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. The growth in federal debt has periodically obliged Congress to raise the statutory limit. We are now fast approaching a time when 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:
The Bipartisan Budget Act of 2019 (Public Law 116-37) enacted in August 2019 suspended the debt limit through July 31, 2021. Since there was no Congressional action on the debt limit before July 31, the Treasury Department has taken “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 the capacity of those measures to prevent a default is likely to be exhausted sometime after September.
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 hold $2.908 trillion in U.S. government securities, the Treasury Department must have cash to pay benefits when they are due. In October, 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 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.
In the current debt crisis, the likelihood that payment of Social Security benefits would be disrupted if a default occurs is 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. Currently expenses 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 say they won’t support raising the debt limit or won’t support raising it unless special commissions are established to “reform” Social Security and Medicare (translation: “cut benefits”). In fact, Senate GOP leader Mitch McConnell predicts that “not a single Republican” will vote to raise the debt limit this year, citing Democrats’ plans to spend trillions on infrastructure, even though the money owed by the federal government subject to the debt ceiling is for past – not future – spending. In response to Senator McConnell, Senate Majority Leader Chuck Schumer says Republicans must own the debt limit vote too, pointing to $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