[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.

                                     


[[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.