Monday, July 25, 2011


In Obama's speech to the nation this Monday night he said he wanted a fair budget deal that had everybody sacrificing, while protecting the vulnerable.

That could have been accomplished if he let all the Bush tax cuts expire last December. But, you say, won't that hurt the economy? Yes, so you don't do it right away. You let them expire two years from then, which is what would happen if no deal is made right now and if the president doesn't extend them again.

There is a solution to the debt problem Obama talks about all the time: delay, but eventually roll back the Bush tax cuts. Instead, we're hearing about plans that put the hurt on those lowest on the economic totem pole.


Here's one way Obama could keep the government running dispite hitting the debt ceiling. The theory has been advanced that Social Security represents a method of bypassing the debt limit. Under the law, when Social Security is short of cash, it must redeem trust fund bonds from the treasury, which it is now doing on a regular basis.

Each time the SSA redeems a trust fund bond for cash, the government is retiring debt. This lowers the total debt of the government, and allows the government to issue new debt to replace the retired debt -- so long as it stays below the debt ceiling. So redeeming Social Security bonds does not count against the debt limit. On the contrary, those bonds represent "free money" from the standpoint of the debt limit.

Now I've heard this in the form of a reassurance -- as a reason why there is no reason that Social Security checks should not go out. But carry the thought a bit further ...

Obama could order the treasury to withhold all of the payroll taxes from the Social Security Administration. He has that authority. Under that scenario, the law would require the SSA to redeem bonds to cover the shortfall. The Treasury would pay the SSA, sell new bonds to replace the trust fund bonds, and Social Security would be able to continue sending out all its regular checks. This would allow Obama to avoid a government shutdown entirely. Since Social Security payments are 20% of the budget, this would free up 20% of the Federal budget, which would be enough to keep all government programs running. Since the Trust fund has some $2.6 Trillion in bonds, Obama could effectively use this gambit to ignore the debt ceiling for the next 3 or 4 years, spending at current rates and effectively ignoring Congress.

But Barack Obama wouldn't do that? Destroy the Social Security trust fund to avoid a government shutdown -- to avoid having to lay off Federal workers?

Would he?

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