    [Budget of the U.S. Government]
    [VI. Investing in the Common Good: The Major Functions of the Federal Government]
    [25. Social Security]
    [From the U.S. Government Publishing Office, www.gpo.gov]

      ----------------------------------------------------------------------

                              Table 25-1.  FEDERAL RESOURCES IN SUPPORT OF SOCIAL SECURITY
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                Estimate
                Function 650                1996   -----------------------------------------------------------------
                                           Actual      1997       1998       1999       2000       2001       2002
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority...      3,140      3,457      3,303      3,256      3,246      3,246      3,251
      Mandatory Outlays:
        Existing law...................    347,051    364,232    380,935    398,622    417,735    437,963    459,686
        Proposed legislation...........  .........  .........  .........         -5          1          7         13
    Tax Expenditures:
      Existing law.....................     22,890     24,170     25,285     26,465     27,765     28,875     29,935
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
       The Old-Age, Survivors, and Disability Insurance (OASDI) program,
    popularly known as Social Security, will spend about $380 billion in
    1998 to provide a comprehensive package of protection against the loss
    of earnings due to retirement, disability, or death.
       OASDI provides monthly benefits as a matter of earned right to
    retired and disabled workers who gain insured status, and to their
    eligible spouses, children, and survivors (see Chart 25-1). The Social
    Security Act of 1935 provided retirement benefits, and the 1939
    amendments provided benefits for survivors and dependents. These
    benefits now comprise the Old Age and Survivors Insurance Program
    (OASI). Congress provided disability benefits by enacting the Disability
    Insurance (DI) program in 1956, and benefits for the dependents of
    disabled workers by enacting the 1958 amendments.
       Social Security was founded on two important principles, social
    adequacy and individual equity. Social adequacy means that benefits will
    provide a certain standard of living for all contributors. Individual
    equity means that contributors receive benefits directly related to the
    amount of their contributions. These principles still guide Social
    Security today.

    What Social Security Does

       Social Security helps alleviate poverty, provide income security, and
    maintain the lifestyles of beneficiaries.

      Alleviating Poverty: Before the 1960s, when an economist at the Social
    Security Administration developed a measure to assess poverty, experts
    believed that a large share of the elderly were poor, although it was
    not clear exactly how many. In 1970, an estimated 25 percent of the
    elderly were living in poverty. Now, only about 11 percent of them do.
    \1\
    ---------------------------------------------------------------------------
      \1\ These estimates as well as those that follow are based on a
    definition of poverty that uses pre-tax cash income--the Census Bureau's
    definition of income for official income and poverty statistics. In the
    Income Security function discussion of how cash and non-cash means-
    tested benefits affect poverty, a more comprehensive definition of
    income is used. The estimated impacts on poverty are not directly
    comparable across chapters.
    ---------------------------------------------------------------------------

      Social Security is largely responsible for the progress (see Chart 25-
    2). In 1995, 17 percent of elderly, unmarried beneficiaries had family
    incomes below the poverty line. Without Social Security retirement
    benefits, 60 percent of them would have fallen into poverty. For elderly
    couples, Social Security had a similar effect. In 1995, three percent of
    the elderly who were married had incomes below the poverty line. Without
    Social Security retirement benefits, 42 percent of them would have.

    [[Page 194]]

       Income Security: Social Security was originally designed to provide a
    continuing income base for eligible workers so they could maintain a
    reasonable income when they retired. In 1935, personal savings, family
    support, and Federal welfare programs were the main sources of income
    for those 65 and older who did not work. Today, two-thirds of those over
    65 get the major portion of their income from Social Security (see Chart
    25-3). The average retiree receives a Social Security benefit equal to
    43.1 percent of pre-retirement income. In 1996, Social Security paid
    about $300 billion in retirement, survivor, and family benefits to about
    38 million beneficiaries.
       Along with retirement benefits, Social Security also provides income
    security for survivors and dependents. In 1996, Social Security paid
    about $69 billion in benefits to over seven million survivors and
    deceased workers.
       The Disability Insurance (DI) program also provides income security
    for workers and their families who lose earned income when the family
    provider becomes disabled. Before DI, workers often had no protection
    against income loss due to disability. To be sure, employees disabled on
    the job may have benefited from State workmen's compensation laws. But
    in 1956, only about five percent of all permanent and total disability
    cases were work-related. Congress enacted DI to protect the resources,
    self-reliance, dignity, and self-respect of disabled workers, according
    to congressional committee reports. DI protection can be extremely
    valuable, especially for young families that have not been able to
    sufficiently protect themselves against the risk of the worker's
    disability.

