Freedom New Mexico
Anxious senior-citizen readers may be worrying that their Social Security checks might be held up by the wrangling over raising the federal debt ceiling. It’s worth clearing up that misconception and some others.
Republican leaders in the House of Representatives are trying to line up enough GOP votes to pass a budget bill to cut deficits by $7 trillion over a decade without increasing taxes. It clashes with a plan in the Democratic-controlled Senate, backed by President Barack Obama, to cut the deficit by $7 trillion through a combination of spending cuts and tax increases. Other Senate plans include no tax increases.
The impasse could lead to the government shutting down if a deal isn’t reached by Tuesday that includes raising the federal debt limit, currently $14.3 trillion. Obama warned July 12, “I cannot guarantee that those (Social Security) checks go out on Wednesday if we haven’t resolved this issue.”
Not true, Michael Tanner, a senior researcher at the Cato Institute, says. That’s because Social Security checks come from a different fund, the Social Security Trust Fund. “When you take the money out, say $50 billion, you convert the federal bonds to cash,” Tanner explained. “The bonds are debt. The government then borrows another $50 billion to pay the money back. There’s no change in the federal debt.”
The Tuesday deadline for America supposedly falling into default on bond payments also is illusory. The federal government “now is telling banks that the deadline is Aug. 18,” Tanner said. “Even though they won’t be able to borrow after Aug. 2, they will have cash on hand. It’s like your credit card is maxed out but you still have cash in your wallet.”
Even after Aug. 18, Social Security checks still would be issued if there’s no debt deal, he emphasized. That’s because tax money still will be collected by the Treasury, just not enough to pay for everything. The order of paying the bills is: Social Security first, then the interest on past debt, then paying the troops in the military. “After that, it’s up to the Obama administration on what gets paid,” Tanner said.
But, here’s where the risk for the economy lies and why cobbling together a deal matters. Without one, we’ll see hasty decisions of what to cut, intensified uncertainty about the economy and loss of confidence here and abroad that America can deal realistically with its financial obligations.
Unfortunately, the deficit reductions in the House or Senate plans are illusory. As Sen. Rand Paul, R-Ky., pointed out, even with such “reductions,” the debt will go up about $7 trillion over the next decade — to an incredible $21 trillion. Without the “cuts,” the debt would go to $23 trillion. “And that assumes that the promises – ‘Some day, we’ll make the cuts’ — come true,” Tanner said.
The bottom line is that Congress and the president still are playing games with everyone. They have to begin the serious business of making substantial cuts that actually reduce the national debt, and stick to those agreements.