President Obama has hinted at this a number of times. And you know the Republicans are thinking it.
The so-called Social Security Trust Fund — which is both a fallacy and an oxymoron — is looking mighty attractive if Washington needs to fill payment gaps next week.
Anyone who doesn’t live in a cave has heard that most of the government is shut down and that its ability to borrow more money could end a week from today — give or take a few days — unless Congress agrees to raise the debt ceiling.
And our money will only last that long if the Treasury Department doesn’t run out of accounting tricks, like allowing money that was supposed to go toward Social Security payments to be used for other purposes.
Nobody has brought up this inconvenient little matter, but the Social Security money you and I pay weekly to the government isn’t intended to pay for debt service. And it isn’t supposed to keep troops in Afghanistan.
In fact, our Social Security money isn’t supposed to do anything but pay retirees who have worked all their lives and now expect a check every month.
So why are President Obama and others saying that Social Security recipients could be cut off if Congress doesn’t allow borrowing beyond the current $16.699 trillion debt limit?
Last year American workers paid $504 billion into Social Security.
If you add to that amount the income tax paid by retirees who collected benefits, then the cash flowing into the Social Security System was $531 billion in 2012.
The Social Security system paid out $638 billion, not including the steadily growing amount going to people who are collecting disability payments.
You’ll notice that the $638 billion outflow is more than the $531 billion inflow.
So, Social Security — like just about every other part of our government — is running a deficit. And that deficit will grow over the coming decades because of demographics: there are more of us getting old and retiring than people entering the work force for the first time.
But if you look at this in the simplest way, there are still billions in cash regularly flowing into the Social Security System – an average, in fact, of more than $44 billion a month.
Why doesn’t Washington just take that $44 billion in cash and send it out to people who are receiving payments? Recipients in this scenario would have to take less because there’s a deficit, but they’d get something, right?
Wrong. At least, that’s not the way presidents and Congresses have looked at it for a long time.
When discussing those who would be hurt if the government was unable to borrow more money, the President said on Tuesday: “We’ve got senior citizens who are counting on their Social Security check arriving on time.”
In fact, on Oct. 23 some portion of $12 billion in Social Security payments are supposed to be made.
Why wouldn’t those checks go out on time? All of us working are still paying into the Social Security Oxymoronic Trust Fund.
Just turn around and give my mother (Hi, Ma!) her check out of what I’m paying.
The reality of the situation is that there is no trust fund. All that cash coming into the Social Security Administration each week gets sent to the US Treasury where it is used to purchase government bonds.
The proceeds from those bonds then go to pay a lot of things besides Social Security. A lot of your Social Security withholdings, in fact, will be sent first to the Chinese and other investors who are owed interest payments on bonds they bought.
So if I already knew that the trust in Social Security is based on a lie, why did I bother writing this column? Because you need to know just how messy a default by the government will be.
Will Social Security recipients get their money? Probably.
But it won’t be before all those government bondholders who can do a lot more damage to our economy than a bunch of irate retirees.