       Maintaining Lifestyles: Before Social Security, about half of those
    over 65 depended on others, primarily relatives and friends, for all of
    their income. The same was often true for people with disabilities. Now,
    with Social Security, the vast majority of those over age 65 and those
    with disabilities can live relatively

    [[Page 195]]

    independent lives. Moreover, their
    families no longer carry the sole responsibility of providing their
    financial support.

    Growth in Retirement Benefits

       The retirement part of Social Security is facing financial stress,
    due to changing demographics and the program's financing. The retirement
    program is largely a ``pay as you go'' program--current retirement
    benefits are financed by current payroll contributions. Such financing
    has worked well in the past, when five workers were paying for every
    retiree. But, when the baby boom generation retires, eventually only two
    workers will be paying for every retiree.
       Adding to the financial stress, baby boomers are having fewer babies
    and living longer. In 1957, women had an average of 3.7 babies, compared
    to 2.03 today. Males born in 1935 had an average life expectancy of 60
    years, and females of 63 years. By contrast, baby boom males have an
    average life expectancy of about 67 years, and females of about 73. The
    longer people live, the longer they will collect Social Security. The
    more time that people spend retired, the more people there are to
    support at any one time and the fewer there are working and contributing
    to provide that support.

    Growth in Disability Benefits

       DI has grown rapidly. The program provided about $43 billion to about
    six million disabled beneficiaries and their families in 1996, compared
    to $57 million for 150,000 disabled workers in 1957. Growth has been
    especially rapid in the last 10 years, with the number of beneficiaries
    rising by 75 percent and benefits rising by 125 percent.
       Why? Because growing numbers of baby boomers are reaching the age at
    which they are increasingly prone to disabilities; more women are
    insured; and laws, regulations, and court decisions have expanded
    eligibility for benefits. In addition, the annual share

    [[Page 196]]

    of beneficiaries
    leaving the rolls has fallen steadily, raising questions about whether
    those remaining on the rolls are all, in fact, eligible for benefits. To
    maintain DI's integrity, the Administration proposes to maintain support
    for continuing disability reviews (CDRs)--a periodic review of
    individual cases that ensures that only those eligible continue to
    receive benefits.
       The budget proposes a pilot program to encourage DI beneficiaries
    (and recipients of Supplemental Security Income, or SSI) to re-enter the
    workforce. Currently, the Social Security Administration refers DI or
    SSI beneficiaries to State Vocational Rehabilitation agencies. Under the
    Administration's proposal, beneficiaries could choose their own public
    or private vocational rehabilitation provider--and the provider could
    keep a share of the DI and SSI benefits that the Federal Government no
    longer pays to these individuals after they leave the rolls.

    A Long-range Problem, but No Crisis

       The OASDI trust funds are not in balance over the next 75 years--the
    period over which the Social Security Trustees measure Social Security's
    well-being. The President wants to work with Congress on a bipartisan
    basis to develop a long-term solution to the financing challenge, but it
    does not constitute an imminent crisis.
       In their 1996 report, the Trustees estimated that the combined OASDI
    trust funds would have a cash imbalance in 2012 and be insolvent in
    2029. The OASI Trust Fund would have a cash imbalance in 2014 and be
    insolvent in 2031. The DI Trust Fund would face a cash imbalance in 2003
    and be insolvent in 2015.

    [[Page 197]]

    Tax Expenditures

       Social Security recipients pay taxes on their Social Security
    benefits when their combined income (including Social Security) exceeds
    certain income thresholds. These exclusions reduce Social Security
    beneficiary taxes by $25 billion in 1998 and $138 billion from 1998 to
    2002.