$31.4 Trillion Debt Limit Reached: US Reaches Breaking Point

The United States debt ceiling crisis has heated up as the country officially hit its $31.4 trillion debt limit on January 19th. With the June deadline approaching, there is growing concern over the consequences if Congress fails to act. According to Moody’s data report on January 24, 2023, a financial crisis could result in the loss of 6 million jobs and an increase in the unemployment rate to 7%.

Democrats and Republicans remain in a deadlock on how to proceed. Democrats advocate for more borrowing power, while Republicans demand spending cuts. However, Democratic Senator Joe Manchin has proposed a partial solution to the crisis by changing the way Social Security is funded. Manchin suggests raising the cap on payroll taxes for high earners to contribute more to the program’s reserves, ensuring that beneficiaries continue to receive payments and reducing government overspending.

Based on a report by Go Banking Rates on January 29, 2023, regular employees pay 7.65% of their income as FICA taxes, with self-employed persons paying 15.3%. The current FICA income cap is $160,200, which millionaire workers reach by February of each year. Manchin’s proposal aligns with President Biden’s plans to preserve Social Security, which may become exhausted by 2035 unless it is funded. Biden’s four-part Older Americans program calls for high-wage Americans to pay the same taxes as middle-class families.

On the other hand, the GOP has proposed increasing the retirement age, adjusting cost-of-living adjustments, and changing rules for ancillary benefits. However, it is unlikely that Biden will support these changes.