|
Chapter 3: Program Solvency
|
uring the middle and late 1990s, polling data suggested some erosion
in public confidence in Social Security. Younger people, particularly,
had very low levels of confidence that benefits would “be there”
for them when they retired. [1] A poll conducted
by National Public Radio in 1999 indicated that there was still
considerable confusion about the future of the Social Security system.
[2] Because it is projected to have long-range
financing problems, the Social Security program is high on the Nation’s
agenda. The debate over long-term solvency remains a focus
of intense public interest.
From the very inception of Social Security, there was an emphasis
on the program’s long-range fiscal viability. President Roosevelt
signed the Social Security Act into law on August 14, 1935, in response
to the economic hardships created by the Great Depression.
This new social insurance program sought to address the long-range
problem of economic security for the aged through a contributory
system. In that system, the workers themselves contributed
to retirement benefits by making regular payments into a common
fund. Social Security is a compact between generations.
It is basically a pay-as-you-go program. The Social Security
taxes collected from today’s workers pay the benefits of today’s
retirees.
Fabric
of America
ocial Security is part of the fabric of America and its importance
to the nation cannot be overestimated. Approximately 153 million
workers (96 percent of American workers and their families) are
covered under Social Security. The program sends monthly benefits
to more than 45 million beneficiaries.
Social Security is our Nation’s greatest anti-poverty program.
Without it, nearly half of all older Americans would be living in
poverty today instead of 9.7 percent, the 1999 rate. Social
Security benefits lifted roughly 15 million senior citizens out
of poverty in 1999. For 24 million of the elderly, Social
Security is a major source of income and for half of that group,
it is their only source. [3]
In the last 40 years, Social Security has
helped cut the poverty rate among the elderly by 72%.
Demographic Challenges
hen the Board of Trustees issued their 2000 Annual Report on March
30, 2000, they projected that over the next 75 years, Social Security’s
expenditures will exceed its income on average by 16 percent.
The major factors placing a financial strain on the program are
increasing longevity; lower birth rates; and fewer workers supporting
more beneficiaries.
In 1946, 11 million Americans were 65 or older, compared to 35 million
in 2000. By 2030, this senior population is projected to grow
to 70 million. As a result, the ratio of workers to retirees
is projected to decline. Americans are living longer, healthier
lives. The life expectancy at age 65 for men in 1940 was 11.9
years, compared to 15.8 years in 1999. In 1940, the life expectancy
at age 65 for women was 13.4 years; in 1999 it was 19.1 years.
By 2030, life expectancy at age 65 is projected to rise from the
1999 levels by another 1.7 years for men and 1.3 years for women.
Currently, there are about 35 million Americans
age 65 and older; by 2030, there will be nearly twice that number.
The demographic challenge facing Social Security is not just the
number of years people are living; it is also a result of historical
and projected birth rates. The period 1946-1964 was a time
of high birth rates. Americans born during this period are
referred to as the baby boom generation. This generation will
begin to turn 65 in 2011. Following the baby boom period was
one of much lower birth rates. In the future, birth rates
are projected to remain at these lower levels.
The number of workers for each beneficiary has declined and that
trend will continue. In 1960, there were 5.1 workers per beneficiary.
This ratio is projected to decrease to 2.1 workers per beneficiary
by 2030, placing a strain on the pay-as-you-go system.
Financial Challenges
t is projected that the Social Security system will face a long-term
deficit. In its 2000 Annual Report, the Board of Trustees
estimates that the program’s expenditures will exceed its income
over the next 75-year period. The Old Age, Survivors, and
Disability Insurance (OASDI) Trust Funds will incur an actuarial
deficit of 1.89 percent of taxable payroll. [4]
Based on intermediate assumptions, the OASDI Trust Funds
are projected to begin paying out more in benefits than they collect
in taxes in 2015. Total income (tax revenue plus interest
income) will exceed outgo until 2025. The Trust Funds are
expected to decline until exhaustion in 2037, when annual tax income
will be able to pay for only about 72 percent of benefits.
Annually, the Board of Trustees releases a report on the financial
condition of the OASDI Trust Funds. The following chart shows
the history of the Trustees’ projections for each year of the Clinton
Administration when the Trust Funds will become insolvent.
