner mentioned.
“And that’s just not something that they can get done in a debt crisis environment,” he mentioned.