The word from Washington is that the U.S. is hours away from defaulting on its public debt, because Congress is unwilling to raise the debt ceiling. If the debt ceiling is not raised, the Treasury Department will be unable to raise money to pay all of the government’s current obligations.
By some estimations, if the debt ceiling is not raised on August 2, the Treasury Department will have $306.7 billion in expenses in August but will receive only about $172.4 billion in revenue. The government will be forced to slash spending by as much as 40 percent.
America’s seniors must be especially worried. Will Social Security checks arrive next week? Will the Medicare program still pay for health care? Since most mesothelioma patients are in their seniors years, many must worry whether they will be able to continue mesothelioma treatment.
We do not yet know what might happen. But here is what some experts say might happen:
Social Security. The Social Security Administration appears to have enough funds to pay Social Security checks through August. The SSA also is still receiving money from payroll (FICA) taxes. As long as revenue from FICA is at least enough to cover current expenses, seniors should still receive their Social Security checks.
That said, it is possible that the government will be forced to divert some of the FICA revenue to pay for other needs, such as national security. That would probably be a last-resort move, but it is not out of the question. If that happens, Social Security checks would stop much sooner.
Assuming the Social Security Administration is still receiving its usual share of FICA taxes, what might happen when FICA income isn’t enough? When there is a shortfall, as there was for a time last year, the Social Security Administration normally would turn to the Social Security Trust Fund.
And what is the trust fund? When Social Security receives more money in revenue than it needs to meet current obligations, the “extra” money is invested in U.S. Treasury interest-bearing securities, such as bonds. These securities are the trust fund. When Social Security has a shortfall, it can redeem some bonds to make up the difference.
However, some experts warn that default could affect the value of those securities. In particular, the Treasury Department might stop paying interest on the bonds. If that happens, the Social Security Administration could be short the money it needs to issue checks. And if playing politics with the national debt brings the value of U.S. securities into question, the health of Social Security could be permanently impaired.
And if you are about to become eligible for Social Security, your application may have to wait on someone’s desk for a long time. The Social Security Administration may be forced to lay off employees or even shut down.
Medicare. Medicare appears to be a bigger question mark than Social Security. The Medicare programs also is funded by FICA taxes, and as long as those taxes are not diverted elsewhere, it ought to be able to continue for a time. But Medicare is in a bigger danger of future shortfalls than is Social Security.
In a worst-case situation, rising interest rates caused by default could drive companies out of business and increase unemployment, which would also mean a serious reduction in the amount of payroll taxes the government is receiving. Even if the programs do not shut down immediately, a default could cause both programs to be less secure in the future.
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