The Crisis at Social Security Illustrates Elon Musk and DOGE’s Plan: Explode the Number and Severity of Improper Payments.

Over the past month I needed a break to deal with organizational issues, including getting the Notes on the Crises Manhattan office(!) set up and needed time to continue a number of investigations. Two weeks ago I got pulled into covering the Trump Tariff Financial Crisis at enormous length, culminating in the second interview with Paul Krugman which was released over the weekend. However, the Trump-Musk Payments Crisis has not gone away and I have quite a lot to catch up on.

After my Rolling Stone piece on March 13th, I received a flurry of messages asking me about how my reporting was related to an op ed in the Seattle Times. Many people even generously said that my Rolling Stone reporting was confirmed correct by that article. Before we get there, let’s remember a key aspect of that Rolling Stone article. The core idea was that what makes “money” money is its ability to finally settle a transaction. A monetary payment can terminate a relationship. Conversely, once you receive payment you can leave confident that you will “hold on” to your funds. In other words, “payment finality” is important to money. The core problem is that in our modern era, money is primarily accounts with banks or governments:

When there is an “operational” possibility the government, or any key actor in the payments system, can simply debit accounts, “finality” always has a hanging thread of doubt. Under our current technological and administrative arrangements, the only protection against this possibility is a layer of laws and norms which constrain — even asphyxiate — this distressing prospect. 

In other words, we socially and legally construct payment finality as “truth”. Yet the fabric of these social and legal constructions are far more fragile than most people imagine. [emphasis added]

Which brings us back to social security.

This Seattle Times op ed covered the story of Leonard Johnson who was declared dead and had his bank account debited for $5,201, did not receive his February and March social security benefits and was finding it extremely difficult to “restart” his legal life. As I said on social media at the time, the debiting of bank accounts to “reclaim” Social Security benefits is a distinct legal issue and thus does not confirm my reporting in Rolling Stone. I’m still working on confirming my previous reporting. However, today I wanted to dig into the legal issues around Social Security’s “Death Notice Entry”. 

My interest in the process by which people are declared dead by the Social Security Administration is unfortunately quite prescient. The Daily Beast released an article late on Wednesday night entitled “DOGE’s Social Security Cuts Create Chaotic ‘Day of the Dead Living’”. The article lives up to its title by outlining that DOGE moved four million people(!!!) to the Death Master File. I don’t really have the language to describe how insane this is. That is more than 1% of the United States’ population. If all those people are social security beneficiaries that would amount to just under 5.6% of social security beneficiaries. This is beyond the previous reporting that DOGE had moved 3600 immigrants with social security numbers to the death master file to pressure them to “self deport”.

Simply assuming that the second Trump administration and DOGE will do the most damaging and destructive thing possible with operational control of any system and investigating accordingly has been a surreally good guide to investigating its actions. Which brings me to the core of today’s piece

One advantage of how long I’ve taken to write this article is that I’ve had the time to commission another legal memo and get the final results back. Entitled simply “Notes on the Crises Legal Research Memorandum No. 2”, this memo is on “Automated Clearing House (ACH) System Reclamation of Social Security Benefits”. The anonymous lawyer who wrote this memo did a wonderful job. 

The memo unfortunately confirmed my supposition from the first time I read the Seattle Times reporting: social security benefits have a glaring weakness in their “payment finality”. That is, when someone is declared dead by social security, their social security benefits can be “reclaimed” without any due process.  If the Social Security Administration first “learns” (or “decides”) that a beneficiary is dead they send a “death notice entry” through the Automated Clearing House’s various COBOL systems. Specifically a “death notice entry” is sent to Federal Reserve Banks who are supposed to send them onto banks in their district. This “death notice entry” is “technically” (or more precisely, “operationally”) a “zero dollar” payment with a series of “memo entries” with important information for the various payment intermediaries involved.

Social Security will follow up a “death notice” with a “Notice of Reclamation” (NOR) which “initiates the process” where the “dead” social security beneficiaries’s bank will ultimately “send back” any social security benefits that were paid after the reported “death date” and to not process future social security benefits. When a bank agrees to receive a recurring payment from the Federal Government on behalf of a customer, it also agrees that its account at a Federal Reserve Bank can be debited at any time. Specifically, that its account can be debited in connection to its liability under the administrative rule making which governs ACH payments (see both Notes on the Crises Legal Research Memoranda). In simple terms, agreeing to accept social security benefits for, say, Leonard Johnson entails a bank agreeing to have their account debited for social security benefits the Social Security Administration claims were delivered after Johnson’s death. If they don’t successfully debit those amounts from Johnson’s account, that means taking a financial loss.

