President Obama made a statement recently that, unless the debt limit is raised, the federal government may not be able to send out Social Security checks. Either it is not true and he was blowing political hot air to put pressure on his opponents or it is true and there is a real, immediate emergency with Social Security. Let's look at the possibilities.
The first one is certainly a plausible explanation. He is not the first president knowingly to make false statements for political leverage, and he has become rather adept at doing that. However, considering the economic meltdown and baby-boomer retirements, the second option, a crisis with the government?s retirement system, has some credibility. That would have significant implications for every employee and every retiree in this country.
The Social Security system was sold to the American public as a way to force current employees to put a certain amount of their paychecks aside for when they retire. It would provide some amount of support in older years, and people were told that the money was in a trust fund which would not be touched by politicians. There is, in fact, a trust fund where all of the contributions are kept separate from the general accounts of the United States government. There is a teensy weensy problem with this scenario. The money of the Social Security Trust Fund, by law, has been loaned to the federal government. The trust fund has a lot of IOUs from the government as assets on its books and little else. So, in other words, your social security fund is as solid as the federal government's ability to pay its debts. Isn't that reassuring?
In essence, the President was telling the truth, sort of. If the federal government cannot pay its debts, a significant amount of which is held by the Social Security Trust Fund, then there will not be enough money in the system to pay benefits. In other words, you have been lied to for all these years about the separation of Social Security from government operations and from the use of its money by politicians. Your trust fund has been and is being squandered by politicians spending like lottery winners. Your trust fund cash has been used to build the notorious bridges to nowhere, in aid to corrupt dictators in Third World countries, as stimulus to Goldman Sachs and other tax predators, and for military might to impose the will of American politicians on foreign countries.
There is yet another perspective on this issue. If the debt ceiling is not raised, is it necessarily the case that the government will default on its loan obligations? Is there nothing at all that can be cut in the budget to make room for payments to people who have had their wages taken involuntarily for many years? To answer the question, it is helpful to look at the history of spending and debt of the federal government.
In 2010, the Social Security Trust Fund had approximately 2.6 trillion dollars in assets. It took in $781 billion and paid out $712 billion. Since interest income received on government debt was $108 billion, it means that a deficit of $49 billion dollars of benefits must come from assets of the trust fund accumulated in prior years. Where are those assets? The cash has been given to the feds so they can play their games. If all benefits are to be paid as they become due, the general funds of the federal government must come up with the shortfall. So yes, if there is a default on the federal debt, it may be true that social security recipients will not get paid. This begs the question: Is there nothing else in the entire federal government that can be cut to make sure the debt is paid as scheduled?
A few other numbers might be helpful. The debt subject to limitation was $5.6 trillion in 2000 and is now 14.3 trillion, a 155% increase. Total federal expenditures for 2000 were 1.79 trillion. The inflation-adjusted amount would be $2.39 trillion for 2011. The projected amount for 2011 is $3.82 trillion dollars. Since the government appeared to be functioning in 2000, it seems that there are 1.43 trillion dollars in excess spending that is available for cutting. With an excess of $1.43 trillion, politicians can?t find any way possible to cut spending enough to make sure that obligations are covered? Raise your hand if you find that convincing.