The Constitution grants Congress the power to borrow money on the credit of the United States — one part of its power of the purse — and thus mandates that Congress exercise control over federal debt. To that end, Congress has enacted limits on the amount of debt the Nation can incur. This statutory limit applies to almost all federal debt, including the operations of the Social Security and Medicare trust funds. Federal debt increases when total expenditures exceed total receipts, thus resulting in a budget deficit. The growth in federal debt has periodically obliged Congress to raise the statutory limit. Federal debt is projected to reach the current limit sometime in 2023, at which time Congress must once more raise or suspend the debt limit in order to avoid default on its obligations and to assure continuity of payment of Social Security and Medicare benefits.
The Current Situation:
In December 2021 Congress approved a Joint Resolution (Public Law 117-73) which set the federal debt limit at $31.385 trillion, which was reached on January 19, 2023. When there is no Congressional action on the debt limit, the Treasury Department has the authority to take “extraordinary measures” – borrowing from the Federal Civil Service Retirement and Disability Fund (CSRDF) and the Thrift Savings Plan (TSP) G Fund – to avoid a government default (federal law requires the Treasury Department to make the CSRDF and TSP G Fund whole with interest after the debt crisis has passed). But these measures are merely a temporary fix as they can postpone the date by which we reach the debt limit but cannot avoid reaching it.
If Congress fails to raise or suspend the debt limit and allows the government to default on its legally binding financial obligations, an economic catastrophe would likely result and payment of Social Security, Medicare and Medicaid benefits would be jeopardized.
While the Social Security trust funds held $2.852 trillion in U.S. government securities at the end of 2021, the Treasury Department must have cash to pay benefits when they are due. Every month, the Treasury Department is required by law to make over $90 billion in payments to the 65 million retirees, disabled workers, widows, widowers, children, and spouses who receive Social Security benefits. The Treasury may not have enough incoming revenue to make those payments without the authority to cash in these securities. Absent the legal authority to borrow beyond the current ceiling, Social Security, Medicare, Medicaid, and other payments will not be made on time and in full unless Congress approves an increase in the debt limit.
Even a short delay in the payment of Social Security benefits would be a burden for the millions of Americans who rely on their earned benefits to pay for out-of-pocket health care expenses, food, rent and utilities. In fact, almost two-thirds of beneficiaries depend on Social Security for half of their income and 40 percent rely on their benefits for 90 percent or more of their income.
As we look to the 118th Congress, we can expect the likelihood that payment of Social Security benefits would be disrupted if a default occurs to be greater than during previous crises. In the not-too-distant past, Social Security payroll tax revenue was greater than the amount of benefits being paid, therefore resulting in net additions to the retirement fund. These surpluses were intended to fund the benefits of the baby boom generation as it reached retirement age. Today over 10,000 baby boomers are reaching age 65 every day, resulting in expenses that are greater than total income, meaning that the trust fund is being drawn down in order to make payments to current beneficiaries. In this situation, Treasury must go on the market to raise money to redeem Social Security bonds to pay benefits. Without the authority provided by increasing or suspending the debt limit, it is more likely than in the past that Social Security beneficiaries will feel the full impact of a default.
Unfortunately, many Republican lawmakers have publicly said they plan to use the coming debt limit crisis as “leverage” to cut federal spending, including both Social Security and Medicare. The Republican Study Committee, the largest group of House Republicans, released a budget plan in June 2022 that called on lawmakers to raise Medicare’s age of eligibility to 67 and the Social Security eligibility age to 70, and then index both to life expectancy in the future; means-test early retirement benefits; and endorsed privatizing Social Security for future retirees (which would leave generations of workers’ retirement subject to the ups and downs of the stock market and undermine funding for survivors benefits and the disabled). Other Members of Congress have proposed the creation of special commissions to “reform” Social Security and Medicare (translation: “cut benefits”), or advocated for changes to the budget process that would force arbitrary caps on all federal spending, which could be the price for their support for raising the debt limit. This despite the fact that the money owed by the federal government subject to the debt ceiling is for past – not future – spending, and that both parties have been responsible for adopting policies that increased the debt in the past, most recently $5.5 trillion in debt accumulated under then-President Donald Trump.
As we wrote in 2011 when the GOP tried this same ploy, “Americans of all ages and political parties reject Social Security and Medicare cuts. We need to remind members of Congress that Social Security and Medicare are promises to the American people that should not be broken.”
As to the path forward, we urge Congress to step up to the plate and enact the legislation that is necessary to extend or suspend the debt limit. Such legislation should be free of provisions unrelated to the debt limit, such as attempts to cut Social Security and Medicare or discretionary programs important to seniors. Increasing the debt limit is a ministerial function of Congress. It should be done quickly, cleanly and without putting the benefits of America’s seniors in jeopardy.
Government Relations and Policy