Because of this liability imposed on banks, they tend to be very overzealous when it comes to sending payments back to the government. When banks receive information that a customer is dead, they will regularly send social security benefits back without even receiving a “Notice of Reclamation”. They sometimes do this when they independently find out someone is dead and Social Security has not even sent a “Death Notice Entry”. The legal memo I commissioned specifically says that the “greenbook”- the Bureau of Fiscal Service’s guide to payment processing for banks, agencies and other entities- “cautions that BFS does not authorize or direct RDFIs [Social Security Beneficiaries banks] to debit or otherwise affect the accounts of a recipient in order to return funds that have already been credited to a recipient’s account.” Nevertheless, they do so regularly.

This process by which liabilities are imposed on banks which leads them to deny payment services, as well as freeze and clawback funds, to customers is very familiar to many of the most marginalized in our society. This is a very different context where the term “derisking” is used. Undocumented immigrants have had their accounts randomly closed and the funds frozen or taken. So have sex workers, who have experienced worsening access to payments as laws targeting them- in the guise of “protecting” them- make them more and more vulnerable to having their funds seized. These laws also made it a lot more difficult to get paid, which means more danger and more risk. Indeed, the most sophisticated conversations I’ve had over the difficult-to-grasp concept of payment finality have been with sex workers who experience what I’m talking about as a daily reality. The sex worker rights movement has more than earned an “I told you so” moment; Their warnings that what could be done to them could be done to any of us are unfortunately quite prescient.

The problem of a lack of payment finality for social security benefits, specifically related to death notices, has been long running. It, however, was manageable because people could contact Social Security and have it fixed. They could go to their local social security office and present their identity documents and get this reversed. In other words, having a functioning bureaucracy helped limit the threat of a lack of payment finality which social security beneficiaries always operate under whether they knew it or not. Enter Musk and DOGE. Since Elon Musk and his apparatchiks do not understand how the Social Security Administration- or really any other agency- functions they think cutting staff is costless. Its “efficiency”. But it is not efficient. They are destroying bureaucratic efficiency and as a result social security is absolutely overloaded with people calling to try to get problems fixed. 

This all brings us back to a theme we’ve come back to over and over in this newsletter: improper payments. The putative reason for impoundment and for all of DOGE’s actions, especially at the Bureau of Fiscal Service, is improper payments. This works rhetorically by conflating payments they dislike with fraud and then conflating improper payments with fraud. It also works by ignoring that underpayment is a form of improper payment. 7.9 Billion dollars of improper payments in the 2024 fiscal year were underpayments according to the GAO. 

This is why I say that Elon Musk and DOGE’s plan is to explode the number and severity of improper payments. Take “just” social security. Every missed payment is an improper payment. Really, these account debits “reclaiming” social security benefits from people who are alive should count as improper payments too. Every additional month someone does not receive a social security payment is another improper payment. It’s also a worse improper payment. Getting social security benefits “reclaimed” obviously sucks regardless, but if you can get this reversed in a week that is obviously far better than trying to survive without social security benefits- and with your account having been drained- for months and months on end.

In a fundamental sense, the lack of a functioning Social Security bureaucracy makes “social security dollars” less valuable and more insecure property. Even those still receiving social security benefits have a less valuable benefit that they have to be worried could get snatched away from them for any number of reasons and they would have extremely limited recourse. They aren’t “saving money”, they are capriciously worsening social security- a program that impacts tens of millions of people- and delivering far less to ordinary Americans. It's not “more for less” or the “same for less”, it's “less and worse for barely less”. This is all without considering that ultimately this will cost a lot more to resolve and fix than simply not breaking these systems would. 

Thinking about this alongside the extremely ominous threat covered in Wired that they have plans to “attempt” to move social security off “COBOL” in just a few months is extremely disconcerting. Especially given their reported intention to “use AI” to do it. To say the least, such a change would catastrophically explode the number and severity of improper underpayments from social security. But that is a catastrophe for another time.