Updated below
As far as I know this is the first time any President of either party has reduced the FICA tax.
From the NYT article on the deal Obama and the Republicans have made.
It would reduce the 6.2 percent Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers.
So the trust fund will be reduced by that amount, thus shortening the number of years before it starts paying out more than it takes in. This is the camel’s nose under the tent. Yes, it should have a stimulative effect on the economy, but it’s terrible precedent. Next year when it comes time to bump the tax rate back up the Republicans will undoubtedly howl that it didn’t hurt anything to cut it, so let’s cut some more because people deserve to keep their own money. And all the people who want to kill Social Security entirely (Pete Peterson and David Walker, I’m talking to you) will be delighted.
Update: The Washington Post is reporting that the shortfall in the Trust Fund will be made up with funds from general revenue.
Given that, with the bad economy, it’s already paying out more than it takes in, how materially does this change things?
Too early to tell, I imagine. But I worry far more about the precedent than I do the dollars, since the fund will be revitalized once the economy picks up.