When the U.S. hits the debt ceiling…what happens to Social Security?

 

The national debt ceiling is the legislative cap on how much debt the United States Treasury may issue, and therefore limits the amount of money the federal government can borrow.

In March, the U.S. surpassed that limit and our national debt stands at over $19 trillion.

On October 1st, funding for the federal government expires and President Trump and Congress will have to come to a decision: raise the debt ceiling to avoid defaulting on U.S. debts or begin prioritizing who will be paid and who won’t.

Though Congress has acted 78 times throughout our history to raise the debt ceiling and avoid a default that would throw financial markets into chaos, the possibility that Congress won’t come to a consensus on the debt ceiling remains–especially with several controversial spending items on the table and disaster relief funds desperately needed by those in the path of Hurricane Harvey.

In 2011, the Federal Open Market Committee suggested in transcripts should Congress have failed to reach a debt ceiling extension agreement, debts would have been prioritized to avoid a catastrophic default.

Prioritizing debts may keep the country from defaulting, but not without casualties. Prioritization means some debts will have to be deferred so critical debts can be paid–and Social Security and Medicare won’t be at the top of the list when it comes to which debts get paid first.

Cut back to the summer of 2011. Facing a similar debt ceiling standoff, President Barack Obama made jaws drop when he flatly admitted Social Security beneficiaries could be at risk if no deal was reached:

“I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

Here we go again.

It’s worth noting that the government has always managed to reach an understanding, raise or temporarily extend the debt ceiling, and dodge financial disaster.

Because an agreement has always been reached in time, we’ve also never field-tested this prioritization strategy. We know how deferred payments would affect Social Security beneficiaries, but how it would affect the entire country and its finances remains to be seen.

Let’s just hope when the time comes to make a decision, our elected officials can come to an agreement about one thing: we can’t continue to punish Social Security beneficiaries for our mounting national debts.