By Mary Johnson, Editor
Concern is growing that Social Security benefits could be affected by negotiations over lifting the federal debt limit later this year. Sound familiar? Many of you have heard it before. The strategy was used in the past to extract deficit reduction concessions that included some changes to Social Security and led to automatic annual Medicare cuts.
Debt limit budget negotiations can become a game of Debt Limit Chicken and the risks are serious. Social Security benefit checks can’t be paid in full or on time unless Congress comes to an agreement on how budget matters will proceed once the debt limit is lifted. But failure to do so in a timely fashion would hurt about 66 million Social Security recipients.
In fact this strategy backfired in the past when negotiators appeared to be unable to come to an agreement. That led to a costly downgrade in U.S. credit ratings on August 5, 2011, when the rancorous debt limit negotiations got within days of default. Lower credit scores can increase the cost of the federal government debt.
What does the debt limit have to do with Social Security benefits to begin with? Don’t payroll taxes take care of it? Not directly. In fact, the Social Security Trust Fund is the single biggest holder of debt that the government owes to itself.
The Social Security Trust Fund currently holds more than $2.7 trillion in special non-marketable federal bonds which essentially are I.O.U.s from the U.S. Treasury. When payroll taxes and revenues from the taxation of Social Security benefits are sent into the Treasury, the special obligation bonds are issued and credited to the Social Security Trust Fund. The special obligation bonds pay interest which amounted to an estimated $64.6 billion in 2022.
Social Security and Medicare benefits are paid for in large part through withholdings from earnings when beneficiaries were working. The non-marketable bonds held by the Social Security and Medicare Trust Funds are for revenues that have already been collected to pay benefits for today’s retirees and Medicare recipients.
Our Social Security and Medicare benefits are not to be played with. Should Social Security and Medicare benefits be trimmed? What do you think of proposals to change the programs? Learn more and tell us by taking our 2023 Senior Survey at www.SeniorsLeague.org/2023seniorsurvey.