US Government Debt Different - Finance Department - University of ...

Jeremy Kreisberg & Kelley O’Mara (Under the Supervision of Professor Howell Jackson)297Theory 2C: President Must Prioritize Bondholder PaymentsStatus of Funds utilizedduring DISPInterest Payments toBondholders(Aug.2 – Aug. 31)Mandatory Spending onEntitlements(Aug. 2 – Aug. 31)AppropriatedDiscretionary Spending(Aug. 2 – Aug. 31)Proportion of totalexpenses paid Aug. 2 –Aug. 31Outstanding Debt onAug. 31270 271 272and Other “Obligations”DISP likely would have been extended; Funds would nothave been made whole on Aug. 2Paid, as scheduled ($38 billion) 270Social Security likely to be paid as scheduled ($51 billion). 271Medicare less likely to be deemed an “obligation.”Expenses deemed “obligations” would be paid (e.g.,government pensions, previously incurred contractualexpenses)59% (43% of non-interest and Social Security expenses) 272$14.294 trillion, as approved in Feb. 2010 legislationD. Social Security and Medicare Trust Fund Redemptions CouldEnable Payments After Reaching the Statutory Debt LimitThe President may not be forced to develop a prioritization schemethat ensures payments to Social Security beneficiaries after reachingthe debt limit; instead, the Executive Branch may provide for suchpayments by redeeming obligations possessed by the Social SecurityTrust Funds. 273 In November 1985, when the government reachedthe debt limit, Secretary of the Treasury James Baker redeemednearly $15 billion of Treasury securities held by the Social SecurityTrust Funds in order to pay beneficiaries. 274 This maneuver loweredthe outstanding debt subject to the limit by the amount of theredemption, and simultaneously allowed for new borrowing at that270Id.271Id.272Id. Inflows – Interest and Social Security = $97.239 billion. Outflows – Interest and SocialSecurity = $224.399 billion.273Nancy Altman & Mark S. Scarberry, Disentangling Social Security from the Debt Ceiling,Huffington Post, July 20, 2011, http://www.huffingtonpost.com/nancy-altman/disentangling-social-secu_b_905227.html.274Letter from Charles Bowsher, Comptroller General of the United States, to James R. Jones,Chairman, Subcommittee on Social Security, Committee on Ways and Means, House of Representatives(Dec. 5, 1985) (available at http://archive.gao.gov/d12t3/128621.pdf).