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Debt Limit Showdown: Issues Critical to Older Americans at Stake

Social Security, Medicare in discussion

Obama's Treasury Department would have to decide who gets paid. Not paying Social Security checks could leave needy older people scraping by and cause a political firestorm. Not paying civil servants and military troops carries its own risks. And not paying bondholders who hold the nation's debt could have far-reaching effects on the economy.

If investors see government bonds as a riskier investment after default, they will demand higher interest rates. That will cost the federal government extra in interest payments and also raise the rates for home buyers and consumers who have credit card payments.

Credit-rating agency Moody's Investors Service said Wednesday that it already is beginning to assess whether to downgrade the country's spotless credit rating for government bonds.

The idea of default has opened a fissure within the Republican Party. Presidential candidate Michele Bachmann of Minnesota said this week that she saw little danger in not raising the debt ceiling and accused the White House of scare tactics.

But White House Press Secretary Jay Carney said Wednesday that "we cannot play a game of chicken with the full faith and credit of the United States government."

Is there a way around the standoff?

Senate Republican Leader Mitch McConnell this week sprang a proposal allowing Obama to raise the debt ceiling until the next election without Congress' explicit approval. That plan, which was gathering support in the Senate from both parties, would prevent default and shift the political risk for raising the debt ceiling to Obama.

Obama has given the negotiations until July 22 to come up with a large deficit deal, though McConnell's plan was a clear indication that many lawmakers don't believe an agreement can be reached.

Republicans have pushed hard for large spending cuts without tax rate increases, and conservatives have kept the pressure on not to budge from that position. Democrats have said they would compromise and cut programs like Social Security and Medicare, but only if more tax revenue is involved, too.

The leading idea for cutting Social Security spending is altering the way cost-of-living increases are figured.

Certner spent Thursday with AARP leaders from all over the country lobbying Congress to leave Social Security and Medicare alone as it solves the deficit problem.

"Social Security is a separately financed program. It doesn't cause the deficit. We shouldn't be making cuts to Social Security to address deficits in a non-Social Security part of the budget," Certner says.

But Stone says there is widespread agreement that the inflation measure the federal government uses to calculate cost-of-living adjustments overstates inflation. The new method, called a “chain-weighted” consumer price index, would factor in that people make different choices when prices go up. The new formula likely also would apply to civil service and military pensions as well as income tax brackets and standard exemptions and deductions, Stone says. That would make the pensions lower and the taxes higher.

The impact of the change would start small. In the first year, the average retiree would get a check that is $43 less each month than it was under the old system. As retirees got older, the accumulated impact could be as much as a check that is 10 percent lower by the time a person reaches his 90s.

Next: What are the options for Medicare? >>

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