    [Economic Outlook, Highlights from FY 1994 to FY 2001, FY 2002 Baseline Projections]
    [III. Major Functions of the Federal Government]
    [15.  Social Security]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 171]]

                              15.  SOCIAL SECURITY

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                              Table 15-1.  Federal Resources in Support of Social Security
                                              (Dollar amounts in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                            Percent
                                    Function 650                                     1993        2001       Change:
                                                                                    Actual     Estimate    1993-2001
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary budget authority............................................      2,640       3,447         31%
      Mandatory outlays.........................................................    301,986     431,406         43%
    Tax expenditures............................................................     23,655      25,980         10%
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
      When the Social Security Act was enacted in 1935, President Roosevelt
    envisioned a program that would eliminate the blight of poverty from the
    lives of elderly Americans and allow them to maintain their dignity and
    independence. While the original goal was to provide income insurance to
    protect workers upon retirement, the program has evolved over time to
    include spouses, dependents, survivors and disabled workers. The Old-
    Age, Survivors, and Disability Insurance (OASDI) programs, commonly
    known as Social Security, have met President Roosevelt's goal and are
    considered among the most successful domestic programs in our Nation's
    history.
      The importance of Social Security has been emphasized throughout the
    Clinton-Gore Administration. This Administration helped the program
    serve today's population better, and took action to ensure that the
    program will remain strong to serve future generations. The President's
    balanced budget proposal for 1999 marked a turning point in that regard.
    Once this Administration had conquered the budget deficit, it set to
    work to solve the generational deficit--the budgetary pressure that was
    projected to result from the aging of the population, especially the
    baby boom generation.
      In 1995, the Social Security Administration (SSA) became an
    independent agency, focused on building the public's confidence in
    Social Security by improving customer service, public education, and
    program integrity. Since that time, the programs have strengthened the
    incentives for both retirement and disability beneficiaries to work.

    The Role of Social Security

      The OASDI programs are crucial to the economic well-being of tens of
    millions of Americans. Social Security will spend about $434 billion in
    2001 to provide more than 45 million beneficiaries with comprehensive
    protection against loss of income due to the retirement, disability or
    death of a worker. The Old-Age and Survivors Insurance program (OASI)
    insures retired workers and their eligible spouses, children, and
    survivors. In 2000, Social Security paid out almost $289 billion to 31
    million retired workers and dependent family members, and about $59
    billion in benefits to seven million survivors of deceased workers. The
    Disability Insurance program (DI) provides a similar type of insurance
    to workers who become disabled, and to their dependents. In 2000, Social
    Security paid over $54 billion in benefits to more than six million
    disabled workers and family members.
      The Government will collect an estimated $512 billion in Social
    Security taxes in 2001. These taxes will be credited to the OASI and DI
    trust funds, along with almost $60 billion of interest on Treasury
    securities held by the trust funds.

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      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 rate among those 65 and older was 12.2 percent
    in 1993, and reached an all time low of 9.7 percent in 1999. Without
    Social Security, nearly half of older Americans would live in poverty.

    Save Social Security First

      Social Security's most important revenue source is the payroll tax.
    Currently, the Social Security trust funds are expected to run a cash
    surplus until 2015. Current economic and demographic forecasts indicate,
    however, that cash revenues will fall short of expenditures after that
    time, and the trust funds will exhaust their reserves in 2037 unless
    corrective action is taken. After 2037, payroll taxes are projected to
    cover 72 percent of benefits.
      In an effort to find a long-term solution, President Clinton's 1998
    State of the Union Address called for a commitment to ``save Social
    Security first.'' The President was about to submit the first balanced
    budget proposal in almost 30 years, projecting that, with continued
    fiscal discipline, budget surpluses would continue for several decades.
    Rather than spend this surplus, the President proposed saving it until
    meaningful steps were enacted to preserve Social Security.
      The President used 1998 to engage in a national discussion about
    Social Security reform. He led the way with a series of regional
    nonpartisan forums to build public awareness of the issues, and to build
    public consensus for action. The year-long national dialogue culminated
    with a White House Conference on Social Security.
      The following year, the President proposed a program to save Social
    Security through a commitment to sustained fiscal responsibility. Rather
    than dissipate all of the currently projected on-budget surpluses on new
    spending or tax cuts, the President proposed a balanced approach to
    prepare the Nation for the challenges ahead by paying down the entire
    debt held by the public by 2013 and by encouraging economic growth. The
    President's 2000 and 2001 Budgets outlined this approach, which proposed
    transfers to the trust funds approximately equal to the interest saved
    by dedicating the Social Security surpluses to debt reduction. The
    President's plan would extend the solvency of the trust funds to 2057.
      The President's commitment to save Social Security first has driven
    the budget debate. Rather than dissipating all of the currently
    projected on-budget surpluses on new spending or tax cuts, the President
    has encouraged a balanced and bipartisan approach to prepare the Nation
    for the challenges ahead. The President's initiative in starting a
    conversation about Social Security led to a political imperative
    stronger than law; there now exists a broad consensus that fiscal
    responsibility requires that the Social Security surplus not be used to
    finance other activities or policies. By calling attention to this
    issue, the President helped to raise the bar of fiscal behavior in a
    fashion that will have enduring favorable consequences for the economy.
      While the Administration's legislative proposal has not been enacted,
    his call to protect the Social Security surplus has become the basis for
    policy discussions in this area. The debate over fiscal policy in the
    near future will continue to be heavily influenced by this approach.
    This development, plus the expanded public consciousness and
    understanding of the Social Security issue that arose from the
    Administration's efforts, will contribute to budget and retirement
    policy in the coming years.

