Contrary to Obama’s Scare Tactics, Social Security Checks are Not at Risk
In a clearly written analysis on the website of Stanford’s Hoover Institution, Stanford Law Professor Michael McConnell, the director of the Stanford Constitutional Law Center and a Hoover senior fellow, corrects the president’s groundless threats:
In his Friday night press conference, for the second time, President Obama raised the specter that Social Security checks might not go out if Congress does not raise the debt ceiling. His words: “Well, when it comes to all the checks, not just Social Security — veterans, people with disabilities — about 70 million checks are sent out each month — if we default then we’re going to have to make adjustments. And I’m already consulting with Secretary Geithner in terms of what the consequences would be.” Earlier he said in an interview on CBS News: “I cannot guarantee that those [Social Security] 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.”
He must not be consulting with his lawyers, because this attempt to scare Social Security recipients is without legal foundation.
As recently explained in much more detail by legal scholars Mark Scarberry and Nancy Altman, and by the aptly-named Thomas Saving, a former public trustee of the Social Security and Medicare Trust Funds, in an op-ed in the Wall Street Journal, , reaching the debt ceiling will not affect the ability of the Social Security Administration to pay its obligations.
The Social Security trust fund holds about $2.4 trillion in U.S. Treasury bonds, which its trustees are legally entitled to redeem whenever Social Security is running a current account deficit. Thus, if we reach the debt ceiling (which I continue to think is a remote prospect, even if less remote than it seemed a week ago), this is what will happen. The Social Security trust fund will go to Treasury and cash in some of its securities, using the proceeds to send checks to recipients. Each dollar of debt that is redeemed will lower the outstanding public debt by a dollar. That enables the Treasury to borrow another dollar, without violating the debt ceiling. The debt ceiling is not a prohibition on borrowing new money; it is a prohibition on increasing the total level of public indebtedness. If Social Security cashes in some of its bonds, the Treasury can borrow that same amount of money from someone else.
To be sure, a small portion of the money due from Treasury to the trust fund on the bonds is accrued interest. Payment of this portion will not have an effect on the debt ceiling, because the ceiling is calculated according to amount borrowed, not amount to be paid. That amount, however, is too trivial to affect the bottom line. Interest rates are low, and interest was last paid at the end of June.
President Obama is therefore wrong when he says that failure to raise the debt ceiling might result in not sending out Social Security checks. Many bad things might happen, but not that.
h/t: Eugene Volokh
It’s good to get the word from a REAL constitutional law scholar, not the poseur in the White House.
Frankly, I dare him to go ahead and not pay out the three categories of people he threatened several days ago (Veterans, people on unemployment, people retired on SS).
Yes, let him piss off tens of millions of people playing his fleegy opposition politics.
Except the lamestream media is spinning it the “obama way.” Namely blaming pubbies and saying they are threatening people’s SS checks.
See this link and set Ms. Hong straight: http://www.13wham.com/news/local/story/Social-Security-Benefits-Threatened-as-Debt/A_PibpmMfEKA5sQucXVjyA.cspx
I urge all of you to respond to Ms. Hong as well as all the other lib left wing media trash spewing lackies.
The FBI defines terrorism as:
The unlawful use of force or violence against persons or property to intimidate or coerce a Government, the civilian population, or any segment thereof, in furtherance of political or social objectives.
http://terrorism.about.com/b/2006/11/21/who-isnt-a-terrorist.htm
“I’ll be long gone before some smart person ever figures out what happened inside this Oval Office.”
(Washington DC, 12 May, 2008)”
It was stupid of Obama to make that threat in the first place. Everyone knows there would be uncontrollable chaos if the payments stopped, and so the powers that be would never let it happen. And since it will be glaringly obvious to all that it was an empty threat, Obama has put himself in the worst possible light: willing to threaten senior citizens and veterans in the interest of politics.
But what else should we expect from this feckless fool of a president?
He thinks he can successfully shift the blame to the GOP, specifically conservatives and the “cult fringe” Tea Party. I guess he missed that CNN poll but I guarantee his WH spinners didn’t. They have to be quaking. Americans who like AND dislike the TP are in agreement with us on the debt and particularly CCB.
