In trying to see if debt ceiling will have a dramatic effect on the market other than the obvious confidence shaking. And mostly to try to understand why the market isn’t freaking out I uncovered the following. Nothing will get people on your side like the imagery of your grandparents not being able to eat. Well it turns out that Social Security payments will be paid out regardless if debt ceiling is passed.
Via: The Atlantic Highland Herald
The fact is that Social Security is an entirely separate financial system. Its books are separate from the federal government’s books. Right now, Social Security’s books are in the “black” – meaning that FICA taxes received for the year exceed outlays. Those “payroll taxes,” as they are often called, are used directly to fund the benefits paid every month to pensioners and other Social Security beneficiaries.
Any FICA surpluses go into the Old-Age and Survivors and Disability Insurance (OASDI) Trust Fund – commonly known as the Social Security Trust Fund. The latter, of course, is now a “virtual reality,” since those surpluses are immediately borrowed by the federal government to fund its operating deficits. At present, the OASDI Trust Fund contains $2.4 trillion worth of special securities issued by the federal treasury. When the Social Security System reaches a point where payroll taxes can no longer cover its benefit payments, the federal treasury will have to honor those securities, as demanded. Until that time – estimated by some experts to be around 2017 – Social Security will be able to pay its obligations without reference to whatever is going on with the federal government’s debt-ceiling, debts, deficits, or budget.
Maybe what the President meant was that there would not be workers to mail them.
Social Security is a mandatory program supported by a trust fund, so Social Security benefits don’t have to be formally approved by Congress every year. However, Social Security Administration employees are paid through appropriated funds. The real question about a government shutdown was whether those employees would be kept from going to work and if so, whether the checks would sit idle rather than arriving in mailboxes nationwide. The rules that cover government shutdowns provide some leeway for federal workers to carry out core Social Security functions. This flexibility allowed checks to go out during a 1995 shutdown, even as less-urgent agency functions lagged.
For the most in-dept look at the pdf released by the Congressional Research Service and slightly contrary to what is relayed above.
In September 1985, the Treasury Department informed Congress that it had reached the statutory
debt limit. As a result, Treasury had to take extraordinary measures to meet the government’s cash
requirements. Treasury used various internal transactions involving the Federal Financing Bank
(FFB) and delayed public auctions of government debt. It also was unable to issue, or had to
delay issuing, new short-term government securities to the Civil Service Retirement and
Disability Trust Fund, the Social Security Trust Funds, and several smaller trust funds. In
particular, new Treasury obligations could not be issued to the trust funds because doing so would
have exceeded the debt limit. Treasury took the additional step of “disinvesting” the Civil Service
Retirement and Disability Trust Fund, the Social Security Trust Funds, and several smaller trust
funds by redeeming some trust fund securities earlier than usual. Premature redemption of these
securities created room under the debt ceiling for Treasury to borrow sufficient cash from the
public to pay other obligations, including November Social Security benefits.
Maybe this a political fight but our senior citizens should not be in the way.
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