Social Security: Americans Worry About Debt Ceiling Issue, Experts Respond
On Jan. 19, the United States hit its debt ceiling, an event that has prompted the Treasury Department to use “extraordinary measures” to continue paying the government’s debts. The crisis is causing distress for many people over the future of their Social Security benefits.
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According to a new poll by GOBankingRates, 70% of Americans are concerned that the debt ceiling issue will endanger Social Security.
Are the majority of Americans right to be worried? Will the U.S. hitting the debt ceiling endanger Social Security benefits in the future?
The answer is complicated. In short, experts say Americans should be worried about Social Security, but not necessarily because the U.S hit its debt ceiling.
Social Security Is Running Out of Money
Social Security has been in trouble since long before, and completely separate from, any issues with the debt ceiling.
Wayne Winegarden, an economist with the Pacific Research Institute, said, “Social Security is fundamentally unsound; and, beginning in about 10 years, without changes, automatic cuts to Social Security benefits of around 23% will be implemented.
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“The mandated future cuts demonstrate Social Security’s fundamental problem: Expected future outlays exceed expected future revenues. This is what Americans should be worried about. On its current trajectory, Social Security is in danger.
“When politicians say, ‘I will not touch your Social Security,’ what Americans should be thinking is, ‘Those politicians are jeopardizing Social Security,’ rather than thinking reforms are endangering Social Security.”
Social Security Can’t Borrow Money With Debt Ceiling Issue
There are some ways the U.S debt ceiling interacts with Social Security. For instance, Social Security is financed by payroll taxes; and, as the boomer population ages and more people begin receiving benefits, the program has been running deficits.
“To make up for the deficits, Social Security has been drawing down its trust fund,” said Brian Wilcox, chief financial officer at Debt Bombshell. “The Congressional Budget Office projects that the trust fund will be exhausted in 2029. If the debt ceiling is not raised, the government would not be able to borrow money to pay back Social Security, which would cause the program to go bankrupt.”
What’s Next for Social Security and the US Debt Ceiling Crisis?
The problem of Social Security and the U.S. debt ceiling are in many ways separate issues. But they do intersect: When the government needs to borrow money to replenish the Social Security fund, it has nowhere to go, having met its debt threshold.
So what’s next for the U.S. in handling the debt ceiling crisis?
Let’s back up a bit and look at how we got here in the first place. The pandemic has a lot to do with it.
“Assuming the ‘how’ in this question refers to the debt limit crisis, it happens because the federal government, which has been profligate for years, has been even more so since the Covid pandemic,” Winegarden said. “This spending has caused many adverse consequences, such as the inflation problem plaguing the economy that also includes hitting the debt ceiling faster than expected.”
To put it frankly, the government’s spending is simply unaffordable. So how do we fix it?
“Fixing the problem long term requires addressing the spending side of the ledger,” Winegarden said. “However, in the near term, the repercussions of hitting the debt limit will be unpleasant. If the politicians don’t reach an agreement to raise the ceiling, then the government will not be able to pay all of its bills.
“The adverse consequences will depend on how the payments are prioritized. If the administration does not prioritize the spending to minimize these damages, then there could be wide implications to the financial markets and for government workers, contractors and recipients.”
Let the ‘Extraordinary Measures’ Continue
We mentioned at the start that the Treasury Department was turning to “extraordinary measures” to finance the federal government and avoid defaulting on debt payments.
What does that mean?
“This means that they will be utilizing cash from various accounts and programs to finance the government,” said Cordearo Dadson, founder of Pocketcows and co-president of the Private Directors Association. “Unfortunately, this is only a short-term solution, and they will likely reach their borrowing limit again by mid-2023.”
A more long-term solution likely would be Congress passing legislation to heighten the debt ceiling and thereby ensure the federal government could continue to finance itself.
“There have been several attempts to do this over the past few months, but none have been successful,” Dadson said. “However, it is expected that lawmakers will eventually reach an agreement, as a failure to do so would likely have major economic repercussions.
“It is also important to note that while the debt ceiling has been reached, the U.S. will still be able to pay its debts and services will not be disrupted. This is because the Treasury Department can prioritize certain payments over others until Congress reaches a decision on the debt limit.”
You’ll Still Get Your Social Security Check — for Now
It’s important to note that, for now, Social Security checks won’t be disrupted.
“Americans should not be worried about reaching the debt ceiling affecting their Social Security benefits, at least for now,” said Bryan M. Kuderna author of “What Should I Do with My Money?: Economic Insights to Build Wealth Amid Chaos.” “Since 1960, Congress has needed to raise the debt ceiling 79 times. So, while it sounds scary, this is certainly nothing new.
“At some point, Social Security benefits will need to be adjusted and the normal retirement age likely pushed back, but this is not imminent and likely won’t be provoked by just another debt ceiling.”
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