Rep. Jan Schakowsky is caught in this radio interview trying to explain how Social Security works, that the “Social Security lockbox” exists, and that Social Security is fully-funded and can make payments for the next 25 years or so… Yet without a debt increase the Social Security checks can’t go out. When the hosts of the radio show call her on the seeming contradiction of statements, she tells them they just “don’t get it.” I’d like to take a moment and make sure you get it.
Let’s take a look at each of her statements, and consider them individually:
Social Security is a ‘pay-as-you-go’ system
Ok, fair enough – that means that each year, social security receipts essentially cover the payment of benefits for Social Security recipients, and until last year (2010) that was true. The year 2010 was the first year that Social Security was forced to supplement receipts to meet its obligations, but those supplemental funds didn’t come from the general funds of the federal government, they came from the “lock box,” which was funded by the surpluses of previous years, when Social Security’s receipts exceeded their obligations.
The Social Security ‘lock box’ exists
Yep, it sure does – and what a great name that ‘lock box’ name is, by the way – it implies that the surplus funds have put away, and they can not be used for any other expense – that the Social Security surpluses are secure, until needed. Well, sorta…
See, the lock box is really an account that is full, but not of cash money, but instead with interest-paying federal securities, much like the Treasuries we sell to investors and foreign countries like China. In fact, the so-called ‘lock box’ actually has about $2.5 trilion in these federal securities, which accounts for about 1/6th of our national debt, currently $14.3 trillion). All the surplus funds working Americans have paid in to Social Security over the years have been invested in our national debt, so if our government were to default on its debts, it would also be defaulting on the debts owed to the Social Security ‘lock box’.
Social Security is fully funded for the next 25 years
This is also a true statement – based on the latest projections from the Congressional Budget Office as the so-called ‘baby-boomers’ leave the workforce and transition from Social Security contributor to beneficiary at the estimated rate of 10,000/day for the next 19 years, Social Security will be able to meet its obligations by relying on both payroll contributions and by drawing down ever more from the ‘lock box.’ The CBO estimates that the trust fund and payroll contributions will run out in about 25 years.
But without timely access to its ‘lock box’ funds that are tied up in federal securities, it is possible for Social Security to run the risk of not being able to meet its obligations to beneficiaries.
As shown in the above video, the regular, monthly payroll contributions for Social Security will be sufficient to fully fund the August benefits checks without having to increase our debt ceiling to allow Social Security to borrow needed funds (which they have never done before, by the way) or take funds from our general receipts to fund those payments (again, something they have never done before). The only way Social Security checks would not be sent out would be if:
- the federal government were to seize all August Social Security contributions, starving Social Security of its regular revenues AND
- the federal government were to fail to repay enough federal securities to the Social Security ‘lock box’ to allow it to meet it’s August obligations using funds from the “lock box”
Both would have to happen for Social Security to not be able to meet its obligations in August if the debt ceiling isn’t raised.
So where are we now in the debt ceiling crisis?
In the Senate, the ranking Republican Sen. McConnell has proposed a bill that would allow the President to raise the debt ceiling in three installments, to a level that would allow the federal government to fund its operation through Fiscal Year 2012, based on implementing certain proscribed spending cuts before raising the debt ceiling each of the three times (While far from ideal, many in leadership on the left have praised this as a possible ‘Plan B’ should other options fail.)
In the Congress, they approved a so-called “Cap, Cut, and Balance” bill that would bring federal spending to a more manageable 20% or less of GDP over a number of years, would enact cuts in the levels of federal spending to achieve the goal of reigning in spending, and would set in motion a process to enact a balanced budget amendment to the Constitution, similar to the balanced budget requirements currently in effect in 49 out of our 50 states. The debt level would be allowed to rise under this bill, allowing us to run deficit budgets until the balanced budget amendment would be in place. This “Cap, Cut, and Balance” bill was defeated today in the Senate today.
The President has announced that he will only sign off on a debt level increase that provides sufficient “headroom” for the deficit to grow through the next election (through calendar year 2012), AND the legislation must include new tax revenues. Send him a bill lacking either, and he has said he would not sign it… Leading at least one reporter to ask his spokesperson why vetoing a bill that doesn’t meet his requirements and causing the government to fail to meet all its obligations is preferable to signing a bill with cost savings and increases the debt ceiling. The President’s spokesman didn’t really have an answer to that question.
YouTube.com: You Don’t Get It: Congresswoman Agrees With President Americans Too Stupid
hansenreport.wordpress.com: Social Security and Debt Limit Debate