Economics

Would Social Security Benefits Be Cut If the Debt Limit Is Not Increased?

In an interview with CBS news, President Obama raised the possibility that Social Security benefits might not be paid if the government does not raise the debt limit:

I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.

It’s understandable that Obama might want to use cuts in Social Security checks as a stick with which to beat congressional Republicans–as opposed to, say, agricultural subsidies. But how likely is this to play out in reality?

In my reading of things, not very. First, recall that, unlike other federal programs, Social Security has its own dedicated tax that it doesn’t need to share. By itself, the payroll tax would cover around 93 percent of all Social Security payments.

Second, recall the Left’s references to the 14th amendment of the Constitution. Liberals initially read the amendment as saying that the debt limit was unconstitutional, which turned out to be incorrect. In fact, though, the 14th amendment does say that government debts are binding and should be paid. “The validity of the public debt of the United States, authorized by law … shall not be questioned.”

And it just so happens that the Social Security trust fund is holding $2.6 trillion of special issue Treasury bonds, which are backed by the full faith and credit of the government and are even subject to the debt limit. In other words, the trust fund puts Social Security in the first tier of creditors, along with Wall Street and the Chinese, while most other federal spending programs would have to scramble for what is left.

So, in his haste to scare retirees, the president pointed to a program that is in fact one of the least likely to cut benefits even if the debt limit is not increased.

16 thoughts on “Would Social Security Benefits Be Cut If the Debt Limit Is Not Increased?

  1. This is correct, except that both parties are fear mongering. This “Overspending – Deficit Deadlock” is the latest bipartisan Weapon of Mass Deception – Distraction from the fact that Bush – Obama’s givaways worked to replace the corporations money, but the trickle down programs for the unemployed and foreclosed have not. How could they? The money was given to the private profit making decision makers that crashed the market, killed millions of jobs and made homes unaffordable. Households lost $13 trillion of wealth no serious amount of which has been replaced.
    All the premises of this Weapon of Mass Deception – Distraction are, at best, very controversial interpretations, spin. They include the following: “1. The government must raise funds through taxation or borrowing in order to spend. In other words, government
    spending is limited by its ability to tax or borrow. 2. With government deficits, we are leaving our debt burden to our children. 3. Government budget deficits take away savings. 4. Social Security is broken. 5. The trade deficit is an unsustainable imbalance that takes away jobs and output. 6. We need savings to provide the funds for investment. 7. It’s a bad thing that higher deficits today mean higher taxes tomorrow.”
    They are all based on outmoded concepts and theories, especially that of “scarce” hard commodity money. To learn why, study monetary theory in books like Warren Mosler’s “Seven Deadly Innocent Frauds of Economic Policy,” available free, online.

  2. I think the little beauty’s fear mongering has finally led to his stepping on his bleep. A LOT of folks are now asking sharp questions about where the payroll tax money goes and who has what lawful authority to redirect and spend it. It wasn’t the GOP which declared open season on the Trust Fund. Soon, we’ll hear ALL about it.

  3. This president has repeatedly demonstrated his contempt for the Constitution. It probably doesn’t matter to him who is required to be in the first tier of creditors, rather, what matters is what can be most effective in extracting more money from the taxpayers.

  4. I calculate that FICA receipts were 52b in July. The OASDI payments in August will be $61b. So a cash shortfall of about $9b (similar to 2010).

    Yet the President indicated there could be a problem on 8/3 for the entire amount due from SSA. So I’m confused.

    My conclusion is that FICA receipts are actually Treasury assets. They give up this cash every month to SS. But when push comes to shove they hold it back in order to prioritize payments.

    So much for that “lock box” thing……

  5. Obama “Change” sure looks a lot like Bush’s “stay the course”, Obama = Bush = Puppet of the Rothschilds & fellow Bankgangsters. To cut Soc. Sec. would be to guarantee any Republican nominated will win in 2012. But unless it is Ron Paul, it will not matter. Except Cong. Paul, all the Democrats and Republicrats are literally owned slaves of the Federal Reserve Bankgangsters, i.e. Rothschilds, Rockefellers, Warburgs etc.

