[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

  ----------------------------------------------------------------------

                          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.

[[Page 172]]

  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.