    Changes to the Social Security Program

      While the underlying principles of the Social Security program have
    remained the same, the program has continued to evolve to meet the needs
    of today's population. Since 1993 there have been numerous initiatives
    to strengthen Social Security and bolster public confidence in the
    programs, while making them more accessible and efficient. The changes
    also reflect shifts in public attitudes and technological advances.

    [[Page 173]]

      The Social Security Administration: The Social Security Independence
    and Program Improvements Act was enacted in 1994. This law established
    the Social Security Administration as an independent agency within the
    executive branch as of 1995. Creating an independent SSA helped to
    streamline Government operations to serve the American people better,
    and reinforced the commitment to maintain the confidence of all
    Americans in the Social Security program.
      During its six years as an independent agency, SSA consistently has
    earned high marks for its management, and for its strategic planning
    efforts that emphasize service and effective program administration. The
    1999 Government Performance Project--an independent, comprehensive study
    of management performance conducted jointly by the Maxwell School of
    Citizenship and Public Affairs at Syracuse University and Government
    Executive magazine--ranked SSA at the top of 15 Federal Government
    agencies. The project gave SSA an overall grade of ``A,'' and
    highlighted SSA's ``stellar service'' and use of technology to improve
    transactions with its customers and employees. SSA was also one of the
    first organizations to recognize the potential information system
    difficulties related to the year 2000, and was the first agency to be
    fully prepared.
      In addition to administering the Social Security programs, SSA also
    runs the Supplemental Security Income (SSI) program for low-income aged,
    blind and disabled individuals, which is discussed in Chapter 14,
    ``Income Security.'' In addition, the agency provides services that
    support the Medicare program on behalf of the Health Care Financing
    Administration.

      Work Incentives: In 1993, the Administration made a commitment to a
    21st Century vision of America, with opportunity and responsibility for
    all American citizens. Part of this vision included rewarding work
    throughout an individual's life cycle, even if the individual is over
    the traditional retirement age of 65 or has a disabling impairment.
    Administration proposals laid the foundation for this vision.
      Eliminating the earnings test for those over the normal
              retirement age. The Social Security system was designed to
              encourage older Americans to retire by withholding benefits
              from workers over the normal retirement age (currently age
              65). This was during the Great Depression, when young workers
              with families faced an economy with a 25-percent unemployment
              rate. Today, the unemployment rate is about four percent. One
              in four Americans between 65 and 69 has at least one part-time
              job, and 80 percent of baby boomers intend to work past age
              65.
              In 1993, retirement beneficiaries under the age of 70 faced
              the possibility of losing some or all of their Social Security
              benefits if they were working. Recognizing the changes in the
              labor force and work preferences, the Administration worked
              with the Congress to raise the level of allowable earnings for
              individuals between the normal retirement age and 69. The
              Senior Citizens' Right to Work Act, enacted in 1996, would
              have gradually increased the retirement earnings test level
              over a seven-year period. However, by 2000, with a balanced
              budget and a projected surplus, the Administration signed the
              Senior Citizens' Freedom to Work Act, which eliminated the
              retirement earnings test for individuals between the NRA and
              69. This law benefitted the 800,000 older working Americans
              who received reduced benefits, and also encouraged countless
              more to seek work.
      Encouraging individuals with disabilities to return to work.
              Both the DI and SSI programs also evolved to reflect changes
              in the economy, demographics, technology, medicine, and other
              areas. Many beneficiaries with disabilities, for example, want
              to be independent and to work--and with the appropriate
              support, they can achieve these goals.
              Legislative Initiatives. The Administration strongly advocated
              for and the President signed the Ticket to Work and Work
              Incentives Improvement Act of 1999 to help disability
              beneficiaries enter or return to the work force. Specific to
              SSA, this law expands beneficiaries' choices of employ

    [[Page 174]]

              ment service providers, extends Federal health benefits for
              beneficiaries who return to work, and authorizes SSA to carry
              out demonstration projects to identify effective ways to help
              disabled beneficiaries return to work.
              Executive Initiatives. In 1999, the President supported SSA's
              proposal to increase the amount an individual can earn and
              maintain eligibility for disability benefits to $700 from $500
              a month, the level at which it had been fixed since 1990. To
              ensure that the measure keeps pace with the economy, the
              President further directed that, beginning in 2001, this
              amount will be annually indexed to average wages. Also in
              2001, the amount an individual can earn during a ``trial work
              period'' month (a month during which disabled beneficiaries
              can test their ability to work without affecting their
              benefits) will increase from $200 to $530, and it will be
              indexed to average wages in subsequent years. This amount also
              had been fixed since 1990.

