[Budget of the United States Government]
[III. Creating a Better Government]
[15. Social Security]
[From the U.S. Government Publishing Office, www.gpo.gov]


 
                          15.  SOCIAL SECURITY

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                          Table 15-1.  Federal Resources in Support of Social Security
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                               Estimate
               Function 650                   2000   -----------------------------------------------------------
                                             Actual     2001      2002      2003      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
Spending:
  Discretionary Budget Authority..........     3,210     3,447     3,520     3,597     3,680     3,759     3,845
  Mandatory Outlays:
    Existing law..........................   406,048   430,000   451,575   473,544   497,967   524,312   552,950
Tax Expenditures:
  Existing law............................    24,800    25,980    27,300    28,450    29,690    31,270    33,000
----------------------------------------------------------------------------------------------------------------

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  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 an 
estimated $455 billion in 2002 to provide more than 46 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. About 30 
percent of Social Security beneficiaries are disabled workers and their 
families, or survivors of deceased workers. (See Table 15-2.)
  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.
   The Government expects to collect $539 billion in Social Security 
taxes in 2002. These taxes will be credited to the OASI and DI trust 
funds, along with $76 billion of interest on Treasury securities held by 
the trust funds.
   In 2000, Social Security paid out a total of $402 billion to 45 
million beneficiaries. These payments included $289 billion in benefits 
to 31 million retired workers and dependent family members, and about 
$59 billion in benefits to seven million survivors of deceased workers. 
Through the DI program, Social Security paid $54 billion in benefits to 
more than six million disabled workers and their families.

The Long-Range Challenge

   Social Security is designed to be self-financed; its most important 
revenue source is the payroll tax. Pressure on the financing system is 
growing due to two demographic factors: members of the baby boom and 
subsequent generations are having fewer

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               Table 15-2.  Social Security Beneficiaries
                   (Thousands of OASDI beneficiaries)
------------------------------------------------------------------------
                                                                  2002
                                                                Estimate
------------------------------------------------------------------------
Retired workers and families:
  Retired workers.............................................    28,976
  Wives and husbands..........................................     2,779
  Children....................................................       453

Survivors of deceased workers:
  Aged widows and widowers, and dependent parents.............     4,696
  Children....................................................     1,891
  Widowed mothers and fathers with child beneficiaries in            194
   their care.................................................
  Disabled widows and widowers................................       210

Disabled workers and families:
  Disabled workers............................................     5,303
  Wives and husbands..........................................       162
  Children....................................................     1,505
                                                               ---------
Total.........................................................    46,169
------------------------------------------------------------------------
   ---------------------------------------------------------------------

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 
5.1 in 1960 to 3.4 today to 2.1 in 2030. These demographic trends will 
strain the Government's ability to make benefit payments at current 
payroll tax rates. Based on the 2001 Trustee's Report, the Social 
Security trust funds are expected to run a cash surplus until 2016. 
However, cash revenues will fall short of expenditures after that time, 
and the trust funds will exhaust their assets in 2038 unless corrective 
action is taken. After 2038, payroll taxes are projected to cover 73 
percent of expenditures. Social Security is largely ``pay-as-you-go,'' 
meaning current retirement benefits are financed by current payroll 
contributions. 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. As a result of these trends, Social Security's spending 
path is unsustainable in the long run.
   The Social Security system faces a long-term unfunded liability of 
$8.7 trillion. In addition, the pay-as-you-go structure of Social 
Security leads to substantial generational inequities in average rate of 
return. Future retirees on average can expect to get back from Social 
Security barely more than they put in. The first generations of workers 
covered by Social Security experienced low payroll tax rates because 
there were relatively few retirees to support in the early years of the 
program. The earliest cohorts also paid taxes for only a portion of 
their working lives. Consequently, these early generations enjoyed a 
high rate of return from the program because the benefits they received 
exceeded their payroll tax contributions by a comfortable margin. As the 
system matured, payroll taxes rose to support an expanding beneficiary 
population, and rates of return declined. (See Chart 15-1.)

   Restoring Social Security to financial balance solely through benefit 
cuts or tax increases would only worsen the returns that workers would 
get from the system. One way to address the long-term financial crisis 
is to allow individuals to keep some of their payroll taxes in personal 
retirement accounts that can earn higher rates of return through 
investment in private equities markets. The President is committed to 
modernizing and reforming Social Security, so that the system will be 
better able to meet the needs of tomorrow's retirees. The President will 
form a commission that will examine Social Security and present 
recommendations for reform next fall.

[[Page 117]]



Principles for Reform

   The President believes that Social Security reform should be based on 
the following principles:
   Modernization must not change existing benefits for current 
          retirees or near-retirees, and it must preserve the disability 
          and survivors' components. The promises made to current 
          retirees must be kept.
   The Social Security surplus must be  preserved only for 
          Social Security. For 30 years, Social Security surpluses have 
          been used to mask spending increases in programs unrelated to 
          Social Security. Surpluses in the Social Security trust funds 
          will total $2.6 trillion over the next 10 years. These 
          surpluses will be saved for Social Security reform and will be 
          used to reduce debt held by the public until Social Security 
          reform is enacted.
   Social Security payroll taxes must not be increased, as they 
          have been 20 times since the program began in 1937.
   The Government itself must not invest Social Security funds 
          in the private economy.
   Successful Social Security reform, which addresses both the 
          long-term unfunded liability and the generational inequities, 
          must be built upon a core of individually controlled, 
          voluntary personal retirement accounts that will augment the 
          Social Security safety net.

