[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]
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Table 25-1. FEDERAL RESOURCES IN SUPPORT OF SOCIAL SECURITY
(In millions of dollars)
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Estimate
Function 650 1996 -----------------------------------------------------------------
Actual 1997 1998 1999 2000 2001 2002
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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
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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\
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\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.
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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.
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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
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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
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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.
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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.