Does Obama Have a $2.7 Trillion Get Out Of Jail Free Card?

In a recent post, based on a WSJ piece by Thomas Saving, I pointed out some implications of the status of the Social Security Trust Fund. My point in that post was that Obama appeared to be either deliberately lying about the implications of the debt limit for Social Security or strikingly ignorant of them. 

It now occurs to me that, if one accepts the interpretation Saving offers of the Supreme Court decision in Helvering v. Davis (1937), there is another implication: Obama may have a $2.7 trillion dollar get out of jail free card, a way of spending that much additional money without exceeding the debt limit.

When Social Security revenue is more than expenditure, the excess is loaned to the federal government and used to help pay for its expenditures. The result is a debt of the federal government to the Social Security system, a debt that is included in the total of the national debt. If Social Security revenues fall below expenditure, the treasury is required to pay back the difference, thus redeeming some of the bonds that make up the trust fund. Doing so lowers the national debt, since it includes intergovernmental obligations, so the treasury could borrow the amount it has just paid without exceeding the debt limit.

Under Helvering, at least as Saving interprets it, the receipts from the Social Security tax are not earmarked; they are income of the federal government that can be spent on anything the federal government wants to spend them on.

Revenue from Social Security is about $800 billion/year. Suppose no agreement is reached on raising the debt limit. Obama instructs the relevant people to spend the income from Social Security on the war in Afghanistan, bailouts, whatever he thinks needs money. He then instructs the Social Security system to cash in as many bonds as are required to meet its obligations to Social Security recipients, say $700 billion. He then instructs the treasury, since the national debt is now $700 billion below the debt limit, to borrow $700 billion. The net effect is that he has increased total expenditure, Social Security included, by $700 billion without exceeding the debt limit. The trust fund is currently at about $2.7 trillion, so he can do it for four more years.

And if an extra $700 billion isn't sufficient for his purposes, it isn't clear to me that he couldn't simply instruct the Social Security administration to ask to cash in some more of the trust fund, instruct the Treasury to agree to do so, and then instruct Social Security to hand over the money to whatever part of the federal government requires it.

There are obvious PR problems with this sort of solution to the present problems, both because it is so obviously gaming the system and because the part of the system it games is Social Security, which is a politically highly visible target. But are there any legal problems?

[Later note]

Some readers seem puzzled as to where the Treasury, in my story, is to find the $700 billion that it is to pay to the Social Security Administration, once the debt limit is reached. The answer is straightforward. With or without a debt limit, the federal government is continually collecting money and spending it. In my scenario, the government takes (say) $50 billion that it was supposed to pay as salary to federal employees, pays it to SSA instead. SSA cancels $50 billion in trust fund bonds. The national debt, which includes the debt owed by the federal government to the SSA, is now $50 billion below the limit, so the Treasury borrows $50 billion and pays out salaries to federal employees. Rinse and repeat as many times as necessary.

[Still later note]

A friend who knows much more law than I do writes:

It turns on, on further research, that Congress anticipated and prevented the very trick you have devised. Public Law 104-121, section 107(a), prohibits redemption of Social Security trust fund securities prior to maturity for any purpose other than the payment of benefits or administrative expenses.

So it's still true that the debt limit cannot block social security payments, at least until the trust fund runs out. But my multi-trillion dollar get out of jail free card has been cancelled.

Curses, foiled again.