Debt Limit Bill Passes House Of Representatives

     The bill to increase the debt limit passed the House of Representatives yesterday. It would force a slight decrease in "non-defense discretionary" spending. That's only a relatively small portion of federal spending but it includes Social Security's administrative budget. If you consider inflation, which may be around 5% now, agencies affected can expect a significant decrease in operating funds. Exactly how much each agency in the "non-defense discretionary" category receives will be determined in the appropriations process that lies ahead. While we can hope that the Social Security Administration fares better than other agencies, the reality is that it has been disfavored in recent years, receiving less than most other agencies in the "non-defense discretionary" category.

     The projected cut in operating funds for Social Security probably won't be across the board. I am attaching a page from the debt limit bill. My guess is that the language about continuing disability reviews is intended to make sure that the Social Security Administration has more and more to spend on CDRs even though its appropriation otherwise will go down. Does anyone know whether there's more going on?

Click on image to view full size

What Happens To Social Security If The Debt Ceiling Isn't Increased?

     The Biden Administration, as others before it, has said that if the debt ceiling isn't increased that there will be consequences for all recipients of federal funds. They have specifically warned that the systems used by the Department of the Treasury do not allow them to prioritize one type of payments over others. For instance, they cannot decide that they will pay Social Security benefits on time but delay payments to Defense Department contractors. I'm sure they're telling the truth. However, I'm also aware that they can generally delay payments for a period of time. That happens every month. I know because it's apparent to me that I receive little or no payments of attorney fees in the last few days routinely every month. I've written about this before and have received the response that Social Security is aware of the problem and that it affects claimants as well as attorneys but that it's nothing that the Social Security Administration is doing. It's the Department of the Treasury that holds up payments. My guess is that it has something to do with routine management of the federal debt. There's probably a lot of debt refinancing at the end of each month. That this happens tells me that their systems can hold up payments for a period of time. What else can the Treasury do if the debt ceiling isn't increased other than to delay payments? At the start, payments of Social Security benefits start showing up a day late. Payments of federal employee salaries show up a day late. Payments to Defense Department contractors show up a day late. That's for starters. The delays would increase with time.

    Anyway, that's my guess of what will happen but I don't know if Treasury's systems allow them to delay Wednesday's payments until Thursday and Thursday's payments until Friday, etc. Maybe they can hold up all payments for a time but cannot control which payments are released once they lift the hold.

    Of course, what I'm talking about would also mean delays in payments to federal bondholders which would put the U.S. into default with massive consequence for the economy but, who cares, being tough on Biden plays well on Fox News and that's all that really matters.

Debt Ceiling Deal Causes No Cuts For Social Security Until At Least 2013

     Nate Silver at the New York Times makes it clear. The debt ceiling deal will cause no cuts in the operating budget of Social Security or any other domestic agency until at least fiscal year 2013. The expiration of the  Bush tax cuts at the end of 2012 may prevent any cut in Social Security's operating budget.

     There is less to this debt ceiling agreement than meets the eye. There is little chance that the "super committee" that has been set up will recommend anything. Even if it does, there is even less chance the recommendation will be adopted. The failure to adopt something will have little immediate effect. Even down the road, the effect should be limited if President Obama is re-elected. If he is not re-elected, there will be problems but there would be problems for Social Security anyway.

     By the way, I really like the idea of using the super committee as a means of forcing Republicans in Congress to vote for enormous cuts in Social Security and Medicare.

So What Just Happened?

     You have heard about the debt ceiling agreement reached yesterday. Here's what you may not have heard:

• It is far from clear that this can pass the House of Representatives. Many Republicans members oppose increasing the debt ceiling. It will take Democratic votes but most Democrats in the House oppose the agreement. However, Wall Street appears to believe that this will pass since the market is up this morning. 
• If the bill does not pass, we are in default. Probably, the August 3 Social Security payments will go out on time -- probably -- but anything beyond that will be delayed.
• The bill would cap domestic spending for the next 10 years. This means that it will be difficult for Social Security to get a larger budget or even to hold onto the operating budget it already has.
• The bill, if passed, sets up a process whereby a special 12 member joint committee of members of both the House and the Senate will recommend measures in November to dramatically cut the budget. Congress will then vote on the recommendations on December 23. If the committee cannot agree or if Congress does not enact the recommendations, automatic budget reductions kick in. The reductions exclude Social Security and apparently exclude Supplemental Security Income (SSI) and other poverty programs. Medicare is excluded except for provider payments.

