I wish I could reassure everyone that there is no threat to the August Social Security checks but I can't. They are truly at risk. If the debt ceiling is not increased by August 2, money will not be available to pay the Social Security checks due out on August 3.
Neither the existence of a dedicated funding source for Social Security nor the existence of the Social Security trust fund will keep this from happening. The FICA tax receipts do not line up exactly with the due dates on Social Security monthly payments. To oversimplify a bit, the U.S. Treasury ordinarily deals with this situation by either taking money out of or putting money into the U.S. government bonds that are the only thing that the Social Security trust funds may be invested in. When the U.S. reaches the debt ceiling, this whole system that ordinarily works smoothly goes haywire. It would be much like trying to keep your family's bank account from being overdrawn if you had an account balance that was measured in pennies. You would have to worry about exactly when your account would be credited with deposits you make and exactly when a check you write clears the bank. The money will be available to pay those Social Security benefits later in August but the money may be used, in part, for other purposes because failing to extend the debt ceiling puts the government into a situation where it lacks the money to pay many of its bills. In this emergency situation, the President could do something that would ordinarily be illegal, using money that is supposed to go to Social Security to pay other bills. If you are a Social Security beneficiary, it may make you mad as hell to think that Social Security money would be used to pay other bills but the other bills include paying soldiers in the field and VA benefits and FBI agents and air traffic controllers, for instance. No one wants Social Security recipients to fail to get all their benefits on time but no one wants to avoid paying those other bills.
At the moment, Congress has not extended the debt ceiling. The President and Democrats have put forward a
couple of plans to extend the debt ceiling in conjunction with plans to cut future budget deficits. Both plans involved tax increases directed at corporations and wealthy Americans. Republicans have rejected both plans. To the best of my knowledge, Republicans have put forward no specific plan of their own to combine an extension of the debt ceiling with cuts in future deficits although they have stated that they want to reduce future deficits solely by cutting the budget. The Senate Republican leader has put forward a
plan to extend the debt ceiling without any cuts in future deficits coupled with an extremely odd plan that would allow the President to increase the debt ceiling on his own for the next couple of years but also providing that Congress could vote to reject increases in the debt ceiling initiated by the President. This is such as odd plan that so far Democrats do not seem to know what to make of it. Among Republicans, this plan has gotten support from the Republican Speaker of the House of Representatives but is being
criticized by many rank and file Republicans. There are also
serious divisions among the Republican leadership in the House of Representatives since the number two Republican in the House of Representatives may be trying to undermine the Speaker.
One can say that everyone seems to be getting more serious about the debt ceiling. The prospect of Social Security checks not going out is a major reason for this seriousness. However, at this point, it is far from clear that anything can be passed in either house of Congress. One real problem is that the public and many members of Congress do not understand the gravity of the situation. My best guess is that there will be turmoil in financial markets in the near future if nothing is done -- in addition to a lot of recipients of federal benefits -- to concentrate the attention of the Congress.
Addendum: If you happen to believe the threat to Social Security benefits is something that a lying Kenyan socialist contrived to scare Americans, I suggest you read
David Frum's blog. He has solid right wing credentials.
Addendum: I keep hearing the question: How can this happen? Isn't Social Security a separate account? The answer is that Social Security is a separate account but it is a separate account at the U.S. Treasury. What happens when money is deposited into that separate account? It doesn't sit there in a huge pot of dollar bills. Normally, it is invested in U.S. government bonds. The problem is that failing to raise the debt ceiling puts the Treasury into an impossible bind. It cannot obey the law which requires it to make a lot of payments, including Social Security. The Treasury, and ultimately the President, has to pick and choose which payments get made and which do not. The Treasury also is in a bind because it cannot manage the nation's money properly since cash receipts do not match up with demands to make disbursements. Normally, the Treasury borrows short term money to make sure it can make disbursements without having to worry about when it receives money.
You can certainly look at this situation as proof that the Social Security trust funds aren't "real." However, there are real, practical problems with investing the Social Security trust funds in anything other than U.S. government bonds and there is no practical way for Social Security to do its banking with anyone other than the U.S. Treasury. There is just too much money involved for any private bank to handle it.
Addendum: The Congressional Research Service (CRS) has compiled a
very complete report on the way the debt cap can affect government operations, including a detailed look at its effects on Social Security. Please read it if you want a fuller explanation of why Social Security checks may not be paid, at least in full, at the beginning of August if the debt ceiling is not lifted. The CRS is part of the Library of Congress and does research for members of Congress. It is thoroughly non-partisan.