Our president seems to be wrong about absolutely everything, all the time. Doesn’t that make him the antithesis of “smart”, or have they lowered the bar on that too?
The author nails it about paying trust fund benefits as being debt neutral.
I would go further and argue that any FICA or other trust fund taxes collected that are not immediately used for their intended purposes would have to be credited to their various funds which would increase the national debt in violation of the debt ceiling. Of course, if the government insisted on diverting these revenues, the only other legal way of using them would be to redeem privately held debt. Imagine the fallout from paying the Chinese before the seniors while using other federal revenues for pet projects.
If the interest on the debt is NOT PAID on time, is this an “impeachable offense” for both the President and the Secretary of the Treasury??
Likewise, since there appears to be an internal mechanism in place to cover the Social Security Checks, if these checks are withheld on the orders of the President and/or the Secretary of the Treasury does not that order serve as a basis for impeachment???
Put on the table a BILL OF IMPEACHMENT FOR BOTH THE PRESIDENT AND SECRETARY OF THE TREASURY if the interest payment on the debt and the Social Security payments are NOT paid on 2August. Only then will the Democrats in Congress will understand the crisis that their unrestrained/unfunded spending has caused….
Any thoughts??
No argument from me, michael.
There is no specific requirement other than being guilty of “high crimes and misdemeanors”, in the Constitution.
The problem is that with such an an extreme partisan Democrat party enjoying majority in the Senate you couldn’t get a conviction or removal from office even if you had “direct” evidence of treason.
Sorry, but this is a waste of time and a distraction from real issues. You might get enough votes to impeach Obama but would never get Harry Reid’s Senate to convicted him. Impeaching Bill Clinton help rehabilitate his tarnished rep.
Is this a joke? Is that the House GOP plan here? To hold the country hostage just so they can let the country default and impeach Obama? It kind of seems like this has been the plan all along for a certain wing of the House…
I was expecting an analysis grounded in reality. I was disappointed.
“The Social Security trust fund will go to Treasury and cash in some of its securities, using the proceeds to send checks to recipients.” Yup. That’s exactly what would happen.
But… um… er… where would Treasury get the money to redeem the securities? Is there a line-item in the federal budget for redeeming trust-fund bonds? Of course not.
Treasury would… here it comes… Treasury would have to either borrow money to redeem the securities or print more money to cover their redemption.
since the Treasury can do either it doesn’t matter … they won’t be violating the debt ceiling …
Sure it matters, one way or another. Assuming the debt ceiling is not raised, they will have no authority to borrow money to redeem the securities. The other choice I mentioned is to print money to cover the redemption, which has its own negative consequences. There is another choice, too: take money that would be spent on other things and use it to redeem the securities, but that too has its own negative consequences.
There is almost enough FICA taxes to cover current benefits; very little would be needed from the trust funds. In fact, current federal revenue is approximately what we spent in FY 2004, a time when Bush was fighting 2 wars and was accused of spending like a drunken sailor.
But wouldn’t the U.S. be overdrawn for the time that it took to sell additional bonds or additional revenue is received to cover the checks? This would seem to be the literal definition of printing money.
Well it seems that ELC beat me to the punch.
No, the treasury would not be in an overdrawn situation because more money is coming in to the federal treasury all the time. You know, taxes. So they can use that incoming cash to cover the money they pay to Social Security to redeem those notes, and then sell more bonds to recover the cash they forked over to SS. This is not to say that they won’t run short by the end of August or in early September, but there is no threat to the August Social Security payments. In fact, just a few weeks ago there were news items saying that as a practical matter, they didn’t know how they could shut down the payment process in the first place.
Did you ever notice how when some town or state or school district has its budget rejected, the first things they threaten to shut down are the things that hit the public hardest — we’ll have to close the parks, close the swimming pools, and there will be no high school football games. They never say oh dear we will have to eliminate the perks and pork for the legislature and ground the governor’s jet. (Did you notice that when Minnesota recently closed all of the state parks, the governor did not lose his state-paid executive chef.) Want to bet none of this will keep Air Force One from flying to where fund-raising events are scheduled.
