Social Security Checks Will Go Out On August 3rd

by JoeTheEconomist September 30, 2011 6:01 AM

The President's statement that Social Security checks are at risk on August 3rd is politics and nothing more.  Paying Social Security checks in the event of the debt ceiling is not a matter of funding.  It is a matter of planning. Follow the money.

First, Social Security is provided for by dedicated payroll taxes.  The President does not have the authority to spend your payroll taxes on his personal priorities.  Generally speaking payroll taxes at this point should cover the out-go of the system. 

Second, if there is a spike in unemployment caused by a government shutdown, Social Security has a back-up funding source - interest on the Trust Fund.  The government has said interest will be a top priority.  In order for interest to be withheld from the Trust Fund, the administration would have to admit that the Trust Fund holds worthless securities.  That is a concession that they are unlikely to make.  The administration would have to explain to the public why foreign holders of debt deserve more consideration than elderly Americans. 

Third, in the unlikely event that payroll taxes do not cover the system's needs and the administration defaults on the bonds held by the Trust Fund, the Trustees surely have built a cash reserve going into a debt crisis.  As a guest on a talk radio show, I was asked about the level of the cash reserve.  I don't know, but the idea that a Trustee (Obama's Treasury Dept) didn't build a cash reserve going into a debt crisis is silly.  It would be the greatest act of financial negligence in the history of finance.  It would not have a close second.  If there is no reserve - people should be fired whether the debt ceiling is raised or not.


When Obama said that he was not sure that Social Security checks would go out on August 3rd, he was uninformed or admitting guilt of his fiduciary responsibility.  Congress hasn't done anything about it because they do not want to embarass the President.  Everyone in Washington just wants to play politics - that is what "professional politicians" do.  The problem is that the President needs to back away from truely stupid statements, and assure the public that Social Security is on sound footing on August 3rd, 10th, 17th, and so forth.  Until the Republicans do their job, seniors are likely to remain worried.


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