     Unless Republicans on the joint committee are willing to include significant tax increases, I have a hard time imagining what the joint committee could come up with that Democrats would perceive as better than what happens if nothing is done and the automatic budget reductions kick in. After all, if the alternative is dramatic cuts in Social Security, Medicare, Medicaid, SSI, Food Stamps and Unemployment Insurance Benefits, what is so terrible about percentage cuts?

     I have this vision of how this joint committee will work. Democrats will come up with one plan, Republicans will come up with another plan and the two sides will be unable to come to any agreement. The joint committee has a vote on the rival plans. They deadlock 6-6 on the Democratic plan. When the Republican plan comes up, one of the Democrats votes "present." This means that the vote is 6-5 in favor of the Republican plan and it goes forward. Republicans in Congress are then forced to vote to dramatically reduce Social Security and Medicare. The plan fails, the country is left with the automatic cuts, and Republicans have to explain their votes to dramatically cut Social Security and Medicare when the election comes up.

     The question I wonder about is what would be the percentage reduction in appropriations for agencies such as Social Security if nothing is passed by December 23? I cannot seem to find the answer. Whatever the reduction is, furloughs at Social Security would be inevitable.
     Update: I am doing some very rough calculations and come up with a reduction in Social Security's operating budget of about 4% if no further agreement is reached. I am basing this upon the fact that the current agreement would call for $1.2 trillion in cuts over ten years. Divided by ten that would be $120 billion in cuts in this year's budget but that would be further divided in two between defense and non-defense spending and the Bloomberg business calculator figures on domestic expenditures-- although that is based solely on August 2011 expected expenditures, so I multiplied that by twelve. This is rough at best and there's certainly a chance that I have erred in some way. I hope someone can give us a more accurate number soon. A 4% cut in Social Security's operating budget would definitely cause furloughs and significantly reduced service but it would not cause the collapse of the Social Security Administration, at least in the short run.
    I do not know what effect the planned National Computer Center would have on this. Suspending that project would certainly save money. Isn't there a vacant data center building in the D.C. area that Social Security could take over so it doesn't have to build from scratch? That would be quicker and cheaper. If that project goes forward despite what has happened, I think some explanations are in order.
     Further update: I am reading that the cuts in domestic spending will be delayed until 2013 -- after the Bush tax cuts are due to expire. If I understand correctly, that would save Social Security from any immediate cuts in its administrative budget. The end of the Bush tax cuts, which is certain to happen, at least in part, will help avoid cuts after 2013. If I am understanding this agreement correctly, there will be huge pressure on Republicans to agree to tax increases and little pressure on Democrats to agree to anything.

Debt Ceiling Settlement? Will SSA Be Affected?

Brian Beutler at TPM reports that there may be a settlement of the debt ceiling crisis. The settlement would involve a special committee that would recommend further budget reduction measures. That  committee would report back in November. Congress would then have until December 23 to enact something to reduce the deficit by December 23. If nothing happened, automatic cuts would go into effect, including Defense and Medicare. There is nothing in the report suggesting that Social Security benefits would be cut. The Medicare cuts would be directed at providers rather than beneficiaries. We will have to wait on further details but Social Security's administrative budget might be cut which would give us the prospect of furloughs just in time for Christmas. There is also a strong probability that if Congress is able to do something about the deficit by December 23 that Social Security will be affected with the chained CPI being the starting point but not necessarily the ending point.

A Solution At Last!

Just when you think there's no hope for the debt ceiling crisis, there it is. All it takes to solve it is two coins.

Roundup Of Debt Ceiling News

Here is this morning's news concerning the debt ceiling crisis that threatens Social Security payments among other things:

• House Speaker John Boehner was forced to postpone a vote on his party's plan for extending the debt ceiling because he did not have enough votes to pass it. It is unclear whether he can get the votes solely from among Republicans. Republicans in the House has no recent experience in negotiating for Democratic votes.The Republican dilemma changes the equation as the Associated Press notes: "Republicans will try again Friday. If they continue to fail, then President Barack Obama and Senate Democrats will have extensive leverage to shape a bill to their liking and practically dare the House to reject it and send the nation into default." On the other hand, Ezra Klein warns that "Anyone who says they know exactly what happens next is lying." By the way, one problem for Republicans is that their bill includes $17 billion for Pell grants, which got some Republican votes but which some other Republicans regard as pork.