Social Security Trustees’ Reports
REPORT
|
YEAR
COSTS WILL EXCEED TAX REVENUES
|
YEAR
TRUST FUNDS’ BALANCE WILL PEAK
|
YEAR
TRUST FUNDS ARE EXHAUSTED
|
1993
|
2017
|
2024
|
2036
|
1994
|
2013
|
2018
|
2029
|
1995
|
2013
|
2019
|
2030
|
1996
|
2012
|
2018
|
2029
|
1997
|
2012
|
2018
|
2029
|
1998
|
2013
|
2020
|
2032
|
1999
|
2014
|
2021
|
2034
|
2000
|
2015
|
2024
|
2037
|
By using the intermediate assumptions, it is estimated that the
Social Security system will be insolvent in 2037. However,
this projected insolvency of the Trust Funds is not unprecedented.
In the 1970s, the Social Security Board of Trustees predicted short-term
and long-term financial problems for the system. This situation
was created by a variety of economic and demographic trends, such
as higher than expected inflation, lower fertility rate, and the
relationship between wage and price growth. Congress addressed
these issues with the passage of the 1977 Amendments. Major
provisions included: increasing the tax rate; increasing the
earnings base; lowering the age at which the earnings test no longer
applied; and reconfiguring the benefit formula.
In the early 1980s, the Social Security program faced another serious
financing crisis. A blue-ribbon panel, known as the Greenspan
Commission, was appointed to study the financing issues and make
recommendations for legislative changes. The final bill, signed
into law in 1983, made numerous changes to the Social Security program
including: taxing Social Security benefits; covering federal
employees; raising the retirement age, starting in 2000; and increasing
the reserves in the Trust Funds. With the l983 Amendments,
financing problems faced by Social Security in the late 1970s and
early 1980s were temporarily resolved, but the long-range financing
challenge reappeared a few years later.
Advisory Council on Social
Security
s required by law on March 23, 1994, the Secretary of Health and
Human Services, Donna E. Shalala, established the 1994-1996 Advisory
Council on Social Security. Secretary Shalala and Commissioner
Shirley S. Chater asked the Advisory Council to focus specifically
on the long-term fiscal imbalance of the OASDI program. The
Advisory Council used the intermediate assumptions of the 1995 report
of the Board of Trustees to examine the benefit structure in the
OASDI program from various distributional perspectives and to recommend
revisions as appropriate. While the Advisory Council expected
to release their report in 1995, they finally released it in January
1997. Although the Advisory Council agreed on the overall
concerns about the program, they could not reach consensus on a
single approach for dealing with Social Security’s financial difficulties.
The Council members were deeply divided on recommending an approach
to address the long-range financing problem facing Social Security.
Various Council members developed three different solvency plans;
no single plan was supported by a majority of the 13 members.
As the Council itself indicated with regard to the different proposals,
“…each involves a very different vision for the future evolution
of the U.S. retirement system.” The three different plans
were:
1.
Maintenance of Benefits (MB) – Includes keeping the
program’s overall benefit structure the same; eventually increasing
the payroll tax and minor benefit cuts; and investing part of the
Trust Funds in the stock market.
2.
Publicly-Held Individual Accounts (IA) – Includes
cuts in benefits; employees contributing 1.6 percent of pay to individual
savings accounts, in addition to the current.12.4 percent OASDI
tax rate.
3.
Privately-Held Individual Accounts (PSA) – Includes
replacing Social Security with a two tier system consisting of a
flat retirement benefit (tied to the number of years of work) and
an individually owned retirement account funded by a 5 percentage
point contribution from the current OASDI tax rate.
Congressional
Interest and Solvency Proposals
hile a few Social Security reform proposals had been offered prior
to the release of the Advisory Council’s report, the release of
this report acted as a catalyst for increased public and congressional
interest in how best to address the long-range financing issues
of the Social Security program.
Over the period 1993-2000, Congress held 46 hearings on Social Security
solvency or closely related issues. The topics of the hearings
ranged from the overall status of the trust funds, to specific solvency
plans, to specific features of some plans—e.g., raising the retirement
age. Most of these congressional hearings occurred after the
Advisory Council submitted their report. Of these 46 hearings,
an SSA witness testified at 27 of them, 18 of which the Commissioner
of Social Security provided testimony.
In the 103rd-105th Congresses (1993-1998),
21 plans were offered by Members of Congress to provide reforms
to deal with the long-range financing challenge facing Social Security,
and in the 106th Congress (1999-2000), there were 23
such plans. In general, the solvency bills were sponsored
by relatively few Members of Congress and often had only a small
number of or no co-sponsors. In some cases, the same Member
of Congress introduced several bills that were variations on a theme.
No single bill or specific plan gained significant support in the
Congress.
