After all the political wrangling, the U.S. debt ceiling was raised again with overwhelming support. The deal struck between the Biden administration and Republicans avoided an economic crisis. It also pushed to the side dealing with the thorniest budgetary issues -- including Social Security.
But the story isn't over. Social Security cuts could be on the table again. Here's what could be on the way.
Image source: Getty Images.
The next step
Speaker Kevin McCarthy (R-Calif.) didn't accomplish all that he wanted to with the budget ceiling agreement. However, he stated in an interview with Fox News: "This isn't the end. This doesn't solve all the problems. This is the first step."
What is the next step? McCarthy plans to form a bipartisan commission to identify additional ways to reduce the deficit. He wants this commission to review the entire budget to find cuts.
McCarthy told Fox News that in the budget ceiling talks, the two sides "only got to look at 11% of the budget" to find cuts. However, he noted: "The majority driver of the budget is mandatory spending. It's Medicare, Social Security, interest on the debt."
Social Security is the largest federal program, making up 21% of the total budget last year. Based on McCarthy's comments, it appears that proposing changes to Social Security could be a top focus of the new commission.
Options that could be considered
The bipartisan commission envisioned by McCarthy could consider several options that would reduce Social Security benefits for at least some Americans. One that's likely to be near the top of the list is gradually raising the full retirement age.
This option has been implemented in the past, with the full retirement age increasing over time from 65 to 67. It was also recommended by the last bipartisan group tasked to propose ways to reduce the deficit -- the Bowles-Simpson Commission in 2010. That commission also suggested gradually raising the early retirement age from 62 to 64.
Another proposal recommended by the commission was to change the benefit formula to control costs. Under this approach, the new formula would be phased in slowly and reduce the benefits for future retirees, especially higher earners.
The idea of reducing Social Security benefits for individuals with income above specified thresholds has also been floated in the past. The argument for this idea is that the wealthiest Americans really don't need Social Security to retire comfortably.
Opposing views
There are opposing views on how to address the federal deficit as well as how to preserve Social Security. Many Democrats don't want benefit cuts, and many Republicans don't want tax increases.
These differences will almost certainly make it difficult for the new commission established by McCarthy to identify solutions that will win significant support in Congress. Without enough support, the commission's recommendations could go nowhere. That's what happened with the Bowles-Simpson Commission's proposals.
It's possible, though, that a consensus can be reached. Perhaps revenue increases such as raising the payroll tax cap could be combined with benefit cuts such as gradually raising the full retirement age.
One thing is for sure: Unless something is done, Social Security benefit cuts are definitely coming for all retirees. The program's combined trust funds are on track to run out of money by 2034. After that point, ongoing payroll taxes would only be able to fund roughly 80% of benefits.
But Democrats and Republicans ultimately produced a deal to raise the budget ceiling because the clock was ticking. They just might come together again to prevent future across-the-board Social Security benefit cuts. Political wrangling is often messy, but it can get things done.
