Debt Limit Delays to Hit Social Security, Military Payments First, Report Says
By David Harrison, CQ Roll Call
As the deadline nears for the government to run out of borrowing authority, details of the consequences of exceeding the debt ceiling are coming into focus.
Under this scenario, Treasury officials would postpone payments until they have enough cash flowing in to make them, which is what Obama administration officials have said would be the most likely path should Congress not raise the debt ceiling. A report from Treasurys Inspector General in 2011 called delaying payments the least harmful way to deal with the expiring borrowing authority.
Officials were considering delaying payments in August 2011, the last time the government came close to hitting the debt limit. Its likely they would resort to the same alternative now.
Although the government reached its debt ceiling on Dec. 31, the government is relying on extraordinary measures to buy time before being forced to stop payments. Those measures will last until sometime between mid-February and early March.
The new BPC estimate released Wednesday assumes that Treasury will find enough cash somehow to pay the $30 billion in interest payments due on Feb. 15. Another $22 billion in payments to military personnel, employees, contractors, long-term unemployed workers and others will also be due on that date, however, and those payments likely will be delayed.
According to the center, military personnel would not get paid until Feb. 20. Unemployment assistance would also be delayed until Feb. 20.
On Feb. 20, the government will owe $11.4 billion Social Security payments. Those payments will be delayed until Feb. 25.
After that, the delays will begin to stretch out longer. Payments to defense contractors due Feb. 22 would be pushed back to March 1. Food stamp recipients set to receive their benefits on Feb. 25 would have to wait until March 5. And $52.1 billion in Social Security checks, tax refunds, veterans benefits and Medicare and Medicaid payments to providers due on March 1 would not go out until March 15.
Delaying payments could have consequences for vulnerable populations who rely on Treasury payments for essential living expenses such as housing and food, the report said.
Several congressional Republicans have introduced legislation in recent days that would force Treasury to prioritize payments to bondholders, Social Security recipients and military personnel. Treasury officials, however, say their computer systems, which handle some 5 million transactions a day, can only process payments as they come due.
Republicans argue that prioritizing payments in this way would forestall a default on debt service payments even if it would make a government shutdown necessary. That, they argue, is a preferable alternative.
Not raising the debt ceiling would bring about a significant shortfall in revenue for the government, but that is different than a default, said Sen. Mike Lee, R-Utah, in a Fox News interview Jan. 14. A default is what happens if we dont pay the interest as it accrues on our national debt. Thats not going to happen. We have more than enough revenue coming in each month to cover that sum.
But that would still likely result in a ratings downgrade and higher interest rates, which could push the country back into recession, according to Treasury officials.
Treasury officials also would have to face the possibility that they would no longer be able to roll over their debt. Usually, when Treasury bonds mature, the government can sell new bonds to pay off the old ones. If the country reaches its borrowing capacity, investors may no longer be willing to accept new bonds in exchange for maturing older ones. Or if they do, they might demand much higher interest rates, raising costs to service the debt.
The centers report estimates that roughly $500 billion in debt will come due between Feb. 15 and March 15.