• The Dow Jones Industrial Average was down 62 points yesterday. It is down 440 points on the week heading into today's trading. Interest rates on U.S. Treasury notes have moved sharply higher. Investors have pulled billions of dollars out of money market funds in recent days. Moody's is threatening to lower the credit ratings of 177 municipal bond issuers -- and yes, that is related to the debt ceiling impasse. If this sounds like developments that don't threaten you, trust me each and every person reading this is threatened by these developments.
• Update: The Dow is down by over 100 points in early trading.  Harry Reid, the Senate Majority Leader, has just told the Senate that "The last train is leaving the station" as he starts to move forward with his bill to raise the debt ceiling.
• Further update: The President is speaking to the country urging quick action. This is a tweet from an Agence France Presse (AFP) reporter: "Looks like US Senate votes at 1 am Sun, 7:30 am Mon, final #debt vote Tues, per a Dem aide. " This would then go to the House of Representatives which would decide whether we have a default. 
• Further update: It looks like House Republicans may bring a bill to the floor under which "The debt ceiling would be raised immediately but not by enough to get the government through next year. To get the second debt ceiling increase, House Republicans want a balanced budget constitutional amendment to pass both chambers first and be referred to the states." The Senate would never agree to that. 
• Further update: From Michael Shear writing on his New York Times blog:

Senate Democrats said Friday that they were prepared for an all-night battle on the Senate floor that could go into the wee hours of Sunday morning unless Republicans began negotiating on a bipartisan plan to raise the debt ceiling....

If Republicans filibuster that vote, Democrats say they are prepared to repeatedly require Republicans to object to the bill’s passage, keeping them in their seats for hours and creating a middle-of-the-night legislative spectacle for the cameras.

And from Ezra Klein:

John Boehner has a problem. He likes being Speaker of the House of Representatives. He would like to continue to be Speaker of the House of Representatives. But being Speaker of the House of Representatives means both leading the House Republicans and compromising to get things done. And in this Republican Party, at this moment, if you want to lead the House Republicans, you can’t compromise to get things done.

We’ve now seen the same farce play out four times. Republican leaders get close to a deal and then, just before they can close it, their members revolt and they have to pull back....

In order to have any chance of surviving as Speaker of the House, Boehner needs to produce legislation that is completely unacceptable to the White House and the Senate. Their opposition is a feature, not a bug. Consider how he sold his plan to Laura Ingraham: “President Obama hates it. Harry Reid hates it. Nancy Pelosi hates it. Why would Republicans want to be on the side of President Obama, Harry Reid, and Nancy Pelosi [is] beyond me.”

Why anyone would think that a plan loathed by the Majority Leader of the Senate and the President of the United States would be signed into law is beyond me. And since then, Boehner has moved the plan considerably to the right. But that’s because he’s not legislating. He’s just trying to survive.

It’s not just that Boehner’s party doesn’t like any of the viable compromises on the table. It’s that they don’t like compromise, full stop.

Roundup Of Debt Ceiling News

Today's news on the debt ceiling impasse that threatens to delay Social Security payments:

•  The House Republican leadership is putting extraordinary pressure on its members to accept its debt ceiling hike bill, pressure that  included an order to "get your ass in line." This is not sitting well with some prominent Republican supporters. The pressure may allow the House to pass the bill sometime today, although that is not assured.
• The Dow Jones Industrial average was down 199 points yesterday. and was down 378 points on the week as of yesterday's closing bell. The market is up a bit this morning on good home sales news.
• The Onion has a preview of the change that debt ceiling pressures may bring to Social Security.
• Ezra Klein, who is an astute observer, says that the Democrats may not be able to win this one but that they will have their chance in December 2012 when the Bush tax cuts are set to expire.
• The New York Times has a story on what the U.S. Treasury will do in case the debt ceiling isn't raised. According to the Times "Officials have said repeatedly that Treasury does not have the legal authority to pay bills based on political, moral or economic considerations" and is likely to pay bills in the order in which they come due.
• What is the difference between the debt ceiling bills in the House and the Senate? According to TPM they are pretty similar except the House bill would give authority to borrow $900 billion now and another $1.6 trillion next year but only "if and when Congress passes, and [the President] signs, legislation to reduce the deficit by $1.8 trillion." The point of this is to force dramatic cuts in Medicare and Medicaid and also to deflect attention away from the Ryan budget plan which would effectively end Medicare and Medicaid.