In addition to Congress sponsored plans, various commissions proposed
their own solutions. For example, President Clinton established
the 1994 Bipartisan Commission on Entitlement and Tax Reform [5]
to examine the impact of entitlement programs on the Nation’s future
and to recommend reforms. The Center for Strategic and International
Studies developed the 1998 National Commission on Retirement Policy
to examine the fiscal challenges posed by the retirement of the
Baby Boom population. “Think-tanks” and other public policy
organizations as well as prominent individuals with long-standing
interest in Social Security were also active in developing and suggesting
their own plans.
Proposals for reforming Social Security ranged from maintaining
the current structure to changing the investment strategy of the
Trust Funds, to dismantling Social Security altogether and privatizing
retirement savings. [6]
Proposals, designed to improve long-range solvency, achieve this
goal through reductions in benefits, increases in revenues, or some
combination of both. Options that policymakers have been considering
to reduce benefits include cutting the annual cost-of-living adjustment
(COLA), changing the benefit formula, making across-the-board cuts,
and increasing the normal retirement age. Options to increase
trust fund revenue include raising payroll taxes; transferring revenues
from the general fund of the Treasury to the Trust Funds; covering
newly hired state and local employees in the system, and increasing
the amount of earnings subject to the payroll tax. [7]
Almost all legislative proposals advanced to restore long-range
solvency would make use of the nation’s financial markets to improve
the rate of return under the system. One group of proposals
would alter the Social Security trust fund’s investment policies
to allow the funds to include equity investments. This change
would be consistent with the investment practices of state pension
funds and is designed to increase the return to the trust funds
so that smaller reductions in benefits or smaller increases in revenue
would be needed. Some proposals include provisions that would
use some of the Federal budget surplus to make general revenue transfers
to support Social Security.
Other proposals would permit or mandate the creation of personal
savings accounts—either as a substitute for Social Security benefits
or as a supplement to them. These accounts are generally financed
either by a redirection of a portion of the current Social Security
payroll tax or by funds from general revenues of the government.
Because redirecting a portion of payroll taxes to fund individual
accounts would have a negative effect on solvency, these plans include
elements that would reduce benefits. In some cases, the plan
calls for the reduction or offset of the Social Security benefit
based on the growth, or hypothetical growth, in the person’s individual
account. Another proposal was unique in that it would guarantee
the current benefit level, fund individual accounts through general
revenues (rather than redirecting a portion of the payroll tax),
and then offset the Social Security benefit in most cases by 100
percent of the amount accumulated by the individual account.
The President’s Social Security Proposals
and the National Dialogue
n September 10, 1997, during his confirmation
hearing as Social Security Commissioner Designee, Kenneth Apfel
stated:
“In all candor, Mr. Chairman, critical discussions
about the future of the Social Security program need to take place
not only in committee hearing rooms on the Hill, but also in family
living rooms all across America. As Commissioner, one of my
roles will be to help Americans understand Social Security today,
so that they will be prepared to make the tough choices to ensure
the program will be there for them tomorrow.”
Four months later, President Clinton directly addressed the long-term
financing problems that were facing the Social Security program
in his 1998 State of the Union address and laid out a process to
achieve meaningful reform. At the time of his State of the
Union address, surpluses ($1 trillion over the next 10 years) were
projected in the unified budget, but, he said, the surpluses shouldn’t
be used until we “Save Social Security First.” He said we
must educate Americans so that they understand the Social Security
program and the issues facing it. President Clinton invited
all Americans to join in the discussion. He called for a series
of non-partisan, town hall forums throughout the country to engage
the citizenry in an informed public debate. On February 9,
1998, he delivered a major address on Social Security at Georgetown
University in Washington, D.C. as the unofficial launch of the year-long
process of discussing the future of Social Security.
The Agency played a prominent role as 1998 became a year of intensive
activity aimed at expanding the discussion of the Social Security
program. Commissioner Apfel urged dozens of organizations,
including advocacy groups for minorities, youth, and senior citizens;
public policy and grass roots groups; trade associations; and business
and labor organizations to engage in the dialogue. Social
Security provided informational materials and analyses to help promote
the discussions.
At the beginning of this initiative, Commissioner Apfel indicated
the importance of these discussions when he made a speech to the
National Academy of Social Insurance at the National Press Club
on January 30, 1998, just three days after the President’s State
of the Union address. He said:
“In the coming weeks and months, we need to educate the American
public about the basics of this complex, financial program.
We need to explain its importance, and we need to make the program
real to as many Americans as possible.”
