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Sorting out the truth in politics

PolitiFact: Obama stretching on Social Security

President Barack Obama and Congress are in intense discussions on raising the debt ceiling — the legal limit on how much money the government can borrow. But the negotiations aren't going so well, leaving observers — and some participants — to consider whether there are Plan B's, Plan C's and Plan D's if the negotiators can't reach an agreement in time.

After hitting the debt ceiling earlier this year, the U.S. Treasury Department juggled accounts as a temporary measure that bought time for further negotiations. But officials now expect the debt limit to be reached on Aug. 2.

While most if not all federal accounts are affected in some way by the debt limit debate, the most urgent items for many ordinary Americans are direct transfer payments, most notably Social Security and veterans' benefits.

Obama was asked about this in an interview Tuesday with CBS Evening News anchor Scott Pelley. Here's their exchange:

Pelley: "Can you tell the folks at home that, no matter what happens, the Social Security checks are going to go out on August the 3rd?"

Obama: "Well, this is not just a matter of Social Security checks. These are veterans' checks, these are folks on disability and their checks. There are about 70 million checks that go out each month."

Pelley: "Can you guarantee, as president, that those checks will go out on August the 3rd?"

Obama: "I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue, because there may simply not be the money in the coffers to do it."

We heard from a lot of readers who wanted us to check whether that statement was factually accurate or if Obama was using scare tactics.

The Bipartisan Policy Center — a Washington, D.C., think tank with a board that includes former politicians from both parties — conducted an analysis of what the government's fiscal situation would be if a deal on the debt ceiling is not reached.

When the center analyzed the government's inflows and outflows for the rest of August, it found $172.4 billion in cash coming in, to offset required payments of $306.7 billion. That works out to a deficit of $134.3 billion. (Families and businesses will recognize this as the always-dreaded "cash flow problem.")

With that amount of income to work with, the government could pay the monthly costs of Medicare and Medicaid ($50 billion), Social Security ($49.2 billion), Pentagon vendors ($31.7 billion), interest on the debt ($29 billion), and unemployment benefits ($12.8 billion). Those categories total $172.7 billion.

But doing so would mean delaying other payments — for instance, Pell grants and other educational programs ($20.2 billion), salaries and benefits for federal employees ($14.2 billion), welfare and food programs ($9.3 billion), military active duty pay ($2.9 billion), veterans affairs programs ($2.9 billion), Department of Justice funding that includes the FBI and federal courts ($1.4 billion) and IRS refunds ($3.9 billion).

If the government could prioritize payments to creditors it deemed most important — bondholders, say, or Social Security beneficiaries — it could be a viable stopgap. But does the government have the power to prioritize whom it pays?

The answer is somewhat in dispute. Here's how Congressional Research Service describes it:

"Some have argued that prioritization of payments can be used by Treasury to avoid a default on federal obligations by paying interest on outstanding debt before other obligations," CRS wrote in a study published earlier this year. "Treasury officials have maintained that the department lacks formal legal authority to establish priorities to pay obligations, asserting, in effect, that each law obligating funds and authorizing expenditures stands on an equal footing. In other words, Treasury would have to make payments on obligations as they come due."

But CRS added that this view contrasts with one expressed by the Government Accountability Office in 1985. The GAO found "no requirement" that Treasury pay its bills in a first-in, first-out fashion. "Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States," the GAO concluded.

Even if the government has the authority to prioritize payments, doing so would still entail some downsides, and some of these might be considered politically or practically untenable, according to experts we interviewed.

It merely kicks certain payments down the road, where they may accrue additional interest charges, worsening an already difficult fiscal climate, they said. And even if payments to bondholders were prioritized, the bond market may still be spooked by the delays in other federal payments, risking harm to the nation's creditworthiness.

Most of the experts agreed that the federal government, if push came to shove, could probably find a way to prioritize Social Security or other payments, though none expressed absolute certainty. However, most of them also acknowledged practical challenges of using such tactics.

While he thinks the GAO's green light for payment prioritization carries significant weight, Eugene Steuerle of the Urban Institute added that "with so much being borrowed, it is hard simply to pick on a few programs" to continue in the face of a debt ceiling impasse.

Ronald M. Levin, a professor at the Washington University School of Law said, "I interpret the president to be saying, 'Stopping Social Security checks would be hugely costly, but other curtailments would also be hugely costly. . . . Something will have to give, and I cannot responsibly guarantee that it won't be Social Security.' That is not quite what he said, but to my mind it's close."

Where does this leave us? The critics likely have a point when they say Obama is playing up the risk to the most sympathetic potential victims — Social Security recipients, 23 percent of whom live in households that depend on the retirement system for 90 percent or more of their income. While it's not a certainty that the Obama administration could prioritize writing checks to seniors, there's a reasonable shot that the administration could do it.

On the other hand, doing so would likely cause a lot of collateral damage to other American creditors, federal workers, students, Pentagon vendors and countless others — and could hamper the broader economy at a particularly sensitive time. The president is probably justified in saying that the possibility of an unraised debt ceiling jeopardizes Social Security checks — after all, it hasn't happened before, so no one knows for sure. But the president probably has tools at his disposal to avoid the worst-case scenario for seniors. Acknowledging that there are a lot of uncertainties, we rate his statement Half True.

The statement

Social Security and other federal checks may not go out on Aug. 3 if the debt ceiling is not increased.

President Barack Obama, Tuesday in an interview with CBS News

The ruling

The president is probably justified in saying that the possibility of an un-raised debt ceiling jeopardizes Social Security checks, but we also think he probably has tools to avoid the worst-case scenario. Acknowledging the uncertainties, we rate his statement Half True.

PolitiFact: Obama stretching on Social Security 07/14/11 [Last modified: Thursday, July 14, 2011 1:09am]
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