Roundup Of Debt Ceiling News

Today's roundup of news concerning the debt ceiling that threatens Social Security checks -- and the U.S. economy:

• The New York Times reports that the Treasury can probably continue to pay its bills for several days after August 2, probably until August 10. Great news. We can keep this crisis going another week!
• Republicans in the House of Representatives are in the sort of disarray normally seen among Democrats. The debt ceiling bill proposed by the Speaker of the House turned out not to save as much money as he had said so it is being revised. More important, the chances of passage of that bill in the House, even after revision, are looking worse and worse as the debt ceiling crisis reveals fault lines within the Republican party. Floor action on the bill has been delayed. If the House cannot pass the Boehner bill, Republican bargaining power decreases and the chances of default increase.
• To rally their troops in the House, Republicans played a video clip from the movie The Town. In the clip Ben Affleck says "I need your help. I can't tell you what it is. You can never ask me about it later. And we're going to hurt some people." He and another character then put on hockey masks, bludgeon two men with sticks and shoot a man in the leg.
• The Dow went down by 91 points yesterday.

There's Your Problem

From a 60 Minutes interview of John Boehner, shortly before he became Speaker of the House of Representatives:

J. BOEHNER: We have to govern. That's what we were elected to do.

STAHL: But governing means a -- compromising.

J. BOEHNER: It means working together. It means find...

STAHL: It also means compromising.

J. BOEHNER: It means finding common ground.

STAHL: OK, is that compromising?

J. BOEHNER: I made clear I am not going to compromise on -- on my principles, nor am I going to compromise...

STAHL: What are you saying?

J. BOEHNER: ... the will of the American people.

STAHL: And you're saying I want common ground, but I'm not going to compromise. I don't understand that. I really don't.

J. BOEHNER: When you say the -- when you say the word "compromise"...

STAHL: Yeah?

J. BOEHNER: ... a lot of Americans look up and go, "Uh-oh, they're going to sell me out." And so finding common ground I think makes more sense.

Roundup Of Debt Ceiling News

 Here's what's going on this morning:

• The President, as you know, spoke to the nation last night warning of the consequences of failing to raise the debt ceiling and calling for compromise. Congressional websites crashed after the President asked the public to contact their members of Congress. They are still crashing this morning. I cannot access House Committee websites. 
• The Republican Speaker of the House of Representatives spoke to the nation. He did not speak of compromise. He called upon the Congress and the President to accept a Republican plan to raise the debt ceiling.
• Robert Greenstein of the Center of Budget  and Policy Priorities believes that the Republican plan would require deep cuts in Social Security and Medicare for current retirees in the near future.
• Negotiations are still going on behind the scenes in Congress. 
• The Washington Post has an article that says that higher than expected tax receipts may extend the date that the government runs out of money to pay its bills by up to a week. The Treasury has not yet sent out a press release in response.
• The Dow was down by 88 points yesterday and has opened modestly lower this morning.
• Some analysts regard a downgrade of U.S. debt issues to be inevitable.

More Funding For Social Security Coming Out Of Debt Ceiling Hike?

Harry Reid, the Senate Majority Leader, has unveiled a plan to break the deadlock over the debt ceiling. Republicans in the House of Representatives are working on their own plan. The most likely scenario is that whatever the House does, that Reid's plan will pass the Senate late this week and then go to the House of Representatives, which will either pass it or reject it. If the House rejects it, the debt ceiling probably will not be hiked in time to allow Social Security checks to go out on August 3 and all hell will break loose. Even if the House Republican plan passes in the House, which is uncertain since there probably will be no Democratic votes for it and several dozen Republicans have vowed to vote against any debt ceiling hike, it is unlikely that there would even be time for the Senate to act on the House bill even if it wanted to if even one Senator decided to filibuster. There would probably be a lot more than one who would filibuster the House plan and some of them might be Republicans.

