Offsetting this, however, is the probability that a substantial portion of tax cuts will be saved or used to retire debt, implying a larger tax cut will be required to produce the necessary stimulus. If growth still turns negative, the federal budget deficit target should be increased. Over the past two years there has been a great deal of discussion about these surpluses, said to be accumulated in the Social Security Trust Fund. However, it is now widely recognized that the Trust Fund is nothing more than an accounting fiction. It is also widely recognized that this fictional Trust Fund cannot do anything to help provide for retiring babyboomers in the future.
Most observers recognize that there is no way to lock away payroll tax receipts for future use.
Nor does elimination of the Trust Fund entail any financial risk to the government s ability to pay Social Security benefits in the future as they come due. Indeed, the government's ability to pay these benefits is not dependent on tax revenue at all. Hence, there is no reason to try to preserve budget surpluses in the Social Security program. Indeed, there are very good reasons to cut payroll taxes. Further, the payroll tax is specifically levied on working, providing a powerful disincentive to employment.