Social Security Funding

Posted by Don Fullerton on Dec 30, 2011

Filed Under (Finance, U.S. Fiscal Policy)

Here is an interesting article, in the Washington Post, entitled “Payroll tax cut raises worries about Social Security’s future funding“.  It points out that the recent payroll tax cuts are intended for short term stimulus, but they muck with the way that social security benefits are funded.  Instead of coming frm payroll taxes, that money now will haveto come from general revenue. 

As it points out: “For the first time in the program’s history, tens of billions of dollars from the government’s general pool of revenue are being funneled to the Social Security trust fund to make up for the revenue lost to the tax cut. Roughly $110 billion will be automatically shifted from the Treasury to the trust fund to cover this year’s cut, according to the Social Security Board of Trustees. An additional $19 billion, it is estimated, will be necessary to pay for the two-month extension.” 

As it goes on to say, “The payroll tax cut changes that. Instead being a protected program with its own stream of funding, Social Security, by taking money from general revenue, becomes more akin to other government initiatives such as Pentagon spending or clean-air regulation — programs that rely on income taxes and political jockeying for support.”

One Response to “Social Security Funding”

  • The government is basically running the equivalent of “Honey I Shrunk the Kids’ Wealth.” Prof. Modigliani and I argued (Rethinking Pension Reform – Cambridge Univ Press), that we need to extend retirement age, raise taxes (because we blew the surplus that could have been used to convert SS to partial funding), but invest the funds sensibly and this goes in exactly the opposite direction! The worst problem with SS is not the DB, but the funding method, and this payroll cut worsens the problem.