Wednesday, December 7, 2011

How will the payroll tax cuts affect Social Security?

Differing opinions in a report from National Public Radio.

3 comments:

Arne said...

A close look at the numbers shows that the payroll tax holiday is simply using SS as a vehicle to deliver stimulus from the general fund.

Fact 1 is wrong. Taxes are less than costs, but revenue includes interest and the transfer to cover the payroll tax cut.

Fact 3 is wrong because of the transfer (which is already shown in the accounting)

As long as people keep in mind that the stimulus it is not really a Social Security program expense, it should not be a problem. Nonetheless, I do worry that people will not keep that in mind.

Vivian Darkbloom said...

"As long as people keep in mind that the stimulus it is not really a Social Security program expense, it should not be a problem."

Had the payroll holiday not been implemented, the SS Trust Fund would have taken in hard cash and paid most of that, if not all, out in the form of current benefits. Instead, the general fund borrows from the public (domestic and foreign) provides the "cash" raised to the Trust Fund which uses it to pay benefits. So, from a strictly accounting perspective, the Trust Fund is not any worse off.

But, under sound accounting principles (not to mention the law of political reality) creditors need to take an impairment charge for amounts they are unlikely to collect. The Trust Fund may have booked those account receivable "revenues" that consist of IOU's from the general fund, but that does not mean that doing so was prudent or even appropriate.

Arne said...

"The Trust Fund may have booked those account receivable "revenues" that consist of IOU's from the general fund"

But that is not what heppened. All the moneys from the general fund were passed directly through to make payments to beneficiaries. There was no holding of IOUs.