David R. Henderson  

Obama's Mistake on Social Security

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There he goes again.

If congressional Republicans refuse to pay America's bills on time, Social Security checks, and veterans benefits will be delayed.

That's a statement President Obama made at today's press conference. See here for transcript.

It's not true, as Nancy Altman and John S. Scarberry pointed out in July 2011. The Social Security Administration owns bonds that the U.S. Treasury has issued. To make up for a shortfall each month, the SSA could sell some of these bonds to the Treasury. But where would the Treasury get the money to pay for these bonds? By issuing bonds to the public. How could the Treasury do that if the debt ceiling is not raised? The debt ceiling includes the SSA bonds. So for every $1 billion the Treasury pays when the SSA redeems bonds, the Treasury could issue $1 billion in new bonds without affecting the official debt at all.

Now, we know that if the Treasury did this with, say, $1 billion, the actual net debt of the federal government--the debt it owes to entities other than other parts of the federal government--would rise by $1 billion. But the debt ceiling is not on this net debt which, last I checked, was approximately $11.6 trillion. The debt ceiling is on the gross debt, which includes the amount the Treasury owes other entities within the federal government.


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CATEGORIES: Social Security



COMMENTS (18 to date)
dave smith writes:

Would this be basically the same as the Tres. minting a trillion dollar coin?????

Brandon Berg writes:

He didn't say they would have to be delayed, only that they would be delayed. Cutting the most popular spending first as a way to increase public support for revenue increases is a time-honored tradition in politics.

Trespassers W writes:

I think that if government accounting doesn't make your head spin, then you're either much smarter than me or much dumber than me.

ed writes:

Sure that would work, but is it legal? I doubt it, since I suspect there are very specific rules on how and when the "trust fund" is to be used. But I could be wrong, anybody know?

Of course LOTS of things would work, but most of them are not legal. Including just ignoring the ceiling and issuing new bonds. That's why the trillion dollar coin idea got so much attention, because it appeared to actually be legal.

JLV writes:

In addition to the possible illegality, keep in mind that SS checks are the last (and worst) leverage Obama has. The 65+ cohort is firmly in the Republican base. Old people want to elect radicals who act irresponsibly? Fine, but tough cookies, elections have consequences, etc when the radicals do what, well, radicals do.

Big Ed writes:

What you are saying is that the Treasury can always find a way to pay some bills, but not pay others.

They could just as easily continue to pay SS while not paying for DOD contracts.

Peter H writes:

There's a good exploration of this in the Washington Post.

http://www.washingtonpost.com/blogs/fact-checker/post/can-president-obama-keep-paying-social-security-benefits-even-if-the-debt-ceiling-is-reached/2011/07/12/gIQA9myRBI_blog.html

Summary: the answer is not at all clear, we've never tried it, so who knows! I tend not to be partisan, but the debt ceiling fight to me is just mind-numbingly stupid. If house republicans wish to lower government spending, they can do so via the appropriations process which they partly control (and can do a normal government shutdown of the type where no appropriations are made such as '96 if they want to have leverage).

Maybe this is the Canadian in me, but I really, really wish we had a system where a no-confidence vote could be held.

Phil writes:

About $4.8 trillion of the $16.4 trillion in national debt is in these intragovernmental holdings. The SS law does require the SSA to invest its excess in a special class of non-negotiable treasury instruments, but I think some manipulation at the margin is legal.

An example of the more egregious debt sleight of hand is what the Treasury may do with the TSP (federal employee 401(k)-like program) contributions allocated to the "G" fund. These contributions buy another form of non-negotiable debt, but the Treasurer of the U.S. may tally the accrued interest owed and simply choose not issue the debt. I think if a publicly-traded company did this it would violate several SEC rules.

For those interested in what the Treasury has and might again do to prevent a legal breach are referred to a recent CRS Report on this matter: http://www.fas.org/sgp/crs/misc/R41633.pdf

Thomas Sewell writes:

"Obama's Mistake on Social Security" ???

A "mistake" is when someone says something they believe is true, or accidentally says something they don't actually mean.

What Obama says here is a purposeful lie by Obama designed to scare the public and influence the complicit media.

If all the administration does is pay debt interest and make already committed payments and pay salaries without making new purchases/commitments for payment, then they can stay under the debt ceiling indefinitely.

But whenever they run out of money, left-wing politicians always claim that it'll cause the most popular programs (teachers, police, firefighters) to not get paid and never mention not paying the people who get the latest sweet-heart contract pork deal.

Blackadder writes:

There are technical problems with prioritization. Most Treasury payments are computerized, and the program is set up to make payments as they come due, rather than by some order of priority. So even if Treasury could legally continue to send out Social Security checks despite hitting the debt ceiling, it is not clear practically speaking whether it could do so.

We could sure use an economist of James Buchanan's skill right now to explain what Obama's doing.

David R. Henderson writes:

@Thomas Sewell,
What Obama says here is a purposeful lie by Obama designed to scare the public and influence the complicit media.
That well could be. But I try to avoid saying things I'm not reasonably sure of. I think that the words "lying," "lie," and "liar" are so commonly used that they've lost much of their force. So if you see me using those words, you'll know that I'm pretty sure of what I'm talking about.
@Blackadder,
Interesting point. Thanks.

egd writes:

Suppose the SSA is lawfully able to pay social security benefits, but the President directs that social security benfits should not be paid until the debt ceiling is reached.

What stops use of this power on all arguments with Republicans?

Pass gun control legislation or we stop paying Social Security benefits.

Pass green energy legislation or we stop paying Veterans benefits.

Pass banking regulations or we stop paying Medicare benefits.

Bob Murphy writes:

David,

This seems screwy to me. Wouldn't the federal government have still held back a payment that it owed to the SSA? What I mean is, supposing the debt ceiling gets raised in 6 months after more wrangling, would there be a "catch up" adjustment to restore the Trust Fund to where it otherwise would have been, had there been no interruption?

In that case, it would seem that there was a build-up of "debt" somehow, perhaps analogous to issuing scrip to government contractors, that might not be classified as legal debt but would sure seem like the same thing.

Mike Rulle writes:

Agree completely. That is why I have said for years that our government does not currently have $15-16 trillion of debt outstanding, but $10-11 trillion outstanding.

So in fact, we do have a debt ceiling either way. Your suggestion merely skirts the spirit of the debt ceiling law through a technicality (which, of course the Government does routinely all the time).

So I would not support your approach at all, as it would permit them to hide behind this gimmick for a few more years. We need not encourage them to do this any more than they do now. It is far better to force them to make fools of themselves every few months rather than give them an easy way out.

As a reminder to your readers, the non public "IOUs" are merely an accounting device which measure the cumulative amount of SS payroll taxes paid by US taxpayers over several decades which have been used for other spending not related to Social Security. It is very simple really.

And pathetic.

Bill writes:

Tom Saving had the best discussion I have read on this topic.

http://online.wsj.com/article/SB10001424053111903554904576458294273264416.html?mod=opinion_newsreel

Bill writes:

David, I thought the way you addressed this last year on this blog, with your link to Tom Saving's WSJ piece, would have put this to rest.

http://econlog.econlib.org/archives/2011/07/tom_saving_on_t.html

Joe Cushing writes:

It's not a mistake. Obama knows exactly what he is doing. It's like Brandon Berg said above. I also see that Thomas Sewell made good points.

David, the reason lie in all it's forms has become so common is because that what politicians do. It's what they have always done. It's what they always will do. People make that joke about when their mouths are moving because there is a lot of truth behind it.

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