Speaker of the House Kevin McCarthy, R-Calif., speaks to reporters in Statuary Hall in the U.S. Capitol after announcing his debt limit increase plan on the House floor on April 19, 2023.
Bill Clark | CQ-Roll Call, Inc. | Getty Images
As Republicans scramble to put together a plan to fix the nation’s debt limit, experts are warning a failure to address the issue could have dire consequences for Americans’ finances.
“In my assessment — and that of economists across the board — a default on our debt would produce an economic and financial catastrophe,” Treasury Secretary Janet Yellen said in a Tuesday speech in Sacramento, California.
Residents of the Californian capital could lose their jobs, she warned. Meanwhile, payments would go up on mortgages, auto loans and credit cards.
“On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security,” Yellen said.
More from Personal Finance:
GOP senator touts ‘big idea’ Social Security funding fix
Experts argue Social Security retirement age should not pass 67
The return on waiting to claim Social Security is ‘huge’
A default on the U.S. debt would be unprecedented, as the country has paid all its bills on time since 1789, Yellen noted.
The extraordinary nature of such an event has called into question how the government would juggle payments, including Social Security benefit checks.
The U.S. Department of the Treasury would likely prioritize the payment of Social Security benefit checks, Jason Fichtner, a former Social Security Administration executive and vice president and chief economist at the Bipartisan Policy Center, told CNBC.com in January.
However, it is possible the Social Security Administration would delay payments to ensure it has enough cash on hand, he said.
More broadly, the Bipartisan Policy Center is watching the “X date” range, the point by when leaders need to act to protect the economy.
The U.S. hit its statutory debt limit in January, prompting it to start paying the government’s obligations through extraordinary measures.
But it can only do that for so long. Yellen previously said it is unlikely the cash will be exhausted before early June. In February, the Congressional Budget Office said the emergency measures to prevent a debt default may be exhausted sometime between July and September.
The Bipartisan Policy Center is currently working on a new “X date” projection that would factor in delayed income from federal tax returns that have been deferred until October, according to Shai Akabas, director of economic policy at the Center.
That early June period remains a time period that the Washington, D.C.-based think tank is watching, Akabas said.
“It may be that in order to minimize risk, Congress would need to act before that timeframe,” Akabas said.
But while Social Security payments may still go out, others are worried about the ramifications the Republicans’ proposed spending plan could have on the Social Security Administration’s funding.
On Tuesday, the National Committee to Preserve Social Security and Medicare wrote a letter to Congress urging leaders to oppose the Limit, Save, Grow Act of 2023.
The bill calls for limiting fiscal year 2024 discretionary spending to 2022 levels, which would result in a 6% cut to all agencies for the year, according to Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare.
“The Social Security Administration (SSA) is a key agency that would be negatively impacted by such a dramatically reduced funding level,” Richtman wrote.
Such a funding cut would result in longer wait times for benefits and assistance, and could reduce access for in-person services, he noted.
However, it is still too premature to know exactly the cuts the Social Security Administration or other agencies may face under the plan, according to Akabas. Notably, the Republican plan is far from a done deal, he noted.
“Even if that passes, it’s dead on arrival in the Senate, and the president has said that he would veto it,” Akabas said. “So there is no way that that is going to be enacted into law.”
However, now that House Republicans have put their opening offer down on paper, that may help open both sides of the aisle to a substantive discussion, he said.