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Retirement Planning > Social Security

GOP Threatens Social Security, Medicare Cuts in Debt Ceiling Fight

By Melanie Waddell

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The debt ceiling battle is heating up, with House Republicans refusing to raise it unless they get concessions on entitlements for older adults like Social Security and Medicare benefits.

“A new generation of young republicans are determined to impose fundamental change in key programs, wants to reform Social Security, impose a Value Added Tax, and risk a default on U.S. debt,” Greg Valliere, chief U.S. policy strategist for AGF Investments, said Wednesday morning in his Capitol Insights newsletter. “They sense a deficit crisis coming, and are eager to take drastic action to curb the budget deficit.”

‘What Kind of Cuts?’

Senate Majority Leader Chuck Schumer, D-N.Y., said late Monday on the Senate floor that “MAGA Republicans holding the full faith and credit of the United States hostage” risks the financial well-being of millions of Americans.

“They say they will not raise the debt ceiling unless we give in to their demands for draconian spending cuts that would impact just about every American, again, in a very bad way,” Schumer said.

“If you want to talk about spending cuts, then you have an obligation — an obligation — to show the American people precisely what kind of cuts you are talking about,” Schumer continued.

“Are Republicans going to hold Social Security hostage in exchange for the debt ceiling? … Or Medicare funding that millions of seniors rely on?” Schumer asked.

On Wednesday, Schumer lambasted another “radical” GOP plan to institute a national sales tax via The Fair Tax Act of 2023, introduced by Rep. Earl “Buddy” Carter, R-Ga. The bill seeks to impose a national sales tax in lieu of the current income taxes, payroll taxes and estate and gift taxes. The consumption tax would start at 23% in 2025.

Valliere noted that “spending for Social Security (23% of the federal budget) and Medicare (14%) now dominates the budget.”

However, advocating Social Security changes “could backfire spectacularly on the GOP,” Valliere adds, giving President Joe Biden and Democrats an issue to campaign on.

GOP’s Social Security Blueprint

Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League, told ThinkAdvisor Wednesday in an email that the “closest thing we appear to have” in understanding potential proposed cuts is the Republican Study Committee’s 2023 FY document “which is a broad blueprint” that includes a section on Medicare and Social Security.

In negotiations over the debt limit, “what’s really getting negotiated is a budget plan,” Johnson said.

The RSC blueprint discusses a proposal that was introduced in 2016 by then-Rep. Sam Johnson.

The Medicare section “would overhaul (or privatize) Medicare into a system of private health plans including ending Medicare as we now know and making it over as a Federal version of Medicare Advantage,” Mary Johnson said. “It would pretty much kill Medigap or Medicare supplements as we now know them and that could mean much higher out-of-pocket costs in the future.”

Today’s Medicare beneficiaries “are already struggling to deal with costs and trying to figure out choices under our current system,” she continued.

“The plans would significantly reduce Social Security benefits, and increase out of pocket spending for Medicare compared to current benefits,” Johnson added.

Johnson notes in a recent blog post that “the chance of problems affecting the timely funding of Social Security benefits appears to be growing this year,” as the Republican majority in the House “pushed through a new set of rules which would make it harder to raise the federal debt limit without corresponding spending cuts.”

That includes rules, Johnson wrote, “that would complicate the consideration of legislation that would increase mandatory spending without cuts.”

Mandatory spending, Johnson said, “provides the funding for Social Security, Medicare, and other safety net programs. A supermajority or 290 votes out of 435 would be required in the House of Representatives to raise taxes. This increases the possibility of a confrontation over raising the debt limit and demands to cut Social Security benefits.”

Further, Johnson writes, “It would also increase the chance that payment of Social Security benefits may be delayed or raise the risk that benefits might not be paid in full, should lawmakers stalemate over a budget agreement.”

Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, sent a letter to Senate and House leaders Monday.

“It is essential that Congress take up and pass ‘clean’ debt limit legislation, not only to protect our nation’s economy, but also to prevent the risk of significant economic harm specifically to over 65 million Americans who receive benefits through the Social Security program and the 63 million beneficiaries who receive health care through Medicare,” Richtman told the lawmakers.

Richtman noted in a recent op-ed for The Hill that Republicans now “chair the powerful House Ways and Means and Budget committees, which have tremendous influence over Social Security and Medicare policy.”

Fortunately, Richtman wrote, “a majority Democratic Senate and President Biden have the power to block major legislation to cut or undermine Social Security and Medicare. But they may be under tremendous pressure from the GOP to make concessions during debt ceiling and budget negotiations.”

Valliere agrees, stating in his Wednesday Capitol Insights briefing that “Biden can bash away at the GOP’s consideration of Social Security cuts, which will not pass (neither will a VAT tax).”

The consumption tax is “another risky gambit” for Republicans, Valliere writes, adding that analysts believe such a tax “would benefit wealthy taxpayers and disproportionally hurt middle and lower class taxpayers.” He concludes that debating a consumption tax will give Democrats “another juicy target.”

Melanie Waddell

@Think_MelanieW

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