SOCIAL SECURITY

How does the debt ceiling deal affect Social Security payments?

With the partisan standoff in Washington holding up a long-term solution to raising the debt ceiling, what federal government payments will be at risk?

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How does the debt ceiling deal affect Social Security payments?

Lawmakers in Washington have agreed to a short-term increase of the debt ceiling postponing the need for the US Treasury to decide who gets paid. But, that agreement only gives a matter of weeks breathing space.

If a longer-term solution is not achieved before 3 December, the estimated date the US Treasury won’t be able to meet all its financial obligations, then questions about what payments the US government can make come into play.

Congress will need to resolve two problems before 3 December

The US Treasury can cover roughly 60 percent of its day-to-day financial obligations through money it takes in, mainly through taxes, according to an analysis by the Bipartisan Policy Center. US Treasury Secretary Janet Yellen warned Congress that the federal government would exhaust its cash on hand by 18 October if no action was taken leading to extraordinary measures.

With the agreement passed between Republicans and Democrats in the Senate to raise the debt ceiling by $480 billion, that will give the Treasury breathing room until around 3 December. However, due to the unpredictability of the cash flows of the Treasury takes in, a longer-term solution will need to be reached before then.

Operations of the federal government were also given a short-term extension averting a government shutdown at the end of September through a stopgap bill. Lawmakers agreed to keep the US federal government funded until 3 December, making that date an even more critical deadline.

The US Treasury will have to decide how to handle payments

Should the Treasury no longer be able to meet all the financial obligations of the US, choices will need to be made about what bills get paid and which are rolled over. This is unmapped territory for the department, but beyond pulling a rabbit out of the hat, which the Treasury has said it won’t do, the department could proceed in a couple ways.

The department could either prioritize payments or make a full days’ worth of payments once there are sufficient funds. The former would mean some obligations get paid on time while others would be delayed. The latter would result in all payments, except for interest payments being delayed, but would potentially be easier for the computerized payment system to manage. However, both options would run into legal trouble.

Will Social Security payments be affected by a default?

There is uncertainty about how Social Security benefits would be affected in either of the before-mentioned scenarios as payments are financed from a dedicated payroll tax. The Social Security Administration also has its own trust funds which could give it more wiggle room.

However, the money that the agency receives through taxes doesn’t cover the amount it needs to pay out in benefits each month to around 65 million beneficiaries. Even though the agency staggers payments on a weekly basis, when it has used up its cash on hand the agency may have to wait to send out the following batches of payments until there is enough money.

Chief economist at the Bipartisan Policy Center and former Social Security Administration acting principal deputy commissioner Jason J. Fichtner told the New York Times one possible workaround would be for the Treasury to purchase special-issue bonds from the program’s trust fund and then turn around and issue new bonds to replace them. In theory that wouldn’t fall foul of the debt ceiling limit and benefits could be paid on time.

Whose Social Security benefits could be delayed?

If Congress doesn’t raise the debt ceiling the “X Date”, or the day when the US Treasury will no longer be able to meet all the financial obligations which is now estimated to be 3 December, the Social Security Administration may have to start delaying some payments. According to the agency’s payment schedule, Supplemental Security Income payments go out on the first Wednesday of each month, which this year is 1 December, two days before a potential default. Most likely these payments would not be affected immediately.

However, with each passing week the flexibility of the Social Security Administration has will become more limited. On the second to the fourth Wednesdays of each month payments are made to Social Security recipients. Each week corresponds to a 10-day period of birthdays. Birthdays on the 1st and 10th of any given month are on the second Wednesday of each month, the following week the next 10-day period and the fourth Wednesday the remaining period including birthdays that fall on the 31st.