In addition to these agency activities, Commissioner Apfel participated
in regular White House meetings with the President’s Senior Economic
team to explore policy options and to assist the President in developing
his Social Security reform proposal. This group met regularly
with the President to discuss how best to achieve meaningful Social
Security reform. Those meetings continued throughout the remainder
of the President’s second term in office.
At the request
of the President, the Concord Coalition and the American Association
of Retired Persons co-sponsored The Great Social Security Debate,
a series of national discussions about the future of Social Security
that President Clinton had called for in his State of the Union
address. On April 7, 1998, President Clinton participated
in the first of the national forums. It was held on the campus
of Penn Valley Community College in Kansas City, Missouri.
The second forum took place in Providence, Rhode Island on July
1, 1998, and featured
Vice President Gore. President Clinton hosted the third regional
forum in Albuquerque, New Mexico on July 27, 1998. The bipartisan
dialogue culminated with a historic White House Conference on Social
Security on December 8-9, 1998, providing a unique opportunity to
bring together the benefits of a well-balanced group of experts
to facilitate the discussion. The two-day event was held in
Washington, D.C. and President Clinton attended the conference.
Invited guests submitted two-page proposals for Social Security
reform which were published in a book of Conference Statements.
In his 1999 State of the Union address, the President laid out his
proposal to “Save Social Security First.” He proposed transferring
62 percent of the unified budget surpluses ($2.8 trillion) to Social
Security over the next 15 years; saving 15 percent of the surpluses
to shore up Medicare; and investing 12 percent of the surpluses
into new Universal Savings Accounts. The remaining 11 percent
was for defense and other domestic priorities. This would
extend solvency an additional 23 years, from 2032 to 2055.
At this time, budget projections began to show that the federal
government would accumulate substantial budget surpluses in addition
to those produced by Social Security. Republican Leadership responded
to the President’s proposal to transfer 62 percent of the unified
budget surplus to Social Security by pledging to “lock away” the
entire Social Security surplus. Much of 1999 turned into a debate
over protecting the Social Security surplus, rather than a debate
over how to achieve long-term solvency for Social Security.
In his 1999 State of the Union address, President Clinton also expressed
his concern about relatively high poverty rates among older women
stating “We should reduce poverty among elderly women, who are nearly
twice as likely to be poor as our other seniors….” Throughout
1999, SSA analyzed numerous proposals to enhance Social Security
benefits in ways that would reduce high poverty rates among older
women, particularly widows, relative to the overall elderly population
and provide improved economic protection for an especially vulnerable
segment of society.
In his 2000 State of the Union message, President Clinton modified
his proposal in an effort to achieve bipartisan consensus. He called
for locking away the entire Social Security surplus; paying down
the national debt; and dedicating the interest savings to Social
Security, which would extend solvency from 2037 to 2054. In
addition, the President recommended investing a small share of the
Trust Funds in equities to further extend the life of the Trust
Funds. He called on Congress to work with him on a bipartisan
basis to make the additional changes necessary to strengthen the
Social Security program and put the program in long-term actual
balance.
Throughout 2000, the Administration and Congress attempted to try
and advance the debate, despite the looming presidential campaign.
The President continued to urge Congress to address the generational
challenges facing America in this time of prosperity. Commissioner
Apfel continued to travel throughout the country urging that America
address these challenges sooner than later. Unfortunately,
as President Clinton’s term of office came to a close, it became
evident that meaningful Social Security reform would not be achieved
during this session of Congress.
The Agency’s Education, Policy, and
Research Efforts
hroughout the President’s second term, SSA worked to ensure that
the public had the information it needed to understand the essentials
of the program, so they could participate in the discussion of how
best to strengthen Social Security for the future. When the
President called for a major public discussion on the long-range
future of the Social Security program in 1998, the Agency was well
positioned to meet its responsibility of advancing public education.
Social Security employees had a central role to play in these discussions,
not by taking sides, but by educating. In order for SSA to
more effectively serve the public, there was a big push behind expanding
the capacity of our workforce to engage the public. In 1998,
SSA established the “Employees as Ambassadors Program” and trained
all 65,000 employees—many whom have become specialists—to answer
the tough questions about Social Security. Supporting this
effort was an aggressive, proactive public education outreach campaign
during the two-year period of 1998 and 1999, employees participated
in more than 10,000 events and media opportunities on issues affecting
Social Security’s future. These events included community
seminars, co-sponsored by organizations such as the Junior Chamber
of Commerce and Americans Discuss Social Security, and Congressional
forums, newspaper editorial boards, and Internet discussions.
SSA developed special public information materials to support the
national dialogue on long-range financing and published a new booklet
entitled The Future of Social Security that outlined important
program and financing issues. Well over one million copies
of the booklet were distributed.
