Social Security and the Debt Limit: the Basics Again

Well the word out of DC this morning is that the GOP will cave on holding Obamacare hostage at least to the debt ceiling in exchange for negotiations on long-term debt with Social Security explicitly on the table. So it is time to review some basics here.

First we have Public Debt and Debt Subject to the Limit. For practical purposes they are one and the same at $16.7 trillion dollars. You can examine the numbers and see the technical distinctions here: http://www.treasurydirect.gov/NP/debt/current

That same link will show that ‘Public Debt’ is the sum of ‘Debt Held by the Public’ (currently $11.9 trillion) and ‘Intragovernmental Holdings’ ($4.8 trillion). And what are ‘Intragovernmental Holdings’?
http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm#DebtOwner

Intragovernmental Holdings are Government Account Series securities held by Government trust funds, revolving funds, and special funds; and Federal Financing Bank securities. A small amount of marketable securities are held by government accounts.

And the largest of these trust funds are the combined OASDI or Social Security Trust Funds at around $2.7 trillion.

Which gets us to a simple point. Intragovernmental Holdings including assets in the Social Security Trust Fund are included as a portion of Public Debt and so Debt Subject to the Limit. Which means any action that in the short term either accelerates receipts into the Trust Funds or decreases drawdown (depending on which way the arrow currently is running) has the arithmetic effect of increasing Trust Fund balances over the baseline which in turn INCREASES DEBT SUBJECT TO THE LIMIT. Now in the long term those receipt increases or outflow decreases have the effect of reducing what is called ‘Unfunded Liability’ and so arguably increase the health of Social Security over that same long run. Well fine, we can have that discussion. But what is clear is that extorting cuts in Social Security in the context of a short term debt ceiling increase makes no numeric sense at all. Because the effect of those cuts whether large or small has the first order effect of increasing that component of Debt Subject to the Limit that is comprised of Intragovernmental Holdings.

To repeat something I have said over and over: ‘Unfunded Liability’ is not ‘Debt’. Not as the latter is operationally defined in current federal budgeting. And pretending that it is as an excuse to drag Social Security into the current debate over shutdowns and debt limits is just dishonest bait and switch.

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