3. Public finance implications of the Social Security tax cut for those under 25.

Social Security tax payments have flowed into a Federal trust fund for many years. Currently, annual benefit payments to retirees exceed annual payroll tax revenues, so the trust fund is being depleted, and will be exhausted in 15 years. At that time and thereafter, unless other policy actions are taken, annual benefits payments to retirees must be cut below promised benefits so that benefits paid match payroll tax revenues each year.

a. Assuming the government takes no other action, what is the likely effect of suspending the payroll tax for youth on the Social Security program? Who is likely to be most affected?

b. Advocates of the youth payroll tax cut argue that, in the long run, the cut would improve the financial viability of the Social Security program. Is that possible? Explain your answer.

B. Recommendation. Based on your analysis in part A, would you support the youth payroll tax cut? Under what conditions? Explain your position