Debt-Ridden Seniors Face Social Security Pay Cuts

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The U.S. Treasury Department is taking a tough stand against U.S. seniors behind on debts owed to Uncle Sam. Currently, 3.1 million Americans over 65 are seeing benefits withheld from their Social Security checks — and they’re not happy about it.

Typically, the federal government takes a hands-off policy on holding back Social Security benefits. And private enterprises, like banks and credit card carriers, can’t get access to any debt owned from customers’ Social Security accounts.

But on the public side of the issue, the equation is changing — thanks to language in the otherwise innocuous 2008 Farm Bill. In it, the bill removes the old 10-year statute of limitations on defaulted government loans, mostly on student, farm, small-business related government debt and unpaid federal income taxes.

Previously, Uncle Sam had to wait 10 years to get his hands on a debtor’s Social Security check. For example, if someone defaulted on a business loan in 1996, the federal government had to wait until 2006 to pry away at the debt via the borrower’s Social Security account.

The Social Security “hold back” has it limits. The government can’t take more than 15% of a senior’s Social Security check. The exception is unpaid taxes, which have no minimum penalty.

The U.S. Treasury, which handles the U.S. Social Security program, says it expects to garner $10 million annually from Social Security withholdings. All told, the Financial Management Service — the debt collection arm of the U.S. government — says U.S. citizens owe $75 billion in delinquent government debt (the FMS doesn’t say so specifically, but that number likely doesn’t include tax debt).

According to the U.S. Treasury Department, the government only received 1.6% of total U.S. government debt (citizen debt totaling $4.3 billion) from Social Security benefits. But by 2008, that number had shot up to 10%.

Expect that percentage to rise now that Uncle Sam has a clean shot at wayward Americans’ Social Security checks — for now.

Some members of Congress don’t like the fact that the federal government is going after American’s Social Security benefits. U.S. Rep. Dennis Moore (D-Kan.), in a March 9 letter to President Obama, called the Social Security grab “sickening.”

Writes Moore: “This is not the way to go. Rather than cut taxes for businesses, you choose to go after those on Social Security? We have taxes going up left and right...and guess what? The MIDDLE CLASS IS BEING HIT, whether you choose to spin it that way or not, and now you can add THOSE ON FIXED INCOMES.”

With 46.5 million Social Security recipients in 2010, according to the U.S Census Bureau — expect more politicians to stand up and shoot down the federal government’s “raid” on Social Security benefits — even if the government has the money coming.

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