    [Budget of the United States Government]
    [V. Investing in the Common Good: Program Performance in Federal Functions]
    [24. Social Security]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    [[Page 261]]

                              24.  SOCIAL SECURITY

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                              Table 24-1.  Federal Resources in Support of Social Security
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                   Estimate
                   Function 650                   1999   -----------------------------------------------------------
                                                 Actual     2000      2001      2002      2003      2004      2005
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority..........     3,156     3,175     3,451     3,452     3,492     3,580     3,658
      Mandatory Outlays:
        Existing law..........................   386,991   403,332   422,167   442,982   465,299   489,685   516,232
        Proposed legislation..................  ........  ........  ........        64       113       144       153
    Tax Expenditures:
      Existing law............................    23,300    24,505    25,765    27,295    28,990    30,760    23,290
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
      The Old-Age, Survivors, and Disability Insurance (OASDI) programs,
    commonly known as Social Security, are crucial to the economic well-
    being of tens of millions of Americans. Social Security will spend $426
    billion in 2001 to provide 45 million beneficiaries with comprehensive
    protection against loss of income due to the retirement, disability or
    death of a wage earner.
      Social Security provides monthly benefits to retired and disabled
    workers who gain insured status and to their eligible spouses, children,
    and survivors. 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 (OASI) program. Congress provided benefits for disabled
    workers by enacting the Disability Insurance (DI) program in 1956 and
    added benefits for the dependents of disabled workers in 1958. Nearly
    one third of Social Security beneficiaries are disabled workers and
    their families, or survivors of deceased workers (see Table 24-2).
      DI provides income security for workers and their families when
    workers lose their capacity to work due to disability. Before DI,
    workers often had no such protection, although in some cases employees
    whose injuries were job-related may have received State worker's
    compensation benefits. Congress enacted DI to protect the resources,
    self-reliance, and self-respect of those suffering from non-work-related
    disabilities. DI protection can be extremely valuable, especially for
    young families who are unable to sufficiently protect themselves against
    the risk of the worker's disability.
      ----------------------------------------------------------------------

               Table 24-2.  Millions Benefit from Social Security
                       (Thousands of OASDI Beneficiaries)
    ------------------------------------------------------------------------
                                                                      2001
                                                                    Estimate
    ------------------------------------------------------------------------
    Retired workers and families:
      Retired workers.............................................    28,174
      Wives and husbands..........................................     2,797
      Children....................................................       442

    Survivors of deceased workers:
      Children....................................................     1,899
      Widowed mothers and fathers with child beneficiaries in            202
       their care.................................................
      Aged widows and widowers, and dependent parents.............     4,799
      Disabled widows and widowers................................       194

    Disabled workers and families:
      Disabled workers............................................     5,158
      Wives and husbands..........................................       172
      Children....................................................     1,496
                                                                   ---------
    Total.........................................................    45,333
    ------------------------------------------------------------------------

       ---------------------------------------------------------------------
      The Government will collect $508 billion in Social Security taxes in
    2001. These taxes will be credited to the OASI and DI trust funds, along
    with $68 billion of interest on Treasury securities held by the trust
    funds.
      In 1999, Social Security paid out a total of $383 billion to more than
    44 million beneficiaries. These payments included $257 billion in
    benefits to 31 million retired workers and their families and about $75
    billion in benefits to seven million survivors of deceased workers.
    Through the DI program, Social Security paid $50 billion in benefits to
    more than six million disabled workers and their families.
      Many beneficiaries would face a high risk of poverty without the
    income protection provided by Social Security. When President Roosevelt
    signed Social Security into law, most seniors were poor. Since then,
    Social Security benefits have significantly improved the well-being of
    the Nation. The poverty

    [[Page 262]]

    rate among the elderly declined from 29.5 percent in 1967 to 10.5
    percent in 1998, in large part due to Social Security.
      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.
      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. Today, nearly two
    thirds of those over age 65 get at least half of their income from
    Social Security (see Chart 24-1). Social Security benefits account for
    38 percent of all income that goes to the elderly population. For an
    average-wage worker retiring in 1999, Social Security replaced about 40
    percent of his or her pre-retirement earnings. With Social Security, the
    vast majority of those over age 65 and those with disabilities can live
    relatively independent lives. Moreover, their families no longer carry
    the sole responsibility of providing their financial support.

