Will Social Security benefits be included in debt ceiling negotiations? How could they be affected?
There has been worries that cuts to Social Security could be on the horizon as part of negotiations on the debt ceiling.
The Republican-controlled House of Representatives is so far refusing to budge on the debt ceiling. As Congress controls the upper limit of debt the Republicans in control of half means they can stop the Democrats raising the limit. In practice, this could mean the US defaulting on its international debt as soon as June.
If the limit is not raised then cuts can be demanded to keep the debt limit below the threshold.
Social Security potentially in the firing line
Discussions are therefore taking place on Capitol Hill to either raise taxes or cut spending. Democrats so far have favoured an increased tax contribution for the highest paid Americans to keep key parts of the Social Security system intact if there were to be cuts in spending. Therefore, Democrat Senator Joe Manchin has called for a raise on the payroll taxes cap.
“Social Security and Medicare basically is running out of cash because we stop at a certain level where people pay into FICA,” Manchin said. FICA is the bill representing federal payroll tax.
At present wages up to $160,200 are subject to a 6.2% tax for employees and employers that goes to Social Security. People paying over this do not contribute. Potential increases range from the upper limit being $250,000 or $400,000.
Meanwhile, Republicans are leaning towards the other route to cut Social Security support. Laid out in the Republican Study Committee budget is a list of cost-saving measures such as raising retirement age. This would not be signed off by the President nor the Democrat-controlled Senate.
“I’ve got 60% of my population that that’s all they have is Medicare and Social Security,” Manchin told NBC’s “Meet the Press”. “You think I’m going to go down that path and put them in jeopardy? No.”
Much to discuss in coming months
All of this will need to be negotiated upon with the debt limit looming. Choosing to do nothing would lead to a collapse in the trust in the US as one of the safest holders of foreign currency while bowing to Republican demands would put millions of Americans under pressure.
The UShas never defaulted on its international debt by means of its debt ceiling. It has always been increased when it has needed to be so expect that outcome again.