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Home Publications Blogs Beat the Press Fact Checking the Post's Fact Checker on the Debt Ceiling

Fact Checking the Post's Fact Checker on the Debt Ceiling

Sunday, 13 October 2013 08:43

Glenn Kessler has a useful column assessing Senator Rand Paul's claims about how default could be avoided if we reached the debt ceiling, however he does get one important item wrong. The piece implies that it would be possible to save money to pay debt service or other top priority items by not making Social Security payments.

This is not true. The money held by the Social Security trust fund is part of the debt subject to debt ceiling. If money is not paid out to Social Security beneficiaries then there is more money in the Social Security trust fund.

This is a dollar for dollar relationship. This means that every dollar that the government does not have to borrow on public markets to make Social Security payments is an additional dollar owed to the Social Security trust fund, leaving no net change in the amount of borrowings subject to the debt ceiling. This means that the payment of Social Security benefits does not affect whether or not the government breaches the debt ceiling.

There is one other item in this piece that deserves comment. It reports an assessment from the Government Accountability Office that higher interest rates from the August 2011 standoff will lead to $19 billion more in interest payments over a ten-year period. It is unlikely that many Post readers have the ability to assess the importance of $19 billion in the federal budget over a 10-year period. If we turn to the Center for Economic and Policy Research's magnificent responsible budget calculator we see that this would be roughly 0.045 percent of projected spending over the period from 2012-2021.


Addendum: Kessler added a note making this point.

Comments (7)Add Comment
written by skeptonomist, October 13, 2013 9:36
Treasury and the SS administration have been saying that SS payments are "not guaranteed" if the ceiling is not extended, but I don't see how payments could be legally withheld (although I have not examined all the debt-ceiling bills). The SS budget is separate from the general fund and income from payroll taxes is about equal to payments at the moment. The SS system is actually over $2.5T in the black and it is a major creditor of the US. For the US to access (borrow) the money collected in payroll taxes, it must issue bonds, which are part of the debt. If the government actually defaults on the interest payments to the Trust Fund there might be a slight shortfall in SS payments. There is also a Supplemental Security Income program which uses general funds.

This means that any cuts would be all the more severe in other programs, and SS money can't be used to make interest payments on US bonds as Dean says. In saying that SS payments may be in doubt, Treasury and SS seem to be giving false credence to Paul's claims that default could easily be avoided.
Rand Paul Takes Credit for No Death-by-Drones on American Soil During Government Shutdown
written by Last Mover, October 13, 2013 9:51

Funny how that works. Ideologues like Rand Paul pointing out that default is not really default when it comes to service on the debt because it is so small. Of course he doesn't realize Dean Baker has been saying this for a long time in defense of spending more to increase employment.

Then immediately out of the other side of Rand Paul's mouth alongside such claims, he's quick to remind everyone that continued postponement of paying down the debt is eventual economic suicide.

At least Rand Paul is consistent with the contradictions. After all, he did accuse Obama of sending out his goons to close down the war memorial and bar visitation by veterans, after Paul himself egged on the "not a problem" shutdown.

Wake up Americans. If not for the government shutdown, you could have been taken out by a drone as an enemy combatant.
written by AlanInAZ, October 13, 2013 10:15
Glenn Kessler has a follow-up article elaborating on Dean's point.

And ... is just me or is there an elephant in the room.
written by John Puma, October 13, 2013 12:14
The ratio of the amount of principal maturing in this period ($417 bil) to the amount of interest stated ($35 bil) is more than 10:1. This is about the same ratio of articles on the general topic which mention ONLY interest to those which also mention the maturing principal.

Does "rolling over" of principal, into what the language must call "new," debt not count as incurring "new" debt in regards the debt ceiling?

written by skeptonomist, October 13, 2013 1:45
Kessler says "payroll taxes that are collected are supposed to be immediately turned into Treasury securities", but this is not what the original SS Act says:

"It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the Account as is not, in his judgment, required to meet current withdrawals." The 1939 revision echoes this. That is the required sequence seems to be collect payroll taxes, pay benefits, invest remainder.

But above all it should be understood that SS itself does not contribute to the debt - payroll taxes plus interest are definitely larger than benefits. There is no shortfall of revenue. It seems very unlikely that the administration would raid SS to pay interest on bonds held by foreigners among others - this would be very bad politically.
Mechanics of default
written by robertsalzberg, October 13, 2013 4:15
The SS Trust fund redeems special issue bonds every month to balance the payments the Treasury must make every month to SS beneficiaries.

So the debt ceiling breach will occur when the SS Trust fund attempts to redeem its bonds because Treasury will likely not have enough cash on hand to cover them without borrowing more money which they won't be able to do without a lifting of the debt ceiling.

So the debt default will happen before the checks are set to drop to SS beneficiaries.

Treasury does have control of the timing of SS beneficiary payments because if the 3rd falls on a holiday or weekend the checks go out the previous business day so the Treasury should be able to delay all SS beneficiary checks if they don't have enough cash on hand.

Delaying SS beneficiaries their checks would create a force that would likely breach the bubble of crazy delusional thinking surrounding some Members of Congress...
written by JDM, October 14, 2013 2:33
On the last point, I have to wonder if these reporters get super excited and jump to lock in their bosses' offer of a $1000 raise without bothering to find out that the grand is not per week or month but spread over the next 10 years.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.