GOP Budget Plan Calls For Spending Cuts That Would Include Social Security Administration

Republicans in the House of Representatives passed on Wednesday a bill that increases the debt ceiling and calls for cuts to discretionary items, including the Social Security Administration. The bill passed by a vote of 217 to 215 but is not expected to pass the Senate.

The Limit, Save, Grow Act of 2023 aims to reduce federal spending and would authorize the Treasury Department to issue $1.5 trillion in new debt or issue debt until March 31, 2024, whichever comes first. The suggested cutbacks include reducing the administrative budget for Social Security by 6% to as much as 23%, potentially delaying (but not reducing) payments to retirees, according to Max Richtman of the National Committee to Preserve Social Security and Medicare.

“The Social Security Administration (SSA) is a key agency that would be negatively impacted by such a dramatically reduced funding level,” Richtman wrote in a response to the bill. “Cutting the Agency’s funding by six percent would significantly affect SSA’s ability to serve the public and [would] undermine the Agency’s core mission [by] producing longer wait times for benefits and to reach SSA representatives, as well as reduced access to in-person services.” 

In a memo issued in March, the SSA stated that cutbacks of 6% would lead to closing field offices and shortening hours of operation to the public, would cause a hiring freeze and would result in furloughs, layoffs and cuts to overtime pay.

The bill is not suggesting cuts to Social Security payouts and is not referring to the 23% cut in benefits that the Congressional Budget Office has said may be necessary starting in 2033.

The bill would also repeal some subsidies provided to incentivize the development of renewable energy and electric vehicles and would require the administration of President Joe Biden to lease more federal lands for gas, oil and mineral extraction. It would also require new work requirements for means-tested programs such as food stamps, TANF and Medicaid, and nullify altogether the government’s student loan forgiveness program.

While the word “veto” is technically absent from the White House’s statement on the proposal from last week, the bill is unlikely to pass the majority Democrat Senate and all but certain to be vetoed by Biden. The White House statement characterized the proposal as “extreme” and said it would be devastating for families, scientific and medical research, and education, among other spending priorities for the administration.

Though the House version won’t survive in its current form, it can be understood as the Republican’s starting position in upcoming negotiations as well as signaling their priorities in those negotiations.

Northern Trust’s monthly asset allocation update noted that the debt ceiling negotiations will reduce investor sentiment and could increase the costs of debt. Anticipating debt ceiling difficulties, J.P. Morgan recommended back in January, that investors should diversify away from the US market, saying “diversification is the best defense” in the event of a “disorderly debt ceiling episode.”