Could Social Security checks stop?
It seems unlikely, but here are some proposals that might keep that from happening if the US defaults -- and some things to do if it does.
This post comes from Lynn Mucken at MSN Money.
In a nationally televised speech to the nation this week, President Barack Obama warned of dire consequences if Republicans and Democrats can't agree to raise the national debt ceiling by Aug. 2.
"If that happens and we default," Obama said, "we would not have enough money to pay all of our bills -- bills that include monthly Social Security checks, veterans' benefits and the government contracts we've signed with thousands of businesses."
Judging from their reaction, older Americans heard only two words: "Social Security."
Post continues after video.
This is no small matter: According to the Economic Policy Institute, Social Security checks make up more than four-fifths of the income in the poorest 40% of households of people older than 65, nearly two-thirds of the income in such middle-class households and more than two-fifths in such upper-middle-class homes.
Could those 56 million checks sent out each month -- most of them deposited automatically into individual checking accounts -- really stop coming?
Based on history alone, the payments will be made. In 1995-96, when a test of wills between President Bill Clinton and a Republican Congress shut down the government -- a full closure for six days and a partial one for 21 more -- no one missed a check, although the government said later that 112,000 new Social Security applicants were not processed and 212,000 new or replacement Social Security cards were not issued during the six-day closure.
That was accomplished with the passage of a bill that exempted SS payments from being counted against the national debt.
However, that was 15 years ago, when fewer people were on Social Security, the nation's debt was much smaller and our political parties were a little less rigid. "Right now, we're talking about a massive shutdown and a massive disruption," Rep. John Mica, R-Fla., told USA Today. "The scope of this shutdown is so much greater than what happened in '95, you can't compare them."
Social Security Administration officials have not indicated how they would handle a shutdown today, and are unlikely to say anything as long as fear of losing Social Security payments remains such a powerful chip in the political bargaining process.
Scenarios and proposed solutions about Social Security are plentiful, however:
- Sen. Bill Nelson, D-Fla., has proposed legislation similar to the one passed in 1995. And Treasury Secretary Tim Geithner has confirmed that Nelson's strategy would work. "The Treasury's general counsel, George Madison, has reviewed your draft legislation, and advises me that it would provide Treasury special borrowing authority to pay Social Security benefits (despite) the expiration of borrowing authority on August 2, 2011," Geithner wrote to Nelson, according to Florida Today.
- A group of House and Senate Republicans has proposed legislation that would require paying Social Security recipients (as well as active-duty military and interest on the debt) by using $81 billion of the $172 billion the government would bring in in August. However, according to a story in USA Today, the Bipartisan Policy Center studied Treasury Department records for August 2009 and 2010 and found that the government likely would not have enough to make the full $23 billion payment due Aug. 3 to Social Security recipients.
- The Bipartisan Policy Center also studied the possibility of maintaining the debt ceiling by continuing to pay interest on our bonds, thus avoiding a default on our debt obligations. "This is an option known as 'prioritization,'" wrote Ezra Klein on his Washington Post blog. "If (the government) chose, for instance, to fund Medicare, Medicaid, Social Security, supplies for the troops and interest on our bonds, it would have to stop funding every other part of the federal government. ... When coupled with the turmoil in the markets and the general financial uncertainty, (this) would undoubtedly throw the economy back into a recession."
- Writing on The Huffington Post, Nancy Altman and Mark S. Scarberry insist that Obama is "needlessly scaring" Social Security recipients:
The truth is that checks can go out, in their full amount, without adding a penny to the federal government's total debt. They can be paid without subtracting more than a tiny fraction of a percent -- if anything -- from the funds currently being used for other government purposes -- a reduction so small that it could be considered a rounding error.
Social Security's Board of Trustees could and should exercise its right to redeem (cash in) as many of Social Security's bonds as needed to pay benefits. Every dollar of principal (though not accrued interest) that the federal government would be required to pay to redeem the bonds would reduce the total debt subject to the $14.3 trillion limit. That would make room under the debt ceiling and allow the government to borrow an additional dollar from the public to replace every dollar of principal paid by the government.
If nothing else, no one is absolutely sure what will happen Aug. 2. If no checks are coming, what should those on Social Security do? Here is a short version of some suggestions from "Roger D" on the Booman Tribune website.
Remember, you would be taking these steps only because you have limited options during the short time before the checks start coming again.
If you have some assets:
- Tap your rainy-day fund or IRA and 401k plans. But remember, the value of your investments could drop sharply due to a government default, so you might be selling at a loss.
- Consider taking out a home equity loan. This is seldom a good idea, but these are hard times.
- Cash out all or part of a life insurance policy.
If you have few tangible assets:
- Cancel services -- cable, cellphones, Internet, newspaper, books -- that were necessities yesterday but now are a luxury.
- No new clothes.
- Eat at home, buy generic products at the cheapest grocery stores, and cook them yourself. Drink only water -- and from the tap.
- Cut the utility bills by turning off the AC and as many lights as possible, taking fewer baths and showers and unplugging unused devices.
- Drive as little as possible.
- Sell some belongings. A yard sale might get you by for a couple of weeks.
- Ask family and friends for help. These will be tough times, so don't be proud.
More on MSN Money:
Did you REALLY just advise the senior group to turn off their AC during the frickin summer and heat waves???
People, when our seniors start dying from heat complications, MSN money will be the one you are looking to sue.
In response to the question: "Do you have any dependents?"
I replied - "12 million illegal immigrants; 3 million crack heads; 42
million unemployable people, 2 million people in over 243 prisons; Half of Mexico; and 535 more in the U.S. House and Senate
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