Q. What is the debt ceiling and when will the federal government reach it?
A. The debt ceiling is the amount of debt the federal government can legally borrow from the public and government trust funds. The ceiling is set by law and is currently $14.294 trillion. On May 16, 2011, the Treasury Secretary said that the government will reach the current debt ceiling by August 2, 2011.
Q. Will Social Security recipients receive their checks if the debt ceiling is not increased by August 2?
A. After August 2, Social Security benefits are next scheduled to be paid on August 3. The U.S. Treasury has the authority and assets to pay Social Security benefits if the debt ceiling is not increased before August 2. The government continued to pay Social Security benefits when the debt limit was reached in 1985 and again in 1996.
Q. How will benefits be paid if the government can’t borrow more money?
A. The U.S. Treasury has two ways to make Social Security payments if the debt ceiling is not raised by August 2. The first is with general tax revenues. Regardless of U.S. borrowing authority, tax revenues continue to flow into the U.S. Treasury. In August, the Treasury is likely to receive revenues around $172 billion and have bills due around $306 billion. The President has the discretion to determine how the money is spent. Whether or not Social Security would be one of his top priorities, there are special safeguards for Social Security payments. The federal government is required to invest the payroll taxes going into the Social Security Trust Fund in special obligation bonds. These special obligation bonds are debts held by the government instead of the public. By law, these bonds can be exchanged for public debt in order to secure infusions of cash, if needed, to continue paying Social Security benefits. As a result, Social Security Trust Fund assets of $2.6 trillion ensure that Social Security benefits can be paid until the debt limit is increased or the federal debt is otherwise reduced.
July 15, 2011