The summary of the Reid plan does contain this language which could actually result in a higher administrative budget for Social Security: "$40 billion in Program Integrity Savings. The proposal saves $40 billion by reducing fraud and abuse in mandatory programs. This includes: Continuing Disability Reviews and SSI redeterminations ..."

50/50 Chance That Debt Ceiling Goes Down To The Wire

 From ABC News:

A senior White House official says that there's a 50/50 chance that the current deficit reduction mess will not be resolved by this time next week, the day before the federal government may officially run out of money to pay all its bills.

"We may be here as we tick down to midnight," the official said. Treasury Secretary Tim Geithner has said August 2 the federal government runs out of funds, with incoming revenues far less than outgoing bills.

August 3 Social Security And SSI Checks At Risk

The current status of raising the debt ceiling is that even if Republicans and Democrats could immediately agree on a plan, there is hardly enough time to pass a bill if recalcitrant Senators such as Jim DeMint (R-SC) and Rand Paul (R-KY) filibuster and they probably will. There is no agreement among the leaders and it is unclear whether Republicans in the House of Representatives will be willing to agree to anything. Many of them believe that failing to raise the debt ceiling would have only minor consequences and would be desirable. Financial markets will put pressure on everyone as the week goes along. 

There is a very real chance that the Social Security and Supplemental Security Income (SSI) checks due to go out on August 3 will be delayed. That would be terrible in and of itself but there is an enormous threat to the U.S. economy.

Will The August Social Security Checks Come Out On Time?

Read this detailed report from the Los Angeles Times on how the debt ceiling talks broke down and tell me that you're still optimistic that the debt ceiling will be raised in time to prevent delays in issuing Social Social checks. I will grant that I have said in the past that we should watch the stock market to see how serious the threat is and the stock market may have been a bit nervous but there has been no sign of collapse.  It's hard for me to believe that anything other than the rapid collapse of financial markets will bring about a resolution of this problem.

By the way, notice that Republicans wanted to delay the announcement that they were withdrawing from talks with the White House until after the stock market had closed for the week. We'll have to watch to see what happens on Monday.

As Bad As Delayed Social Security Checks Would Be, There Are Even Worse Things Threatened

I have no idea where we are going to end up with the debt ceiling negotiations. I doubt that anyone feels confident about what will happen. You can read about the current confusing state of negotiations. 

I have a bad feeling that this is all going to on Monday August 2 amid bitter recriminations and that the country will be plunged into a crisis with delays in Social Security checks, and that would be terrible, being not even the most urgent aspect. We would be looking at an incredibly fast moving economic crisis with a government paralyzed by Republicans in the House of Representatives whose deeply held philosophical beliefs would prevent any effective action to deal with the crisis.

You Have To Watch The Stock Market To See If Your Social Security Check Will Keep Coming

Ezra Klein writing in his blog at the Washington Post about the efforts to extend the debt ceiling -- and keep the Social Security checks coming out on a regular basis:

It's pretty clear that if it was just John Boehner and Barack Obama in a room, they could come to a deal. If it was just the Senate that had to approve a bill, they could come to a deal -- perhaps even a big one. It's the House that's the problem. They rejected the $4 trillion deal the White House offered, suggesting they can't go big, and the Tea Party is whipping against the McConnell deal, which implies they can't go small. A lot of the dealmakers are, at this point, stymied. “We want to accommodate their needs,” Sen. Benjamin L. Cardin said of the House leaders. “We just don’t understand what their needs are.”

It's not clear they do, either. One common explanation for where we are in the talks is that we're waiting for the last minute. No deal struck before the last minute will be credible as the best deal Republicans could possibly get, because in this negotiation, time is leverage, and if the clock isn't one minute from midnight, that means there's leverage Republicans chose not to use. Until we hit that point, there's just not enough incentive for the House GOP to say "yes" to anything, not enough pressure to force them to say "yes" to anything, and there's an argument, popular among some conservatives, that it would in fact be a mistake to say "yes" to anything.

