When the government pays a dollar of Social Security benefits, it retires a dollar’s worth of (IOU) bonds in the trust fund. To finance the benefit, it issues a real bond and sells it to investors in the credit market. But since the IOU the government wrote to itself counts just as much as the real bond sold to investors, as far as the debt ceiling is concerned, total government debt is unchanged according to the accountants.
Bottom line: the Social Security checks the president threatened to not send to America’s seniors will not push spending closer to the debt limit. “Instead,” says Saving, “by redeeming bonds in the Social Security Trust Fund, the federal government can borrow an equal amount in the credit market and pay benefits without any affect at all on the debt ceiling.”
John C. Goodman is President and CEO of the National Center for Policy Analysis, Senior Fellow at The Independent Institute, and author of the acclaimed book, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and National Journal, among other media, have called him the "Father of Health Savings Accounts." He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system.