If lawmakers fail to come to an agreement on the debt ceiling crisis and allow the country to default on its loans, middle-class taxpayers could experience drastic financial consequences in several areas of their lives, according to a new congressional report.
Negotiations between Democrats and Republicans have largely stalled as members of both parties attempt to use the financial crisis to achieve their own priorities. While Republicans seek to negotiate spending cuts in exchange for raising the debt ceiling, Democrats have remained adamant to pass a clean debt ceiling raise — putting lawmakers at an impasse just months before the looming deadline of a default.
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“Sending the national debt into default would cause economic catastrophe and cause interest rates to spike,” Democrats on the Joint Economic Committee wrote in the report. “The effects of failing to raise the debt limit would likely be felt economy wide: From drastically increased costs … to far-reaching effects in the financial system.”
Those effects would disproportionately affect those in the middle class, the committee argued, by increasing everyday costs for things such as mortgage payments, credit card bills, and hospital costs. It could also disrupt payments for Social Security recipients, veterans, and service members, they wrote.
The group specifically outlined the effects a default would have on Social Security benefits, which has emerged as a flashpoint topic among lawmakers in debt ceiling negotiations. Both parties have vowed not to cut benefits from the welfare program while also accusing the other of putting Social Security at risk.
If the U.S. reaches its debt limit, the federal government could struggle to pay its bills, putting programs such as Social Security, Medicare, Medicaid, and military health benefits at risk, the committee wrote. That would put at least 65 million people on Social Security as well as 18 million veterans at risk of payment disruption.
A default would negatively impact taxpayers’ retirement savings, with the average worker at risk of experiencing a $20,000 loss, according to the report. Reaching the debt limit would also lead to increased inflation and rising costs for everyday items by weakening the U.S. dollar in the global economy.
Defaulting on the national debt could imperil millions of jobs similar to that during the 2008 financial crisis, possibly resulting in the loss of more than 7 million jobs, according to the report. That would push the country’s unemployment rate to over 8% and cause a decline of more than 4% of the country’s GDP.
The U.S. hit its debt ceiling on Jan. 19, raising fears of a default. Treasury Secretary Janet Yellen said her agency would take “extraordinary measures” to prevent the U.S. from defaulting on its obligations, but the department will only have a few months before those measures are exhausted.
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House Speaker Kevin McCarthy (R-CA) first met with President Joe Biden in January to begin negotiations on the debt ceiling. However, that meeting ended without a binding agreement as the White House remains adamant it will not discuss federal spending until the borrowing limit is lifted.
Meanwhile, McCarthy has drawn his own line, saying that spending cuts are required. However, his party remains split over which programs to ax or pare back, putting McCarthy in a difficult position as he navigates his first major leadership test since taking the helm as speaker in January.