There’s a theory pinging around that says no matter what happens with the debt ceiling, Social Security beneficiaries will keep getting their checks on time. Social Security is a trust fund that brings in more money than it pays out, so the theory holds that even if the United States can’t legally borrow more money, benefits must continue until the trust fund runs out.
Evidence strongly suggests that theory is wrong.
It’s true that there are scenarios under which Social Security checks might continue to be mailed out, unabated, in the event that lawmakers fail to raise the debt limit and force the country to only spend as much as it brings in from tax revenue. But those are only scenarios, and there are other, at least equally plausible scenarios under which Social Security checks could wind up delayed by days or weeks.
Put very simply: No one knows exactly what will happen if the nation’s borrowing limit doesn’t rise. As much as retirees and policy advocates want the Obama administration to hold Social Security harmless in that case, there is no guarantee that will happen-- or that it’s legally or technically possible.
Let’s break that down.
What happens if the federal government runs out of borrowing authority (as the administration predicts it will on Thursday if the limit isn’t raised)?
This would present a series of difficult and legally problematic options. The Obama administration would keep paying the nation’s bills with the tax receipts coming in the door. But because the federal budget doesn’t balance, there quickly wouldn’t be enough money. Either the administration would need to pick and choose whom to pay - FBI agents or disabled veterans? Defense contractors or diplomats abroad - or it would have to delay batches of payments across the board until enough revenue accumulates to cover them.
Could Social Security be affected?
The administration says yes. So do outside experts such as the Bipartisan Policy Center. Under what appears to be the likeliest scenario, Social Security checks would be lumped with every other bill the government pays, and only paid when the money comes in to cover them. The delays would pile up over time.
Assuming the borrowing authority runs out this week and lawmakers stay in their stalemate, the policy center calculates, a batch of Social Security benefits scheduled to go on Oct. 23 would likely be delayed by two days. A larger batch, scheduled for Nov. 1, would be delayed by 12 days. The longer the debt-limit impasse, the longer the delays.
Wait, Social Security brings in more money — in taxes and interest — than the benefits cost. How could it not have money to pay benefits?
Because lawmakers don’t treat Social Security, to borrow an old phrase, like it’s in a lockbox. They mix its tax receipts with income taxes, capital gains taxes and every other revenue source the government has. Benefits get paid out of that big mixed revenue stream.
“If they delay payments, then Social Security just stands in line with everything else,” said Shai Akabas, a senior economic policy staffer at the Bipartisan Policy Center. “Social security does not necessarily receive any special treatment because it has its own trust fund. It gets paid out of cash, like everything else.”
Couldn’t the Obama administration choose to treat Social Security ... special?
Maybe. The administration is certainly getting a lot of pressure from AARP and others to do so. There are a variety of technical ways advocates say the administration could make it happen. The easiest would be to say, Social Security takes priority and to move benefits to their own special line and make everyone else wait longer for their money, or deal with much larger immediate spending cuts.
Akabas cautions that this could be technically difficult because an already partially shut down government would need to find a way to pay some of the government’s bills on time, but not others.
It could also be legally problematic: The law appears clear that Social Security beneficiaries must be paid, but that goes for the government’s other contractual obligations, too. It’s uncharted territory for the government to pick and chose which bills to pay, and the administration still hasn’t said how it would make it work.
This is why Social Security recipients should be worried. There’s no guarantee that the government will choose to keep their benefits flowing on time at other program’s expense, whatever the payment strategy might be.