If Social Security by law is not funded out of general revenues, then why would reductions in Social Security reduce the federal deficit?
There is an answer to this, but the question reveals some of the problems the funding of Social Security creates. Let me start with a disclaimer. I’ve never read the enabling legislation for Social Security and would be happy to have any errors or misunderstandings corrected.
Social Security is funded by the payroll tax, separate from income tax. Every worker pays the payroll tax. Low income earners might not pay any income tax. (Thus, the complaint is often made that some people pay no taxes yet get benefits from government.)
The accusation is also sometimes made that Social Security is a Ponzi scheme, but Social Security has accumulated a surplus in taxes for many years in excess of payouts. The purpose of the surplus was to create a fund for the time when boomers began withdrawing payments from the system.
It would all work fine if the government hadn’t spent the money. By law, excess Social Security payments are invested in U.S. Treasuries. So the government has gotten the money but owes it back to the Social Security system when needed to pay future benefits.
Back to the initial question. The reason that reductions in Social Security benefits would reduce the deficit is that such reductions would require the government to borrow less from other sources (China?) to repay the money owed to Social Security as demands are placed on the Social Security system to fund benefits.
So if you think low income people who pay no income tax but pay only the payroll tax aren’t contributing to the system overall, well, you should advocate for the government leaving Social Security alone and allowing people to get the Social Security benefits the system was set up to pay.
On the other hand, if you think Social Security benefits should be reduced so the government deficit can be reduced, you’re essentially saying that payroll tax and income tax are all just the same government money.
And you thought Al Gore was an idiot for talking about a lock box for Social Security.