But others, including Jason J. Fichtner, a former deputy Social Security administrator during the Bush administration now at George Mason University, believes this explanation is unsatisfactory. He notes that Social Security holds $2.6 trillion in special-issue Treasury securities. Those bonds are part of the $14.3 trillion debt amassed by the U.S. government, and benefits are paid out of those securities.
So, the theory goes, if Treasury redeemed the needed Social Security bonds, and issued new marketable Treasury bonds to make good on the Social Security bonds, it would be a one for one swap and the debt ceiling would not be increased.
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.
“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.”