Nobody From Nowhere (@i8dc)

Occasional Common Sense

Debt Ceiling Would Force Social Security and Medicare Checks To Be Paid

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Talkingpointsmemo.com is reporting on President Obama’s interview set to air on CBS tonight in which he includes Social Security in the “70 million checks” the U.S. government sends out every month, which may or may not be paid if the debt ceiling isn’t raised.

Now, I’m the first to say that on of the best ways to get something done here is rile up folks who can spend all day harassing their congressmen to do their damned jobs.  But this just ain’t true.  Not only can Social Security and Medicare benefits be paid regardless of the debt ceiling increase, but the vast majority of them must be paid.

They are different from many of the other checks to which Obama referred due to their dedicated funding source.  Social Security payments are primarily funded by one of two sources: payroll taxes and the so-called “trust fund.”  Same goes for Medicare.  Today, benefits are funded primarily by taxes and income from the trust funds holding of government debt, and secondarily by drawing down the trust fund.  Here’s what happens if we really hit the debt ceiling.

For years, the Social Security and Medicare collected more than they paid out.  By law, this surplus is required to be invested, on a daily basis, in government-backed securities — the government issues special bonds to the trust funds.  So if the income from these programs’ taxes wasn’t paid out as benefits, but was instead diverted to fund some other part of government, the Treasury would, by law, have to issue bonds to the trust funds — raising the national debt.

Another point. Both of these programs currently run very slightly in the red.  But this doesn’t mean that they can’t fully pay their benefits.  The government could borrow from the public to fully pay benefits – the increase in the public debt would exactly equal the reduction in intragovernmental holdings, and the total debt would be unchanged.  This function would hold true for all of the various trust funds, of which there are a surprising number.

Interestingly, if Social Security was collecting more than it pays out, which it was until last year and is projected to do again when the economy improves, the government would be statutorily forced to issue debt to the trust fund as it increased.  Yet another example of the sillyness of this whole debt ceiling nonsense.

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Written by David Clayton

July 12, 2011 at 6:03 pm

Posted in Punditry

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