On June 1, the federal government is set to pay an estimated $47 billion to doctors and other health care providers who see Medicare patients. And on June 2, it’s scheduled to pay another $25 billion to Social Security recipients.
If, that is, it can afford it.
Treasury Secretary Janet Yellen has warned that the government will not be able to pay a wide variety of bills if the debt limit isn’t raised soon.
“Millions of American families that rely on payments from the federal government would likely go unpaid,” Yellen told a banking group Tuesday. “This ranges from 66 million Social Security beneficiaries to millions of veterans and military families who have served our country honorably.”
Yellen hasn’t specified an exact date on which the Treasury Department won’t be confident it can pay all the bills, only telling lawmakers it would be in “early June, and potentially as early as June 1.”
But if Yellen’s worst-case scenario is borne out, and the Treasury hits the wall on June 1 or June 2 without a debt limit hike, the department could be forced to choose between breaching the limit ― with potentially catastrophic consequences for the economy ― or not making good on those Medicare and Social Security payments.
“Millions of American families that rely on payments from the federal government would likely go unpaid.”
- Treasury Secretary Janet Yellen
The first two days of June are among several low points in the first half of June where the Treasury’s combination of expected cash on hand and remaining borrowing room will be uncomfortably close to what’s needed to offset the payments that are due ― or potentially not even enough.
The Bipartisan Policy Center released a set of charts Thursday illustrating the Treasury’s challenges. On June 1, according to the BPC, the department is projected to receive about $26 billion in revenues, but also face about $100 billion in payments, including the $47 billion in Medicare outlays. The difference between those will have to be made up by borrowing or cash on hand.
June 2 looks better, but not by a whole lot. BPC says the Treasury is likely to get $18 billion in receipts but face $40 billion in outlays, including $25 billion in Social Security benefits.
Despite those prospects, there has been little momentum for a temporary extension of the debt limit to give more time for bargaining. House Speaker Kevin McCarthy (R-Calif.) said Tuesday that any such extension would reflect an assumption that the current talks will fail.
“I think we have the time to find a solution now,” he told reporters. “One of the biggest problems in this place is based on your question itself. You’re already asking a question ― ‘Well, you’re going to fail, do you want to do a short-term?’ I’d rather look at the opposite. I’d rather tell you we’re going to get this done.”
Another option would be to exclude the debt issued to pay for Social Security, or the debt issued to pay for Medicare payments, from the debt ceiling ― thus ensuring those payments could be made, and giving the Treasury a little extra breathing room.
“I think we have the time to find a solution now.”
- House Speaker Kevin McCarthy (R-Calif.)
That has happened before. In February and March 1996, after Treasury Secretary Robert Rubin warned Congress that his department had run out of borrowing room under the debt limit and Social Security payments might not go out, Congress and the White House agreed to exempt debt related to those payments from the debt ceiling.
Sen. Ron Wyden (D-Ore.), chairman of the Senate finance committee, which has jurisdiction over the debt limit, did not sound enthusiastic about the idea. He compared it on Wednesday to a GOP-supported idea called debt prioritization, where the Treasury would pick and choose which bills to pay on time as money came in.
“Once you do it, you’ll see the Wall Street crowd and the foreign creditors swoop in,” Wyden told HuffPost. “They’re going to say, ‘What about us? We’re a priority!’”