Social Security Administration (SSA)

   To operate a program that affects tens of millions of beneficiaries 
and involves a significant share of all Federal outlays requires an 
efficient and responsive administrative structure. SSA administers the 
OASI and DI programs. SSA also runs the Supplemental Security Income 
(SSI) program for low-income aged and disabled individuals, which is 
part of the Income Security function

[[Page 118]]

(see Chapter 14). 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 13).
   SSA undertakes a variety of activities in administering its programs. 
SSA is responsible for paying benefits to more than 50 million people 
every month, processing more than six million claims for benefits each 
year, handling approximately 59 million phone calls to its 800-number, 
and issuing 138 million Social Security statements. Other activities 
include issuing Social Security numbers, maintaining earnings records 
for wage earners and self-employed individuals, 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 administered by SSA.
   SSA faces enormous management challenges as a result of the aging of 
the baby boom generation. SSA's work force is aging and is likely to 
experience a wave of retirements in the next 10 years. During the same 
time frame, the agency's workloads will increase dramatically as members 
of the baby boom generation reach their peak years of disability risk 
and then begin to retire. Responding to these challenges will require 
that SSA rethink how it does business and develop innovative ways to 
manage its growing workloads.
   The Administration proposes $7.7 billion for SSA, an increase of $0.5 
billion, or 6.3 percent, above the 2001 enacted level of $7.2 billion. 
This amount includes sufficient resources to ensure stable staffing in 
2002 and will allow SSA to maintain performance in key service delivery 
areas such as retirement claims processing. It will allow SSA to process 
about 100,000 more initial disability claims in 2002 than in 2001. This 
funding also will help SSA continue its multi-year continuing disability 
review (CDR) plan, eliminating the CDR backlog in 2002, as well as 
increase the number of SSI non-disability eligibility redeterminations 
conducted. In addition, this amount includes resources for SSA to 
continue to modernize its computer infrastructure and offer more 
services in an online environment.
   SSA's Performance Plan for 2002 includes a number of performance 
indicators that reflect the President's commitment to modernizing the 
agency's operations. The budget includes resources to help the agency 
meet the goals of responsive programs, excellent customer service, 
strong program integrity, and strengthened 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 2002 are described below.

  Ensure integrity of Social Security programs: The budget supports 
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 2002, SSA expects to eliminate the backlog of more than 
          four million CDRs that built up prior to 1996. CDRs help 
          increase public confidence in the integrity of SSA's 
          disability programs by ensuring that only people who continue 
          to be disabled receive benefits.
   In 2002, SSA plans to perform 2.3 million non-disability 
          redeterminations, an increase of 205,000 redeterminations over 
          the 2001 level and 78,000 over the 2000 level.

  Promote responsive programs: SSA's 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 employment. Americans with disabilities should have 
every freedom to meet their full potential and participate as full 
members in the economic marketplace.

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   As part of the New Freedom Initiative, the President will work for 
swift implementation of the Ticket to Work and Work Incentives 
Improvement Act. Enacted in 1999, the Act aims to help disabled 
beneficiaries enter or re-enter the work force. This 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 work force, 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 2002.

  Deliver  customer-responsive  service: 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 procedures, as well as by the level of resources dedicated 
to claims-processing activities and the number of claims received. The 
President's Budget supports efforts to streamline these procedures.
   In 2002, the average processing time for hearings (i.e., the 
          elapsed time from the receipt of ``request for hearing'' to 
          ``notice of decision'') at SSA's Office of Hearings and 
          Appeals will be 259 days, an improvement from 297 days in 
          2000.
   The Internet is a crucial tool in the Administration's plan for a 
Government that is more efficient and responsive to citizens. SSA will 
undertake activities to fully realize the power of the Internet to 
improve customer service delivery.
   By the end of 2002, SSA plans to offer 30 percent of the 
          agency's customer-initiated services electronically, either 
          via the Internet or through automated telephone service. In 
          2000, only 10 percent of these services were available 
          electronically.

  Strengthen public understanding of Social Security programs: The 
budget supports 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 2002, SSA projects that 75 percent of the public will be 
          knowledgeable about Social Security programs, an increase from 
          the 2000 goal of 65 percent.

Tax Expenditures

   Social Security recipients pay taxes on their Social Security 
benefits when their overall income, including Social Security, exceeds 
certain income thresholds. Social Security beneficiaries will pay $13.5 
billion in income taxes on their benefits in 2002 and $79.3 billion over 
the period 2002 to 2006. If all Social Security benefits were subject to 
income taxes, taxes would increase by an estimated $27 billion in 2002 
and $150 billion from 2002 through 2006.