The Treasury owes those monies that would have been collected as part of the payroll taxes to the Social Security Trust Funds.
http://www.cjr.org/campaign_desk/switching... What to do about those FICA contributions, aka payroll taxes, now that the supercommittee has blown up? Last Christmas the Obama administration handed workers a special gift—a one-year holiday from paying their payroll taxes, which as most workers know fund their Social Security retirement benefits and disability and survivor’s benefits, should they need them later on. The year is up. Chris Wallace’s interview on Fox News Sunday with the Senate’s second-ranking members, Dick Durbin for the Democrats and Jon Kyl for the GOP, produced a huge news nugget for campaign reporters to contemplate.
The Republicans, represented by Kyl, seem to be saying that they want to keep Social Security strong, while the Dems, represented by Durbin, appear to advocate a policy that could end up jeopardizing the program. Kyl told Wallace:
The problem here is that the payroll tax doesn’t go into general revenue, it supports Social Security. And you can’t keep extending the payroll tax holiday and secure Social Security.
That 2% freebie has to be paid back to the Trust Funds. Maybe not from the tax payer - directly - but by the Treasury, which means the taxpayer - indirectly.
Here is another cite. Read the facts about the payback feature of this payroll tax cut:
http://www.counterpunch.org/2011/09/09/abo... /
The FICA/payroll tax goes into the Social Security Trust Fund. This is a dedicated fund currently worth $2.6 trillion, which has been built up over time through employee and employer contributions, along with accrued interest. Current and future Social Security beneficiaries receive benefits from this fund. No general revenues are involved, except for administrative and clerical costs.
Under the payroll tax cut initiated in the 2010 lame duck tax deal, the revenue loss to the Trust Fund from the payroll tax holiday is made up through compensatory payments into the Trust Fund from general revenues. The President proposes to continue this scheme — deepening a relationship between Social Security and general revenues (read deficit) that did not exist until the December 2010 tax deal. This will make Social Security increasingly vulnerable to demands for “reform.”
In the worst case, Congress could choose to enact the payroll tax cut without actually appropriating revenue compensation for the Trust Fund. This would mean that the payroll tax cut directly depletes the Trust Fund, creating financial/actuarial problems far sooner than the currently anticipated shortfall date of 2036.
But even if the Trust Fund receives full revenue compensation — for both employer and employee contributions — Social Security will be jeopardized. That’s because the resources in the Trust Fund will be increasingly comingled with general revenue funds — and, hence, increasingly connected to the deficit.
If the government can’t pay back Social Security money it has borrowed to pay for other things (through IOUs, bonds, etc), it certainly won’t be shy about cutting Social Security to pay itself back for funds it shared with Social Security to offset revenue losses from the payroll tax holiday.
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Once the payroll tax basis of Social Security financing has been corrupted the future of Social Security will no longer be in doubt. It won’t have one.
