Social Security Must Be Paid

Most people suspect that Obama is blowing smoke with his threats to withhold Social Security checks if the debt limit is not raised and most people are right. Even voter fraud beneficiary, Senator Al Franken has brought his limited intellect to the debate. Senator Franken seems to think that the securities held by Social Security Administration are just IOU's. The treasury bonds are unmarketable and are counted as part of the US debt ergo the Social Security Administration is stuck with these notes which he says are just pieces of paper. Senator, what is it about "full faith and credit" that you don't understand? Let's see what the tax professor blog has to say;

"Social Security’s trustees, in particular its Managing Trustee, Treasury Secretary Geithner, are entitled to demand that those bonds be redeemed – cashed in – by the Treasury to whatever extent is necessary to provide the money to pay benefits. Because the principal amount of those bonds is part of the debt that is subject to the $14.3 trillion debt ceiling, every dollar of principal paid to redeem the bonds creates room under the ceiling for the Treasury to borrow more money from the public. Enough could be borrowed back to replace all but a tiny fraction of a percent of the money used to redeem the bonds (all but the very small amount of interest that would have accrued since the semiannual interest was paid on June 30). In effect, the Social Security trust funds’ bonds would be replaced with bonds owed to the public. Nothing would be added to the total debt, and the trust funds’ bonds would be used for their intended purpose: to guarantee that benefits are paid."

The good professor goes on to say that it would take very little money coming in to fund Social Security for a very long time. Until the economic downturn more money was paid into Social Security than it paid out. Now the cash flow is negative but only slightly so. If for instance Social Security paid out $60 billion in one month and only took in $58 billion it would only deplete the account by $2 billion. That's not a very good way to run a retirement fund but considerable interest is earned on the $2.7 trillion it hold in US debt. No Senator Franken, this is not some little shell game you can quit. The demographics are against Social Security, as they are Medicare, and in its present form it is unstainable but that does not negate its legal standing. It, like China is a creditor of the US government and it must be paid. The professor goes on;

"The trustee of a private pension trust who refused to make pension payments, despite having ample trust assets, would rightly be held to account. Do the President and the Secretary believe that the $2.7 trillion in bonds held by the Social Security trust funds do not in fact stand behind the benefits that seniors and others are entitled by statute to receive?"

Can anyone imagine Franken and Obama in a SNL skit trying to make their arguement? That might be funny on TV but not in real life.