Jim: What about the case that there is not enough cash on the 3rd of August to cover all the Social Security checks not to mention the other checks that would be among the groups to be paid, such as the Military? I remember a news report that suggested that on the 3rd of August there may not be enough cash to cover all the SS checks. I would assume that in the case of direct deposits that the cash would have to be available on the 2nd of August for the Treasury to transfer electronically the payments to the banks. The paper checks might have to have cash backing them even earlier assuming that they arrive on the 3rd of the month.
Refer to “MEANING OF “HIGH CRIMES AND MISDEAMEORS” by Jon Roland, Constitution Society.
The passing of Articles of Impeachment for the Secretary of the Treasury/President(if the debt/Social Security payments are not made on 2August) would force the Democrat Senate to acknowledge their complicity in sacrificing/breeching the FDR PROMISE to the American Senior Citizens for “Social Security for our elders” and violating the 14th resulting in loss of the AAA-bond rating and a subsequent higher interest rate on any “new bond issues” purely for the political greed of continuing to write “unfunded checks on the credit of the United States” for junk programs and fantasies.
It has been said: the key to understanding all politics is to understand what is needed for the survival of that politician……Frame the debate to make the Democrat Senate repudiate FDR’s Social Security Compact for the “continued open check book”—I think the Democrat Senate will BLINK….
Alternatively, use the “follow the money” meme: The US Treasury has more than enough money(from incoming revenue sources) to pay out the interest on the debt/maturing debt and the Social Security Trust Fund Obligations….The President and the Secretary of the Treasury just don’t RESPECT you(US BOND-HOLDER and Social Security Recipient) enough to pay you at the present time and by the way the DEMOCRAT SENATE CONCURS…..Harry will be caucusing by himself Jan2012.
After the recent articles on Botox affecting mentation—it is time to ask ask Nancy and Harry et al exactly how much BOTOX they have had, when did they start the treatments(we elected them to “represent us” and if they cannot now read&think because of these elective cosmetic treatments then they should be out of office without any further compensation since they have committed a fraud on the public), and why do they think that they should be allowed to continue in office when they are clearly mentally impaired(probably explains the reliance on the teleprompter and the scripted “talking points” so heavily favored by the Democrats). Where is the OBAMA FDA on this “non-indicated usage” of this drug????
Few are reading the above carefully.
Social Security cashes in some Treasury Securities. If at the debt limit before, this transaction causes outstanding debt to drop below the limit.
Treasury can issue additional, back up to the debt limit.
So although we’ve always heard that the ‘trust fund’ is bogus, the analysis above makes plain it is not. It provides genuine assurance that the program will not be affected by the statutory debt limit. Social Security can draw down its holdings because, in doing so, the government can borrow more, dollar for dollar.
In fact, Geitner and Obama are plainly deceiving the American people. Social Security is already protected.
What does it mean for Social Security to cash in some Treasury Securities? I assume that it means that the Treasury transfers cash to Social Security thus reducing it’s cash on hand, to cover the principal and interest represented by the Securities. How can the Treasury redeem Social Security’s Treasury Certificates if it does not have sufficient cash on hand at the time the Certificates are presented to the Treasury? Isn’t that the main problem? Insufficient cash on hand and no authority to barrow? Doesn’t the Treasury have to transfer cash to Social Security? The fact that Treasury will receive enough income in August to cover the Social Security checks as well as the other accounts chosen for payment does not mean that there is sufficient cash on hand when checks are written. In the case where checks are direct deposit it seems to me that they are in effect immediately presented to the Treasury for payment, there is no delay while paper checks are processed by the bank.
Again, not reading carefully.
Borrowing stops when the government hits the limit.
The Treasury is legally required to redeem Social Security Trust Fund owned Treasury securities at *any* time, not only at the date of their maturity.
Upon a redemption, the government has authority to borrow dollar for dollar.
And by the way, Social Security could also sell the securities on the open market. It owns quite a lot of them… LOL.
The checks may come out but I just spent a dollar a pound on potatoes and
five dollars a pound on cubed steak.
