Social Security is not underfunded

In my last post, I spoke about how the payroll tax holiday was the best part of the stimulus program, and it's a shame that element was not extended. White Collar Investor, a very sensible financially astute individual, lays out the common reasoning for one way in which the tax holiday was not popular:

Social Security Funded Again

The employee portion of the Social Security tax was cut from 6.2% to 4.2% two years ago as an economic stimulus, then extended through 2012.  Now I liked the extra $2K in my pocket as much as the next guy, but the truth is this was a dumb idea.  We took a popular program that was already underfunded and instead of saving it by cutting benefits a little, we cut the existing funding for it.  That was idiotic in my opinion.  This was eliminated in the fiscal cliff deal, restoring funding for a good program.  This will raise everyone’s taxes ($1000 per year for a worker with a taxable income of $50K per year) and will raise taxes on most doctors by $2274 (double that if you’re in a two-doc family) but the truth is this tax increase actually needed to happen.

Social Security is not underfunded, as all it does is have the currency issuer issue currency (which it can do at any time) and transfer that to currency users. It has no obligation as to what the user will be able to do with that currency. By failing to meet the demand that currency users have for currency, we see high unemployment (or labor being saved instead of currency if you prefer) and therefore, there are less goods available for social security recipients to trade their currency units for. Net net, everyone is worse off.