    Practically speaking, what needs done, is IMMEDIATE withdrawal of all Troops from three WAR fronts, Libya, Iraq and Afghanistan, and most troops from 100 other nations to be concentrated on the Mexican border to stop illegals. The Savings would leave us with a surplus, and other nations to settle their own internatl disputes, and save thousands of American lives, further reducing VA costs in the future.

    that of course would hurt the BANKgangsters profit line, and Obama is like Bush, a puppet , like 430 house reps, and 99 us Senators are. Puppets. Cut the unconstitutional illegal WAR out, and we got money to rebuild every bridge and high School in America and send a refund to single parents.

    abolish HHS, which sponsors State Kidnaping of children [ Child Welfare Services ] and there would be another surplus, SS could double the benefits paid and still have money left, and 18 million grieving children and parents would be re-united, and the 24 children murdered in Foster Care or CPS in L.A. County alone, last year could be prevented.

    It will take the election of Ron Paul to see these sensible savings. Did not Obama promise to bring the troops home within a year? promises , promises. Voting is useless if your choice is McCain, or obama.

  6. Well Obama promised change!!!!!!!!!! Now here we have it, if he keeps on we all will be sharing the same bed – the street!!!!!!!!!!

  7. I just think it is such a shame that this so called President would get on National TV and scare so many that already barely get by and those that are sick and have a more than enough to worry about, without there struggles and illness being made worse by fear for there very existence. Who will pay the mortgage or rent? Who will pay the power bill? How will those that are disabled but have young children, feed their family? or pay for there medicine? Its just sickening that the President would stoop to this level. I hope everyone finally see’s him for what he has always been!!! Just another self-absorbed politician.

  8. Obama you are a shame of human being, scaring the seniors after they worked all life long and veterans, and the disabled, get the hell out the white house, where you have not be ,in the first
    place!!!!!!!!!!

  9. Andrew,

    Good job for addressing this. I have been making this very same argument for over 20 years since I learned of the 1984 legislation that prohibits these dedicated taxes and trust funds from being used to pay general expenses as well as prohibiting general revenues from paying SS benefits.

    A. J. Altmeyer, Chairman
    Social Security Board Before the House Ways and Means Committee November 27, 1944
    “There is no question that the benefits promised under the present Federal old-age and survivors insurance system will cost far more than the 2 percent of payrolls now being collected. As I pointed out in my testimony of last year, none of the actuarial estimates which have been made on the basis of present economic conditions and other factors now clearly discernible result in a level annual cost of this insurance system of less than 4 percent of payroll.”

    “Indeed, under certain assumptions the level annual cost has been estimated to be as much as 7 percent of payrolls. On the basis of a 4-percent-level annual cost it may be said that the reserve fund of this system already has a deficit of $6,600 million. On the basis of 7-percent-level annual cost it may be said that the reserve fund already has a deficit of about $16,500 million.”

    http://www.ssa.gov/history/aja1144a.html

    Robert Ball
    Commissioner of Social Security
    1962 and 1973,Wrote June 2005
    “When Social Security began, benefits for those nearing retirement age were much higher than could have been paid for by the contributions of those workers and their employers. This was done so that the program could begin paying meaningful benefits even though workers nearing retirement would have only a short time to contribute.”

    “Instead, the impression is left that the program was sound only when 16 paid in for every one taking out. Thus, of course, when the ratio changed to 3.3 to 1, the program became “unsustainable.”

    “They ignore the fact that in 1950 only about 15 percent of the elderly were eligible for benefits and that it was expected by all who were acquainted with the program that the ratio

    http://www.tcf.org/Publications/RetirementSecurity/ballplan.pdf

  10. This had me so scared…I’m disabled an cannot work. And both of my grandparents are retired and my mother became disabled when her husband took a hammer to her head. But the thing is her husband is even on Disability and he is a criminal!

  11. The ONLY reason Obama would not be able to guarantee SS payments is because, as he’s proven, he’s utterly ignorant of how Social Security works. This was just the latest scare tactic designed to sling mud on the GOP once his plan to tar-and-feather them before the public on Medicare cuts fell through. They agreed to not cut Medicare, his anti-GOP ammo was taken away, and he had to find something else. This was the quickest, easiest way he could find to make himself look like the concerned father of America as usual and make the GOP look like senior-citizen-hating cutthroats who’d starve your grandmother to put gas in their trucks.

    Glad to see at least some of the general public still has the common sense to flunk him on this latest deception. Falsely threatening the guaranteed support of some of those who need it most, and paid into it, equals FAIL in all caps. Despicable, indefensible, inexcusable move.

  12. Please make more puzzles 500+ pieces with pictures like “go often to the house of a friend..” Lots of fun detail to make into puzzle pieces.

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