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The General Fund is simply the Treasury's cash management account. Any cash received by the federal government that is not pre-marked to a specific purpose is collected to the General Fund. All proceeds from the sale of US debt securities go there. They cannot be withdrawn and expended until Congress passes authorizing and appropriating legislation to fund the expediture. At that point, Treasury transfers funds to agency operating accounts, and they proceed to spend for authorized purposes. Payroll taxes on the other hand are initially paid to the IRS which credits accounts owned by the Social Security Administration. They are then used either to make SS benefit payments or to buy more Treasury securities. Buying more Treasury securities is what puts cash in the General Fund, just as buying a US Savings Bond for your niece does.As I understand it it's all a matter of bean counting, whether to include SS as part of the (general fund) Fed budget or not.
About the budget: There are two "off-budget" agencies. Social Security and the US Postal Service. Neither one receives an annual appropriation from Congress to operate. SS relies on payroll taxes, and USPS relies on postage and other fees. Then again, since 1983, SS has been taking in a lot of money. Does it make sense to pretend that it doesn't exist? No. So the budget is always presented on a unified basis (everybody), but then split out into the "off-budget" piece (SS and USPS) and the "on-budget" piece (everybody else). In FY2011, there was a $67.2 billion off-budget surplus, and a $1,366.8 on-budget deficit, so there was a unified deficit of $1,299.6.At some point Nixon decided to include SS as part of the budget, which was a departure from previous admins. Today we could just as easily reverse that process but understand that it would jump the national debt by ~$2.6 trillion (the current SS Trust Fund balance) and increase the deficit ~$93 billion (SS net revenue from 2010).
Meanwhile, the budget treatment has no effect on the public debt at all. The nearly $2.7 trilllion SS surplus is already a part of the public debt simply because it is invested in Treasury securities. That's all the public debt is -- a measure of Treasury (and some other agency) securities outstanding.
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