Wednesday, December 08, 2010

Accounting for the Payroll Tax Cut

by Calculated Risk on 12/08/2010 04:50:00 PM

Update: apparently this is settled and the trust fund will receive credits from the general fund - so there will no impact to Social Security.

There is no text for the plan available yet, and I've been trying to understand the accounting for the payroll tax cut and maybe this has already been settled ...

There are two obvious alternatives: 1) Social Security will receive something close to $120 billion less than currently estimated in 2011, and this will negatively impact the long term Social Security projections, and 2) the full amount of the payroll tax will still be credited to Social Security (as if there was no cut), and the 2% cut will come directly from the General Fund in 2011 - so this tax cut will have zero impact on long run Social Security projections.

Some people will say it doesn't matter - debt is debt - fine, if it doesn't matter, do it the 2nd way (debit the General Fund). I think it will matter for future debates.