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In some tables, details may not add to totals because of rounding. |
By the start of next year, the trust fund that finances the Social Security benefits of retired workers, their dependents, and survivors--the Old Age and Survivors Insurance (OASI) fund--will encounter a cash flow problem. The system's two other trust funds, which cover Disability Insurance (DI) and Hospital Insurance (HI) payments, should remain relatively sound, however. A wide variety of options are available to the Congress to remedy the OASI fund's immediate difficulties. Short-term choices range from various ways of altering the accounting mechanisms of the trust funds, to reducing benefit amounts, to increasing revenues into the system. Undertaken at the request of the Senate Budget Committee, this study focuses on short-run financing issues only. Since the paper concentrates primarily on the trust fund situation, it does not give estimates of all possible budgetary effects that could result from implementing any of the various options. Similarly, farther-reaching issues affecting Social Security's prospects 30 or 40 years hence present different analytical problems and must be considered in another forum. In keeping with CBO's mandate to provide objective and nonpartisan analysis, this paper offers no recommendations.
The paper was written by Stephen Chaikind of the Human Resources unit
of CBO's Budget Analysis Division and by Hyman Sanders of the Tax Analysis
Division, under the supervision of James L. Blum, Charles Seagrave, and
James M. Verdier. Many persons assisted in the preparation of the study.
Within CBO, they include Malcolm Curtis, Robert Dennis, David Delquadro,
Lawrence DeMilner, G. William Hoagland, Sherri Kaplan, Patricia Ruggles,
and Eric Wedum. Valuable contributions were also made by various staff
members of the Social Security Administration, the House Committee on the
Budget, the Congressional Research Service, the Joint Committee on Taxation,
the U.S. Department of the Treasury, and the House Committee on Ways and
Means and its subcommittee on Social Security. The authors particularly
acknowledge the contributions of Johanna Zacharias, who edited the manuscript
and offered many other important suggestions, and of Barbara Bakari, who
typed the many drafts and prepared the paper for publication.
Alice M. Rivlin
Director
February 1981
SUMMARY
CHAPTER I - INTRODUCTION
CHAPTER II - THE SHORT-TERM OASI PROBLEM
CHAPTER III - POSSIBLE SOLUTIONS FOR THE NEAR FUTURE
CHAPTER IV - CHANGES FOR THE LONGER TERM
| TABLES | |
| 1. | CURRENT LAW SOCIAL SECURITY PAYROLL TAX RATES FOR EMPLOYERS AND EMPLOYEES AND TAXABLE EARNINGS BASES, BY INDIVIDUAL AND COMBINED TRUST FUNDS, 1979-1986 |
| 2. | PAST AND PROJECTED ASSETS OF THE OASI AND DI TRUST FUNDS AT THE BEGINNING OF YEAR, AS A PERCENT OF FISCAL YEARS' OUTLAYS: 1960-1986 |
| 3. | CBO'S PROJECTIONS OF SOCIAL SECURITY TRUST FUND OUTLAYS, INCOMES, AND BALANCES, TO FISCAL YEAR 1986 |
| 4. | PROJECTIONS OF SEPARATE AND COMBINED TRUST FUND BALANCES AT THE START OF YEAR, AS A PERCENT OF OUTLAYS, TO FISCAL YEARS 1986 AND 1990 |
| 5. | PROJECTED BORROWING NEEDED TO MAINTAIN THE OASI TRUST FUND RESERVES AT START OF EACH FISCAL YEAR AT 9 PERCENT OF THAT YEAR'S OUTLAYS, TO FISCAL YEAR 1990 |
| 6. | PROJECTED AMOUNT AND SOURCE OF POSSIBLE INTERFUND BORROWING NEEDED BY START OF YEAR TO MAINTAIN OASI TRUST FUND AT 9 PERCENT OF ANTICIPATED OUTLAYS, TO FISCAL YEAR 1990 |
| 7. | ESTIMATED RATES OF INCREASE OF ALTERNATIVE SOCIAL SECURITY BENEFIT INDEXING MECHANISMS, TO 1986 |
| 8. | ESTIMATED ANNUAL AND CUMULATIVE SAVINGS TO OASI AND DI TRUST FUNDS FROM ALTERNATIVE BENEFIT ADJUSTMENT MECHANISMS, TO FISCAL YEAR 1986 |
| 9. | PROJECTED SAVINGS FROM REDUCING OR ELIMINATING CERTAIN SOCIAL SECURITY BENEFITS, TO FISCAL YEAR 1986 |
| 10. | PROJECTED EFFECTS OF REVENUE CHANGES TO ASSIST THE OASI TRUST FUND, TO FISCAL YEAR 1986 |
| 11. | COMPARISON OF THE DISTRIBUTION OF THE SOCIAL SECURITY PAYROLL TAX AND OF THE INDIVIDUAL INCOME TAX UNDER CURRENT LAW, BY INCOME CLASS |
| 12. | INCOME TAX LIABILITIES OF OASI RECIPIENTS UNDER CURRENT LAW AND TAX INCREASES RESULTING FROM TAXATION OF HALF OF OASI BENEFITS IN 1980, BY ADJUSTED GROSS INCOME CLASS |
According to projections made by the Congressional Budget Office, the Old Age and Survivors Insurance (OASI) trust fund, the largest of the three funds that finance the Social Security system, will encounter financial difficulties during the first part of fiscal year 1982. Similar projections have been made by the Social Security Administration's actuaries. By the end of that year, the OASI fund is projected to have just over $7 billion in reserve (see Summary Table 1). The other two funds, Disability Insurance (DI) and Hospital Insurance (HI), however, are projected to be. in a much stronger position for the 1981-1986 period. Although the relative strength of the DI and HI funds does not in itself remedy the OASI fund's anticipated problem, it does open a variety of choices for Congressional action.
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