Friday, July 22, 2011

Social Security Trust Fund IOU's can be "borrowed for" without debt ceiling extension, but there is a catch (Texas A&M professor in WSJ)

On p. A13, Opinion, of Friday’s Wall Street Journal, Thomas R. Saving (ironic name), director of the Private Enterprise Research Center at Texas A&M (hint, conservative, Bush-like  -- link), gave us an analysis “Obama’s Debt Ceiling Scare Tactics”.

What he says is interesting. In effect, because of the Social Security Trust Fund, even without a debt ceiling increase, the administration can borrow specifically to meet Trust Fund obligations and pay full Social Security benefits without eating on the remaining available funds from federal “cash flow”.  But there is a double-helix twist.  In 1937, in Helvering v. Davis  (Cornell law text), a Supreme Court ruled that FICA tax contributions were not earmarked and could be regarded as a tax collection, however regressive (and potentially politically unpalatable as such).  So the Obama administration could conceivably borrow the money, and then spend it on things other than Social Security, legally.  Practically speaking, nobody thinks the government would do this, as this would amount to confiscation or virtual repudiation of a promise of benefits.  Of course, there will be lawyers who will challenge his analysis, maybe in court if necessary.

Even given Saving's analysis, that leaves about a $60 billion shortfall starting Aug. 2 for the month. He says this could be made up by backing spending down to 2001 levels (but that's before 9/11 and before TARP). Furthermore, the government would still have to pay money already owed because of the earlier "generous" budget.

Jack Cafferty points out that on a day-to-day basis there could be issues with the Social Security checks, most of which go out early in the month (starting Aug. 3; mine comes Aug. 10), here. But generally it sounds as if there are legal workarounds, if you are to believe "conservative" law professors around the country (particularly from Texas). 

The link is here (requires WSJ  paywall subscription).

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