      Social Security is especially important for women, who make up nearly
    60 percent of all Social Security beneficiaries, and 72 percent of all
    beneficiaries over age 85. Many women beneficiaries are entitled as
    spouses of retirees or survivors of deceased workers. Social Security
    plays a larger role in women's retirement income than men's in part
    because women live longer on average, and the inflation-indexing of
    Social Security benefits protects their buying power over time. Women
    also tend to have lower lifetime earnings than men, and the progressive
    nature of the Social Security benefit formula enhances the role of these
    benefits in women's retirement income. Finally, women are less likely
    than men to retire with private pensions. While the differences between
    men's and women's work patterns and earnings are expected to shrink in
    the next few decades, they are not expected to disappear entirely. For
    all of these reasons, Social Security makes up a larger share of
    retirement income for women than it does for men, and women are more
    likely to rely on Social Security for all of their retirement income
    (see Table 24-3).
      ----------------------------------------------------------------------

                              Table 24-3.  Social Security is Crucial to Retirement Income
              (Percentage of those over age 65 who relied on Social Security for their entire income, 1996)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                  Social Security is
                                                                                                  sole income source
    ----------------------------------------------------------------------------------------------------------------
     Unmarried women............................................................................                25%
    Unmarried men...............................................................................                20%
    Married couples.............................................................................                 9%
    ----------------------------------------------------------------------------------------------------------------

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    The Long-Range Challenge

      Social Security is designed to be self-financed; its most important
    revenue source is the payroll tax. Right now, the Social Security trust
    funds are expected to run a cash surplus until 2014. Current economic
    and demographic forecasts indicate, however,

    [[Page 263]]

    that cash revenues will fall short of expenditures after that time, and
    the trust funds will exhaust their assets in 2034 unless corrective
    action is taken. After 2034, payroll taxes are projected to cover 71
    percent of benefits. Social Security is largely ``pay-as-you-go,''
    meaning current retirement benefits are financed by current payroll
    contributions. However, pressure on the financing system is growing due
    to two demographic factors: members of the baby boom and subsequent
    generations are having fewer children and are predicted to have longer
    life spans than previous generations. The consequence of these trends is
    that the ratio of workers paying into the system for each beneficiary
    will decline--from 3.4 workers per beneficiary in 2000 to a projected
    two workers per beneficiary in 2034 (see Chart 24-2). Another source of
    pressure on the trust funds is the rapid growth of the DI program, which
    is expected to accelerate as baby boomers reach the age at which they
    are increasingly prone to disabilities.

    [[Page 264]]

      The President proposes to ensure the long-range viability of Social
    Security through a combination of bipartisan reforms and by transferring
    new resources to the Social Security trust funds. For further discussion
    of the long-range issues facing Social Security and the President's plan
    for addressing them, see Section III, ``Sustaining Our Economic
    Prosperity.''

    Social Security Administration (SSA)

      To operate a program of this magnitude, both in terms of the dollar
    amounts involved and the size of the population served, requires an
    efficient and responsive administrative structure. SSA, which
    administers the OASI and DI programs, touches the lives of millions of
    Americans every year. SSA also runs the Supplemental Security Income
    (SSI) program for low-income aged and disabled individuals, which is
    part of the Income Security function (see Chapter 23). In addition, the
    agency provides services that support the Medicare program on behalf of
    the Health Care Financing Administration, which is part of the Medicare
    function (see Chapter 22).
      SSA undertakes a variety of activities in administering its programs.
    These activities include issuing Social Security numbers, maintaining
    earnings records for wage earners and self-employed individuals, taking
    claims for benefits and determining eligibility, updating beneficiary
    eligibility information, educating the public about the programs,
    combating fraud, and conducting research, policy analysis and program
    evaluation. These activities are largely integrated across the various
    programs, allowing the agency to minimize duplication of effort and
    provide one-stop service to customers. SSA has also undertaken
    significant automation initiatives, which has enabled the agency to
    handle growing workloads even as its full-time equivalent staff declined
    by 19,000 between 1983 and 2000.

    [[Page 265]]

      SSA has consistently earned high marks for management of its programs.
    In 1999, SSA earned an overall ``A'' grade in a comprehensive study of
    government management conducted by the Maxwell School of Citizenship and
    Public Affairs at Syracuse University and Government Executive magazine.
    The study graded all 50 State governments and 15 Federal agencies on the
    management systems critical to effective public service. SSA was awarded
    the highest marks among Federal agencies surveyed.
      SSA's Performance Plan for 2001 includes a number of performance
    indicators that reflect the agency's goals of responsive programs, good
    customer service, efficiency and program integrity, and strengthening
    public understanding of Social Security. Like the agency's
    administrative activities, these goals cut across programs. SSA's broad
    goals and related performance measures for 2001 are described below.

