Fuzzy Math: Paying for the Payroll Tax Cut

In a just published piece, AEI economist and tax expert Alan Viard warns that the 2011 payroll tax holiday, which shaves 2 % points off workers’ Social Security tax rates, undermines historical practices and distorts federal budget priorities as it diverts $130 billion from the general treasury into the Social Security trust fund.

"The tax holiday is the latest, and largest, of Social Security's raids on the general treasury. For example, the 2009 stimulus package provided an extra $250 benefit payment to Social Security recipients and billed the cost to the general treasury. And, the jobs bills adopted in March 2010 and November 2011 trimmed Social Security taxes for some employers and tapped the general treasury to make up the loss. Numerous small transfers from the general treasury have occurred over the years.

If we keep using general revenue to pay for Social Security, we should turn the program into just another line item in the budget and force it to compete with other programs for its share of budget resources. The best approach, though, is to halt the use of general revenue and return Social Security to its historical role as a self-supporting program."


Alan D. Viard previously served as a senior economist at the Dallas Fed. He has also worked for the White House's Council of Economic Advisors, the Joint Committee on Taxation in Congress, and the Treasury Department's Office of Tax Analysis. Viard can be reached at [email protected]

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