[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
----------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------
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
[[Page 116]]
----------------------------------------------------------------------
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.
[[Page 119]]
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.