“I cannot guarantee that those checks go out on August 3rd,” President Obama warned CBS Evening News viewers about Social Security Tuesday night. “There may simply not be the money in the coffers to do it.” But how can that be? Haven’t Washington’s professional politicians been telling us for decades that Social Security is in no danger of bankruptcy because of those trillions of dollars supposedly just sitting there in the Social Security Trust Fund? Why can’t Obama use the money in the trust fund to cover the Social Security checks due to be sent out Aug. 3? The reality is that the Social Security Trust Fund is, and always has been, an accounting fiction. For almost all of Social Security’s history, the amount of money the program received from payroll taxes has exceeded the amount of money it paid out in benefits. The excess revenues, by law, are “invested” in special-issue, nonmarketable Treasury bonds. These bonds are marked on the government’s balance sheet as “assets” of the Social Security program, but they are also counted as debts owed by the U.S. government. In fact, $2.6 trillion of our $14.3 trillion debt consists of bonds owed to the Social Security Trust Fund.
So what did the professional politicians in both parties do with the trillions of dollars lent to it by Social Security over the years? They spent it. That money is long gone. In order to pay off its Social Security obligations and fund benefit payments, the federal government must either use general tax revenue or borrow more money. The latter option, however, will soon no longer be available, thanks to the debt ceiling crisis.
In past years, the Social Security system was a net positive for our nation’s bottom line. It almost always took in more money than it paid out. Not anymore. Thanks to the recession, Obama’s payroll tax holiday, and the flood of retiring baby boomers, Social Security has become a net contributor to our federal deficits. According to the Social Security Board of Trustees’ 2011 annual report, Social Security added $49 billion to last year’s budget deficit and is projected to add another $46 billion to this year’s deficit. Those numbers will only get bigger.
So will the U.S. Treasury have enough money to cover Social Security checks that are supposed to go out Aug. 3? American taxpayers will dispatch an estimated $200 billion to the Treasury in August. Instead of scaring millions of American seniors, Obama could simply instruct his Treasury secretary to pay Social Security benefits from that $200 billion. But Obama won’t do that because he would rather use the prospect of no Social Security checks to scare seniors into pressuring Republicans to raise taxes. There is a word for that: demagoguery.