      Promoting responsive programs: SSA recognizes that its programs must
    reflect the interests of beneficiaries and society as a whole. Programs
    must evolve to reflect changes in the economy, demographics, technology,
    medicine, and other areas. Many DI and SSI beneficiaries with
    disabilities, for example, want to be independent and work. Many of them
    can work, despite their impairments, if they receive the support they
    need. Yet less than one percent of disabled beneficiaries in any given
    year actually leave SSA's programs due to work. One of SSA's strategic
    objectives is to shape the disability program in a manner that increases
    self-sufficiency.
      In 2001, the number of DI beneficiaries entering a trial work
              period will increase to 19,200, which is 20 percent more than
              the 1997 baseline of 16,000.
      Last year, the President's budget included, and Congress enacted, the
    Ticket to Work and Work Incentives Improvement Act to help disabled
    beneficiaries enter or re-enter the workforce. This new law expands
    beneficiaries' choice of employment service providers, allows persons
    with disabilities to keep or obtain Federal health benefits when they
    enter, re-enter, or remain in the workforce, and authorizes SSA to carry
    out demonstration projects to identify effective ways to help DI
    beneficiaries return to work. SSA began implementation of the new law in
    2000, and the budget includes funding to continue and build on these
    activities in 2001.

      Improving customer service delivery: Roughly three-quarters of SSA's
    total administrative budget is devoted to the day-to-day work generated
    by requests for service from the general public. Much of this work takes
    the form of determining eligibility for benefits. The time required to
    process benefit claims is affected by the design of the eligibility
    determination procedure, as well as by the level of resources earmarked
    for claims-processing activities and the number of claims received.
      In 2001, the average processing time for initial disability
              claims will be 117 days, an increase from an estimated 104
              days in 1999.
      Improving SSA's disability claims process is one of the
    Administration's Priority Management Objectives for 2001. SSA is
    operating a streamlined disability eligibility determination process on
    a prototype basis in 10 States. In the prototype, SSA eliminated a
    repetitive second step in the process and used the resulting
    administrative savings to improve the initial step of the process.
      While initial claims are expected to take a little longer in the new
    process, the elimination of the second step will substantially shorten
    the overall process for most claimants. The accuracy rate of initial
    decisions is also expected to improve. SSA's Office of Hearings and
    Appeals is also implementing changes to improve efficiency and reduce
    case processing times.
       In 2001, the average processing time for all types of
              hearings will be 208 days, down from 316 days in 1999.
      In combination, the changes at the initial and hearings stages are
    expected to improve service and decision accuracy, and reduce overall
    processing times for disability claimants. Because the new disability
    claims process will not be fully implemented in 2001, further
    improvements in agency performance are expected in future years.

    [[Page 266]]

      SSA will maintain its current performance level of processing
              83 percent of OASI claims by the time the first regular
              payment is due or within 14 days from the effective filing
              date, if later.
      SSA will ensure that callers gain access to the toll-free 800
              number within five minutes of their first call 92 percent of
              the time, which is equivalent to the projected access rate for
              2000.

      Increasing operational efficiency and program integrity: The budget
    includes approximately $1.7 billion for activities undertaken by SSA to
    ensure the integrity of records and payments. These activities include
    reviewing claimants' eligibility for continued benefits, collecting
    debt, detecting overpayments, and investigating and deterring fraud.
      In 2001, SSA will maintain its current performance level of a
              99.8 percent accuracy rate for OASI payments.
       SSA is in the midst of a seven-year plan to eliminate the backlog of
    Continuing Disability Reviews (CDRs) that built up prior to 1996. SSA
    expects to complete 63 percent of its plan by the end of 2000. This
    concentrated effort helps increase public confidence in the integrity of
    SSA's disability programs by ensuring that only people who continue to
    be disabled receive benefits. Over the life of the plan, SSA expects to
    realize program savings of about $6 for each $1 spent conducting CDRs.
    The budget includes the funds necessary to keep the plan on schedule.
      By the end of 2001, SSA will have completed 83 percent of its
              plan for eliminating the backlog of Continuing Disability
              Reviews. SSA expects to eliminate the backlog entirely in
              2002.

      Strengthening public understanding of Social Security programs: The
    budget includes more than $100 million for the development, production
    and distribution of products to educate the public about Social Security
    benefits and Social Security's larger impact on society. SSA conducts an
    annual survey to measure public understanding of Social Security
    programs and issues and undertakes a variety of activities to increase
    public awareness.
       In 2001, 70 percent of the public will be knowledgeable about
              Social Security programs, an increase of 15 percentage points
              above the 1999 baseline of 55 percent.

    Tax Expenditures

      Social Security recipients pay taxes on their Social Security benefits
    only when their overall income, including Social Security, exceeds
    certain income thresholds. The exclusion of Social Security income below
    these thresholds reduces total income tax revenue by $26 billion in 2001
    and $136 billion from 2001 through 2005.