By Mark Miller
CHICAGO Oct 8 President Barack Obama warned
last week that Social Security benefits might not go out "on
time" if Congress does not raise the debt ceiling.
Should seniors and disabled American really be worried about
their benefits if the U.S. government runs out of borrowing
capacity later this month?
The answer is yes - but only if the Obama administration
insists on making Social Security a pawn in the debt ceiling
battle. And that's a move it has no business making.
Social Security is a stand-alone program with its own
dedicated revenue stream: Workers and employers pay a combined
12.4 percent of employees' payroll. It was designed to be a "pay
as you go" program, with taxes on today's workers funding
current payouts to retired and disabled workers and their
dependents. Those funds can't be used for anything other than
Social Security currently has a surplus of $2.7 trillion.
This year it is on track to take in $38.8 billion more in
revenue than it will pay out, according to the forecast of the
program's trustees. These funds sit in something called the
Social Security Trust Fund (SSTF).
While SSTF funds can be used only for Social Security, the
fund operates in a way that could leave it vulnerable in the
event of a government default.
Every dollar of Social Security payroll tax revenue received
by the U.S. Treasury Department is used to fund general
operations. Treasury then turns around and issues special
interest-bearing Treasury notes to the SSTF matching the amount
of payroll taxes it has received (and spent).
To fund benefit payments every month, the Social Security
Administration redeems bonds from the SSTF with the shortest
maturity, receiving principal plus interest. The government
finances Social Security redemptions by issuing new
general-issue Treasury bonds. This is the nub of a key
right-wing critique of Social Security - namely, that it's a
Ponzi scheme, and that it has no real assets. Nothing could be
further from the truth.
The reality: The SSTF actually is one of the largest
creditors of the U.S. Treasury - right up there with China and
Japan, which together hold $2.4 trillion in Treasury debt. The
system was designed this way to ensure that Social Security
would be invested only in the world's - ahem - safest
instrument: paper issued by the U.S. Treasury.
The special-issue Treasury notes are backed by the full
faith and credit of the U.S. government, and the system works
fine when the Treasury has the power to issue debt to fund
Social Security's bond redemptions. Even if the government hits
the debt ceiling, there's a viable option for keeping Social
Security benefits flowing without affecting the federal debt
situation in any meaningful way.
The Social Security trustees could exercise their right to
cash in as many Social Security bonds as they need to make
benefit payments for the foreseeable future. Every dollar of
principal (but not interest) that the federal government pays
back to Social Security would reduce the government's total
indebtedness, making room to borrow more from the general public
to fund Social Security redemptions. The total amount of federal
debt would be unchanged, and wouldn't reduce funds available for
other government operations.
Social Security's managing trustee is Treasury Secretary
Jacob Lew, so he actually has conflicting obligations here - to
serve the president and protect the rights of Social Security
beneficiaries. (So do the three other top government officials
who serve as trustees - the secretaries of Health and Human
Services, the Labor Department and the commissioner of the
Social Security Administration.)
Scaring seniors and disabled people might make for good
politics, considering the huge stakes of the debt ceiling
battle. That doesn't make it right.
Last year, 56.7 million retired and disabled workers,
spouses or children received Social Security retirement or
disability benefits. Many depend on the benefits to buy food and
pay for rent and utilities.
One-third of today's seniors rely on Social Security for 90
percent or more of their income, according to the National
Academy of Social Insurance. Two-thirds count on it for more
than half their income.
Nancy Altman, co-director of the Strengthen Social Security
advocacy coalition and an expert on Social Security law and
history, argues that Lew and Obama have a duty to keep Social
Security out of the fight.
"Social Security is different from paying a military
contractor, or food inspectors," Altman says. "Those things are
paid from the general fund, where there's a deficit. Social
Security is a real pension program backed by very substantial
assets, and the president has an obligation to act as a
fiduciary and protect that."