      Public Education and Customer Service: The Vice President's National
    Partnership for Reinventing Government designated SSA, as one of the 32
    agencies that deal directly with the public, as a High Impact Agency. As
    a High Impact Agency, SSA made a commitment to achieve a number of
    significant concrete measurable goals regarding public understanding of
    its programs, customer service, and efficiency.
      As part of this effort, SSA conducted a survey to measure the public's
    baseline level of knowledge of Social Security programs. In 1998, only
    55 percent of the public was generally knowledgeable about Social
    Security programs and had a basic understanding of the program concepts.
    SSA's current goal is that by 2005, nine out of 10 Americans (age 18 and
    over) will be knowledgeable about Social Security programs.
      Social Security Statements. Another of SSA's commitments was
              to improve the public's understanding of how Social Security
              affects their lives. In 2000, to reach America's work force,
              SSA launched the largest customized mailing ever undertaken by
              a Federal agency, sending Social Security Statements to
              approximately 133 million workers age 25 and older who are not
              receiving Social Security benefits. This annual mailing
              provides a clear statement of the individual's earnings
              history and an estimate of his or her future benefits, as well
              as program information and a summary of the long-term
              financial challenges the program faces.
      Social Security Online. In 1994, SSA launched its web site,
              Social Security Online (www.ssa.gov). Since that time, SSA has
              expanded its web site to serve the public better. For example,
              Social Security Online provides ``pamphlets'' on programs and
              services, a ``benefits planner'' to assist in financial
              planning, reports and studies, a field office locator, and
              answers to frequently asked questions. Via Social Security
              Online, individuals also can apply for retirement benefits and
              replacement Medicare cards, download selected forms, submit
              inquiries to SSA, and subscribe to the electronic monthly
              newsletter, ``e-News.'' SSA estimates 15 million individuals
              were attracted to its web site in 2000, up from 22,000 just
              six years ago.
      Payment Cycling. In 1997, SSA began ``payment cycling'' to pay
              new beneficiaries on one of three Wednesdays during the month,
              instead of paying all beneficiaries on the same day of the
              month. This balanced the distribution of Social Security
              payments and workload throughout the month, enabling SSA to
              maintain quality public service to a growing beneficiary
              population.
      Improved Disability Adjudication Process. SSA also committed
              to streamline its processes, especially disability claims
              processing and appeals. Disability claims determinations are
              very complex and time consuming. SSA currently is testing a
              streamlined disability eligibility determination process on a
              prototype basis in 10 States. SSA's Office of Hearings and
              Appeals is also implementing changes to improve efficiency and
              reduce case processing times.

    [[Page 175]]

    Program Integrity

      SSA is committed to ensuring that eligible individuals receive
    benefits, and that they are paid the correct amount. SSA is also
    committed to ensuring that only eligible individuals receive benefits.
    To improve the integrity of its programs, SSA improved its data
    collection, entered into data sharing agreements with other agencies or
    institutions when appropriate, and expanded its debt collection tools,
    among other efforts. One of the Administration's most cost-effective
    initiatives was improving its continuing disability review (CDR)
    program. Regularly scheduled disability reviews, which may be a
    questionnaire or a full medical review, are among SSA's most effective
    mechanisms for determining whether its disability beneficiaries maintain
    program eligibility.
      In the early 1990s, a large backlog of CDRs built up, due to an
    unprecedented increase in initial disability claims workloads and a
    decline in the number of CDRs processed. In 1993, SSA conducted only
    48,000 CDRs, as it directed its efforts toward developing and
    introducing a more efficient CDR questionnaire process. In 1996, the
    Administration and the Congress worked together to provide dedicated
    resources for SSA to conduct more than eight million CDRs, to eliminate
    its backlog and maintain current workloads. The agency is on target for
    meeting this goal. In 2000, SSA invested $605 million to conduct more
    than 1.8 million CDRs. SSA estimates approximately $6 in savings for
    every $1 in costs over the lifetime of this initiative.

    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 an estimated $26
    billion in 2001.
      Deficit reduction legislation in 1993 raised the maximum portion of
    retirement benefits that could be subject to taxation from 50 percent to
    85 percent. All of the revenue from this change in the taxation of
    Social Security benefits is transferred to improve the solvency of the
    Medicare Hospital Insurance Trust Fund.