Go to the Social Security Trust Fund Website. We USED to hold it in Treasury Bonds, but that stopped under Reagan and now they are a special issue bond, and are just worthless IOU’s. So, effectively, all the contributions made by working people since 1985 have been “borrowed” to fund things like tax-cuts for the rich, subsidies to big corporations, and wars. Oh, and the government is NOT legally bound to repay the trust fund, for which you can thank our supreme court.
Reminders:
1. Payroll taxes will not stop. The government receives several billion dollars each month from taxes collected all over the nation. While these tax payments will not cover all of the government’s expenses, they will cover all due interest payments plus all due military paychecks, veteran’s payments, and social security payments. No, it’s not all collected on the first (or second) day of the month, but
2. Not all of the payments due are made in the first few days of the month. My SS deposit, for example (I’m 70) is made electronically on the second Wednesday of each month. This can be as early as the eighth, or as late as the fourteenth. This August it’s the tenth.
3. What we will NOT have money to cover will be purchases (no new aircraft, ships, tanks, etc), work contracts (federal share of highway work, federal construction work, etc) or the paychecks of the vast armies of government secretaries, clerks, park guides, maintenance people, etc. The government will also be unable to redeem (buy back) any bonds presented.
Raising the eligibility age for Medicare from age 65 to age 67 is a very bad idea. It will raise the premium for those in Medicare. Studies have shown that it will raise the rate for all those who are not in Medicare, about 3%, across the board. Most importantly, it will create an entirely new demographic of uninsureds. So much for Obamacare!
http://www.mymedicareadvisor.com
The very last sentence of this piece is really all that matters. This is very exciting mental m, but getting to the point of default already means imminent financial disaster. If Obama can scare people into getting people to get their reps to actually compromise (looking at you, Tea Party), then I’m all for it.
Thank you so much for a post like this…how many of us would ever realize this, if not for enlightened instruction by someone who knows the facts?
I imagine that many in certain media, and the O Adminstration, just assume that no one checks into things? Truth can sometimes hurt, but sometimes it sets you free.
I am on social security disability and have been for almost four years. If I had my way I’d just go out and try and find a job but the job market isn’t so great for someone 58 years old with multiple health problems. If not for my church or foodbanks I’d more often go hungry. I get less than $1100 a month and by the time I pay all my bills I have very little to live on. I struggled hard to get a college education and still have student loans I have to pay. I’ve worked hard all my life and don’t like to have to be considered disabled. But I’ve had cancer, I have diabetes, and suffer from chronic illnesses that have left me calling 911. At least with the medicine I now can afford because of medicare I don’t need the 911 calls so much and have stabilized with my meds. As it is, when I move to another state I will have to find some kind of work to supplement my social security.
All my siblings are on social security. They’ve worked hard too. They have alot of medical problems and much older than I am. So, if the dear president says they aren’t going to get their checks where do we go? We end up in the streets that is where! And what about those in nursing homes who get social security and medicare. Is Obama going to put them out in the streets.
He is by far the worst president I’ve ever seen! I will be glad when 2012 comes around and we can elect Mitt Romney who is a a Mormon by the way. Maybe if elected he can turn the economy around and put people back to work!
I have been permanent disabled since 2003. I need this check to pay my bill and help with the doctor visits, If I can’t make my payments, and I’m suppose to live on the streets? I could try and find a job but number
1, due to my health problems, I truly don’t think I could work. Too many things wrong. I won’t go into details. I need the money to help pay my medical bills and medication.
Number 2, I seriously doubt I could work but unemployment is so high it’s almost impossible to find a job and unfortunately it’s going to get worse!
It seems when the government needs money they immediately think of cutting SS, Medicare and Soldiers pay. In a nut shell people needs their money not only for disability but paying our soldiers who put their line on the day for our freedom. I think they need to dig into their pockets and stop giving themselves pay raises and think about the people who REALLY need the money for every day life. Unfortunately most of us don’t have the cash to fall back on and just let this slide. I’ve contacted my Congressman and voice my opinion and hope they would reconsider raising the debt ceiling.
Woah this blog is wonderful i love studying your articles. Keep up the great paintings! You already know, a lot of people are looking around for this info, you can aid them greatly.