Debt Limit Crisis Threatens Social Security Payments: 1996 Law Provides Potential Solutions

Debt Limit Crisis Threatens Social Security Payments

As the debt limit crisis looms over the United States, concerns arise about how the government will manage Social Security payments if the debt limit is not raised.

Debt Limit
Unlike a government shutdown where Social Security and Medicare benefits continue, a default may disrupt benefit payments. (Photo: CNBC)

The debt limit is the maximum amount the US government can borrow to pay for its obligations, including Social Security, Medicare, military salaries, tax refunds, and interest on the national debt.  Even a short delay could cause financial hardship for beneficiaries who rely on the benefits to pay for essential expenses such as health care, food, rent, and utilities, CNBC reported.

1996 Law Provides Potential Solutions

A law signed in 1996 could potentially provide a workaround, allowing Social Security and Medicare benefits to be paid even if the debt limit is not raised.

The law includes an “escape clause” that permits the U.S. Treasury Department to draw down Social Security and Medicare trust funds to ensure that benefits keep flowing until the debt limit is increased. Moreover, this law prohibits the use of these funds to pay for any other government programs.

Nonetheless, the 1997 administrative policy change complicates the matter as the Social Security Administration does not pay out all benefits at the start of each month. Instead, payments are based on each beneficiary’s date of birth. As a result, the combination of these two changes could lead to the depletion of the Social Security trust funds before the debt limit is raised, leaving the government without funds to pay for other government programs.

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The current Social Security trust fund balance is $2.8 trillion, which is enough to ensure that Social Security benefits and other government programs can be funded for a considerable period without raising the debt limit, GoBanking Rates reported. However, the most reliable solution to keep Social Security payments flowing is for Congress to raise the debt limit. If that does not happen, advocates for the retirement program warn that the outcome could be devastating for the 65 million older Americans on Social Security.

Some downplay the risk of a default on government obligations, such as U.S. Rep. Jason Smith (R-Mo.), who chairs the House Ways & Means Committee. Smith argues that Democrats in Congress are exaggerating the threat and that no debt limit legislation that passes through his committee will include cuts to vital programs such as Social Security and Medicare.

In conclusion, while the 1996 law provides a potential workaround to ensure Social Security payments continue in the event of a debt limit crisis, the situation remains uncertain. Ultimately, raising the debt limit is the surest way to ensure that Social Security payments continue uninterrupted. If Congress does not act, the consequences could be dire for millions of Americans who rely on their earned benefits to pay for their daily expenses.

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