How Could US Debt Ceiling Impasse Affect Social Security Checks?

US Treasury Secretary Janet Yellen has set the deadline of 18 October for Congress to act on the debt ceiling, warning of possible economic catastrophe in the event of failing to meet the "X-date".

As the debate around the US debt ceiling continues, many, including the Treasury secretary, have voiced concerns that it will be US families who have to take the blow in case no action is taken.

“Nearly 50 million seniors could stop receiving Social Security payments or see them delayed”, Yellen said.

She was not the only one to assert that, with the sentiment echoed by other Democrats, like House Speaker Nancy Pelosi, Minnesota Senator Amy Klobuchar, and Senate Majority Leader Chuck Schumer.

"The full faith & credit of the United States should not be political. Republicans’ reckless decision to block government funding & raising the debt ceiling threatens 6 million jobs, financial ruin for countless families, military paychecks & Social Security payments to seniors", Pelosi tweeted earlier in the week.

However, according to the vice president and chief economist at the Bipartisan Policy Center Jason Fichtner, cited by CNBC, the authorities could prioritise Social Security payments and make sure that the debt ceiling impasse does not affect them as severely as feared by some.

“They can prioritize Social Security payments”, Fichtner said. “They can do it legally, and they will do it”.

He also pointed at the way the government handles bonds that are used for Social Security payments, saying that funds are invested in intergovernmental bonds and exchanged for public debt, and then cash when the government needs to issue checks to beneficiaries. This, according to Fichtner, can be done without exceeding the debt limit.

The economist outlined that there are dedicated trust funds that are only used to pay for Social Security benefits, which are not dependent on the debt ceiling. Still, it would not mean that the Social Security checks are totally safe.

“If a debt ceiling and a shutdown were to happen at the same time, benefit checks would still go out”, Fichtner said. “They might be delayed, but new claims could not be processed”.

He also suggested that certain presidential administrations have perpetuated the idea that Social Security checks will not go out if the debt ceiling is not raised, thus "weaponising" Social Security and creating leverage in debt limit negotiations.

“I’m not saying you shouldn’t raise the debt ceiling”, Fichtner noted. “But let’s be honest about what happens”.

As the 18 October debt ceiling deadline set by Treasury Secretary is looming, failure to meet it could lead to the first debt default in US history. Amid adamant opposition from the GOP to support the raising of the debt ceiling, Democrats, including President Joe Biden, are urging Republican lawmakers to back the measure. At the same time, the Democratic Party is struggling to push the Biden agenda through Congress, insisting on the passage of two massive spending bills.

However, a $1 trillion infrastructure bill and an even larger $3.5 trillion reconciliation package are deemed by some as going too far, with concerns of reckless spending voiced not only by the Republicans, but also among the Democratic Party.