I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue,” Obama said, according to excerpts of the interview released before its broadcast.

“There may simply not be the money in the coffers to do it,” Obama said. He said veterans checks and disability benefits could also be affected without a deal.

For a while now, President Obama has been suggesting that if Treasury were to prioritize payments in order to not default on the debt, it might do so on the backs of seniors by not paying their Social Security checks. I find this particularly bothersome. First of all, I assume that the president and Treasury would want to do everything they could to pay seniors rather than scare them. Second, there do exist ways — messy, for sure, but possible — for Treasury to pay those benefits regardless, which is what the president should say. A failure to use these “gimmicks” in a scenario where they became necessary would be stunning.

According to a Bipartisan Policy Center’s report, on August 3, revenue coming in will amount to $12 billion, while we will be scheduled to spend some $32 billion — most of it in Social Security checks. How do we make up the difference?

Well, first remember how Social Security works. Starting now, the difference between payroll-tax revenue and Social Security benefits is made up by redeeming the IOUs in the Social Security Trust Funds. Intra-governmental debt counts against the debt ceiling. In order to pay back this IOU, Treasury has to borrow the money, which increases the debt held by the public by the same amount. In other words, if Treasury were to redeem the needed Social Security bonds and issue new marketable Treasury bonds to make good on them, it would be a one-for-one swap and do nothing for the debt ceiling problem.

There is a potential glitch, having to do with whether Treasury has the authority to use payroll tax money to pay benefits rather than “invest.” However, history seems to say it does, according to the Washington Post “Fact Checker,” Glenn Kessler:

There is a technical wrinkle involving the fact that payroll taxes that are collected are supposed to be immediately turned into Treasury securities, but there could be ways around that, such as putting the monies in a noninterest bearing account, as during the 1985 debt crisis. “Although some of the Secretary’s actions appear in retrospect to have been in violation of the requirements of the Social Security Act, we cannot say that the Secretary acted unreasonably given the extraordinary situation in which he was operating,” the General Accounting Office later concluded.

 [. . .]

Still, during the 1996 debt limit crisis, Treasury Secretary Robert Rubin announced that Treasury did not have sufficient funds to pay Social Security benefits. Congress rushed to pass a special law that said the Social Security benefits did not count against the debt limit. Was this designed to pressure the Republican-led Congress, or had even a shrewd operator like Rubin run out of options? However, Congress later that year passed a law, 121-104, that codified Treasury’s authority to use Social Security trust funds to pay benefits and administration expenses in the event a debt ceiling is reached, which could give the administration the authority they need in the current crisis.

The Congressional Research Service has also explored this question in a series of reports this year. The answer is unfortunately inconclusive and buried in a footnote: “Under normal procedures Treasury pays Social Security benefits from the General Fund and offsets this by redeeming an equivalent amount of the trust funds’ holdings of government debt. In order to pay Social Security benefits, and depending on the government’s cash position at the time, Treasury may need to issue new public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public debt, however, because of the debt limit. Social Security benefit payments may be delayed or jeopardized if the Treasury does not have enough cash on hand to pay benefits.”

Another interesting element is Treasury’s ability to “disinvest” by redeeming some of the securities in the Civil Service Retirement and Disability Fund. As I pointed out earlier this week, Treasury did it during the last debt-ceiling crisis in 1995–1996, and that brought some cash flow into Treasury’s coffers to pay for Social Security benefits until the crisis was solved. According to the monthly Treasury Statement, those funds amount to roughly $700 billion.

In his “Fact Checker” article, Kessler quotes Dean Baker and my colleague Jason Fichtner, both of whom think that Social Security benefits could continue to be paid:

“I’m now 99.9 percent positive that Treasury has legal authority to pay Social Security benefits in both cases of a government shutdown and hitting the debt limit, since the payment of benefits shouldn’t affect the debt limit because it reduces the trust funds to the exact extent that it increase publicly-held debt,” Fichtner said. “What I don’t know is whether Treasury has to pay benefits if it chooses not to.”

 Dean Baker, co-director of the Center for Economic and Policy Research who has derided “the phony crisis” of Social Security, also believes the checks could keep flowing. “I would think that they could legally pay Social Security by reducing the obligations of the fund,” he said. “It no doubt would be a huge political issue.”

And Kessler rightfully concludes:

The president obviously does not want to show all of his cards in this high-stakes game of poker. Raising the specter of not issuing Social Security checks is designed to raise pressure on Republicans, but could also cause angst among the elderly.  At this point the answer is unclear but we become suspicious when politicians begin to use “may,” rather than speak in definitive sentences. If Treasury has the ability to keep paying Social Security benefits, even if the debt limit is reached, the Obama administration should make that clear. The Treasury Department’s new statement begins to add some clarity. We will keep watching how the president speaks about this issue

So it seems to me that it’s time to be reassuring rather than scary, Mr. President. Then it’s time to make sure that Treasury does everything it can to send those checks. Yes, all of this is messy, but it beats not paying seniors.