But what no one quite knows is what the House GOP will accept when the clock is one minute from midnight, or, in more pessimistic tellings, the Dow is 1,000 points below whatever it was at the day before. We're hearing talk that the "Big Deal" is being revived, but the bigger the deal, the tougher it is to pass quickly. And so if it is the case that we can't strike a deal until the markets are beginning to bottom out or the debt ceiling is about to cave in, it's a pretty good bet that we're not going to strike a big deal, and it's very hard to predict what sort of small deal the politics will permit at that point. Which is worrying. The political dynamics here imply a lot of uncertainty all the way to the end, but excess uncertainty is the one thing that could lead the market dynamics to turn sharply against us.

Got that? Worried that you won't get your Social Security check on August 3? Watch the stock market. Nothing will happen until the stock market plummets and maybe even that won't be enough to get House of Representatives Republicans to vote for a debt ceiling hike.

Senator Coburn Has A Plan For Social Security

Senator Tom Coburn (R-OK) has put forth a new proposal for cutting the federal deficits. It is by far the most ambitious proposal out there. The chances of this being adopted by this Congress are nil. My guess is that the chances of anything like this being adopted by a future Congress are virtually nil. However, I keep getting asked about it so here are its Social Security elements:

• Means test Social Security
• Increase full retirement age to 69
• Increase early retirement age to 64
• Switch to chained CPI method of computing cost of living adjustment (which slowly but significantly cuts Social Security benefits from what they would be under current law)
• Reduce spousal benefits from 50% of the Primary Insurance Amount to 33%
• Make continuing disability reviews the first priority in administering Social Security's disability benefits programs, ahead of adjudicating new claims for benefits
• Eliminate the medical improvement standard in continuing disability reviews
• Eliminate interim benefits for those who are appealing disability benefits terminations
• Remove the maximum collection amount for SSI overpayments
• Reduce SSI benefits by eliminating the $20 disregard
• Reduce SSI child's benefits for families with more than one child on benefits
• Eliminate the ability to file a new disability claim while another is pending on appeal
• Eliminate reconsideration (this would actually cost money)
• Close ALJ record one week prior to hearing
• Implement government representation at ALJ hearings (this one too would actually cost money since the evidence is that it does not affect the outcome in any significant way)
• Raise the category of "approaching advanced age" to at least 58-60
• Reduce disability benefits to the early retirement amount once a disability benefits recipient reaches early retirement age
• Allow Social Security disability applicants to use Ticket to Work while they are still applying for benefits
• Time limit Social Security disability benefits. After an unspecified length of time disability benefits recipients would have to reapply in order to stay on benefits, regardless of how sick they may be
• All disability benefits recipients for whom medical improvement is possible must have a "treatment plan" designed to return them to work
• Shift SSI management from Social Security to the states

Remember that I said that it appears to me that the chances of anything like this ever being adopted are virtually nil. 

I have to think that Coburn must either not be planning to run for re-election or that he feels that it is inconceivable that he could be seriously challenged when he runs for re-election.

Reuters Swings And Misses

Take a look at this Reuters Q and A on Social Security and the debt ceiling. At best, it is confusing. At worst, it is slanted. Why didn't they just read my Q and A on the same subject? As we approach August 3, accurate reporting on the debt ceiling and Social Security becomes more and more crucial.

Gang Of Six Back From Near Death Experience -- With Undisclosed Social Security Plan

 From TPM Media:

President Obama likes it. A wide array of Senators, including influential conservative Tom Coburn (R-OK), have given it their blessings. Out of nowhere, the Gang of Six's bipartisan plan for addressing the country's fiscal imbalance has returned from legislative hinterlands -- and has become the only viable, publicly available framework by which Congress can make good on its supposed desire for a grand bargain on deficit reduction.
But according to an aide briefed on the Gang of Six's negotiations, the fledgling framework is still too new and incomplete to be included in a package to raise the debt limit before August 2nd -- and it's more likely to become the basis for a bigger-deal in the weeks and months ahead.

"It will play into getting us through August 2nd in absolutely no way," the aide said. ...

The plan would also address Social Security's long-term shortfalls, through undisclosed reforms, on a separate table, so that any cuts or revenues would be funneled back into the Social Security Trust Fund to keep it solvent.