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I've Always Wondered ...

What happens to Social Security benefits in a debt default or a government shutdown? 

Janet Nguyen Nov 10, 2023
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Stephen Gragert of Oxford, Kansas, asks: 

How are seniors on federal Supplemental Security Income supposed to get by if the government goes into default? Especially if there is no backup income?

Over the past decade, the country’s debt ceiling limit and spending plans have been a repeated point of contention for lawmakers, leading to government dysfunction.

Earlier this year, the U.S. risked a default on its debt if Congress failed to raise or suspend the debt ceiling. Now, the possibility of a shutdown looms if Congress can’t agree to a deal that keeps the government funded. It would be the fourth shutdown in 10 years.  

Lawmakers’ aversion to compromise has far-reaching implications that has affected or could affect government operations, benefit programs, federal workers’ paychecks and the broader economy. 

More than 71 million people receive benefits from Social Security and/or the Supplemental Security Income program. Social Security benefits are provided to those who are 62 or older and have worked and paid Social Security taxes for at least a decade. SSI provides financial benefits to those with limited income and resources if they are age 65 or older or people of any age who have a disability. Many people, including Stephen Gragert, have raised concerns about what would happen to these programs.

The ripple effects of a shutdown and a default would be different, so here’s a breakdown of what each would mean for the nation’s social safety net. 

What happens if there’s a government shutdown? 

Government funding was set to expire at the beginning of October if the U.S. failed to approve spending for the next fiscal year, but Congress passed a continuing resolution that keeps the government funded through Nov. 17.

With just a week left to resolve the issue, House Republicans recently had to cancel voting on funding bills because they lacked enough support. While a shutdown would disrupt some government services, Social Security and SSI payments are not at risk, according to experts.

Social Security and SSI recipients were paid in full during previous shutdowns, said David Camp, interim CEO of the National Organization of Social Security Claimants’ Representatives. 

“Claimants can still communicate with Social Security, at least to the extent that they can on a normal day,” Camp said. 

If Congress doesn’t pass a budget or if the continuing resolution expires, the U.S. Treasury already has authority to keep sending out checks for entitlement programs like Social Security and SSI, said Jennifer Erkulwater, a professor of political science at the University of Richmond.  

“It can theoretically keep doing that until it runs out of money in the bank, so to speak,” Erkulwater said. 

SSI and Social Security benefits count as mandatory spending, which means Congress doesn’t have to say, “Please pay SSI,” each year, Erkulwater explained. 

“It just happens,” she said. 

What if the government defaults on its debt? 

The question of what happens to Social Security and SSI payments in the event of a default is much murkier. 

The debt ceiling, or limit, is the amount of money the U.S. government is allowed to borrow to meet its financial obligations, including Social Security and Medicare benefits, interest on the debt, military salaries and tax refunds, as well as a vast range of other expenses.

The Treasury borrows money by issuing securities, such as Treasury bills, notes and bonds, which can be bought by institutional investors, other governments and individuals who want to save and invest money, Erkulwater explained. 

“Default happens when Treasury cannot send repayments of debt or interest on the debt back to creditors, which are anyone or any entity that lends the U.S. money,” Erkulwater said. 

At an April event for business and political leaders, Treasury Secretary Janet Yellen said defaulting would lead to “an economic and financial catastrophe.” 

This kind of failure, unlike a shutdown, would put Social Security and SSI in danger, Erkulwater noted. 

The financing for SSI comes out of the Treasury’s General Fund, which includes personal income and corporate tax payments. Social Security has its own trust fund, which the Treasury manages “in much the same way that a bank manages a checking account,” according to the Social Security Administration. 

So what does the Treasury do if it can no longer borrow money? Erkulwater noted that if the U.S. hit the debt ceiling, the Treasury would still have funds available, but they would be limited.

“It can prioritize payments to some groups, such as creditors or the needy, and direct resources there,” Erkulwater said. She added that the Treasury might reduce the payments — maybe to 50% or 75% of what’s been promised.

“It could take both approaches. Which one it takes depends on what executive branch officials decide, and they will likely prioritize creditors and recipients of entitlement programs,” Erkulwater said.  

SSI would likely be a high priority because the Treasury is already authorized to spend money on it and SSI recipients are especially in need, Erkulwater noted. 

“There’d be real hardship if Treasury wasn’t able to pay,” she said. As for how those on SSI could get by, she said they would have to “penny pinch until our leaders figure the mess out.”

Camp said delays of Social Security and SSI checks would make it difficult for people to buy basic necessities. “It would deprive our elderly population, quite literally, of food,” he said.

However, experts caution that prioritizing some payments, while others are delayed or reduced, would be dangerous and might not even be technologically possible.

Richard Kogan of the Center on Budget and Policy Priorities wrote that the government’s payment system pays bills “in the order in which they come due.” He also noted that if prioritization lasted for long periods of time, those left off the priority list would see their payments “fall ever further behind,” and with or without prioritization, the economy would still be adversely impacted.

If the Treasury decided to reduce benefits to avert a default, there would also be “legal and constitutional ramifications,” Erkulwater said.

“I imagine there would be strong grounds for an aggrieved party, say an SSI or Social Security beneficiary, to sue for full benefits,” Erkulwater said. “But it takes a long time for cases to move through the courts, and we would be in complete crisis mode pretty quickly” as cracks in the safety net widen.

Republicans opposed raising the debt ceiling this year, demanding cuts in benefits and other government spending. Eventually, the two parties and both chambers of Congress agreed to a compromise bill, tabling the issue — for now. 

“Budgeting is a solvable problem. And the fact that we get to this point over and over again, it’s not that we don’t have answers, it’s that we don’t have the will to solve it. And I think it reflects the polarization in our society around politics,” Erkulwater said. 

In June, President Joe Biden signed legislation that suspended the debt limit — which stands at $31.4 trillion — until Jan. 1, 2025. Some of the bill’s provisions include reduced funding for the Internal Revenue Service, a more streamlined process to approve energy projects and new work requirements for some Americans who receive benefits from the Supplemental Nutrition Assistance Program (although some groups, like veterans, will be exempt).

David Camp of the claimants group is concerned that when the government can’t agree on ways to avert a default or a shutdown, it signals to Americans that they can’t trust how the government operates. People become cynical, he said, even though the Social Security Administration oversees “wonderful programs” that provide reliable support to millions of Americans. 

“What we do is undermine confidence in government as a whole,” Camp said.

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