Payroll Tax Holiday and the Trust Funds
Politically, this has one major drawback: it’s going to put huge holes in the Social Security and Medicare trust funds. Since I think those trust funds are meaningless accounting devices, I don’t think this has any practical relevance. But as you will be able to see in my comment section about twenty minutes after I hit “post,” people have a very deep emotional attachment to the idea of the trust funds, which politicians cannot easily trifle with.
Really? I have a proposal. Suppose the holiday costs the trust fund $400 billion. Just transfer that $400 billion from the general budget to the trust fund.
In fact, we could immediately put $100 trillion gazillion dollars in the trust funds from the general budget, and then they would have enough money to pay Social Security forever. Supposedly.
The trust fund is a measure of what we are promising to pay future Social Security recipients. To me, it is nothing more than that. But what is going to fund Social Security down the road is not the promises that we pour into it today. It is the taxes that people will pay in the future.
I have tried to explain Social Security for a long time. See here, for example. But Megan is probably right. I honestly thought that among trained economists it was understood that the trust fund has no real significance. I thought that anyone who went to a respectable graduate school learned the overlapping generations model, which sometimes gets taught as a model of money but is most evidently a model of Social Security. However, Paul Krugman at least pretends to act as if he never learned that.