SSA developed several short background papers about the workings
of current Social Security programs for the forums and discussion
groups on Social Security solvency issues. The material received
more general distribution through SSA’s website and elsewhere.
The papers included pieces describing how Social Security benefits
help women, minorities, and low-wage workers. Another described
the low administrative costs of the current program. A series
of questions and answers were developed to provide financial and
statistical information on solvency issues. They directed
website users to selected tables on the trust funds, the financing
for Social Security and Medicare, and the dates of currently projected
long-range financing shortfalls in the OASI, DI and HI programs.
Estimates of the number of workers insured under Social Security
and the approximate ratio of workers to beneficiaries were also
presented in this way. Fact sheets and other materials were
prepared for distribution and discussion at several symposiums such
as the October 1998 “White House Round Table on Women and Social
Security” and the “First Lady’s Social Security and Women” event
held on January 23, 1999.
In addition, SSA worked internally and externally developing models
and simulations that determined the impact of making major changes
to the Social Security system. These included models such
as Historical Cohorts, Microsimulation, [8] Modeling
Income in the Near Term, and CORSIM. These models dealt with
the effects of changes to the Social Security program on distributional
impact, economically vulnerable beneficiaries, and long-term cost
analyses. SSA continues to prepare materials on all fiscal
effects of various proposals to change the Social Security program.
Although the public debate on long-term solvency of the Social Security
system became a central issue in the 2000 Presidential Campaign,
national political leaders could not agree on legislation to strengthen
the program. In an interview with Planet Gov.Com on
October 12, 2000, Commissioner Apfel said:
“My one regret is that we’re not sitting here
today saying that we have taken the financial steps that were necessary
to assure that we can look our grandchildren in the eyes and say
we’ve got the right financing system in place, that their benefits
will be as strong for them as they were for our grandparents.”
He further stated in an interview with the Boston Globe on November
5, 2000, “I was hoping that by now we would see legislation designed
to ensure that Social Security would be strong through the 21st
Century. Obviously, we haven’t made it to the finish line
on that one.” As indicated, while no consensus on what to
do was reached, many agreed that the sooner an agreement is reached
the better.
Repeal of the Retirement
Earnings Test (RET)
nother significant change in Social Security during the Clinton
Administration was the repeal of the Retirement Earnings Test (RET).
Originally, Social Security was designed as a social insurance program
under which workers and their dependents were to be insured against
the loss of earnings as a result of retirement, disability, or death
of the worker. Benefits were intended to partially replace
the earnings that are actually lost due to these events. In
that context, the RET was designed as an objective measure of the
earnings amount lost due to retirement.
The Social Security program always had a RET. However, the
“all-or-nothing” test in the original 1935 Social
Security Act was modified numerous times to allow retirees to supplement
benefits with earnings up to a specified level.
Prior to the repeal in 2000, the first change to the RET during
the Clinton Administration occurred in 1996. With the strong
support from President Clinton and the Congress, the annual exempted
amounts for beneficiaries aged 65 to 69 were legislated to rise
annually until reaching $30,000 in 2002. This increase gave
many older Americans the opportunity to supplement their Social
Security benefits while remaining productive members of the workforce.
Prior to the repeal of the RET, benefits were reduced $1 for every
$3 of earnings above the annual exempt amount for beneficiaries
age 65-69. Benefits were reduced $1 for every $2 of earnings
above the annual exempt amount for beneficiaries below age 65.
Unearned income, such as interest income, dividend payments, private
pensions and the like, were not counted for purposes of the RET.
In addition, workers were exempt from the test when they reached
age 70. For a worker below age 70, his or her earnings above
the exempt amount affected not only his or her own benefits, but
also the benefits of family members receiving benefits on the worker’s
earnings record. However, if a dependent or survivor beneficiary
has earnings above the exempt amount, those earnings can affect
only that individual’s payments.
Delayed retirement credits (DRC) are provided to compensate workers
age 65-69 whose benefits are withheld under the RET. The DRC
increases the worker’s retirement benefit for each month after the
full benefit retirement age (now age 65 but scheduled to rise to
67 by 2022) that the worker delays filing for benefits or benefits
are fully withheld. The DRC is currently six percent per year
for workers age 65 in 2000. The DRC percentage will increase
0.5 percentage point every two years until it reaches 8 percent
per year for workers reaching full retirement age in 2008 and later.
When the DRC is 8 percent per year, benefits lost due to delayed
retirement generally will be offset in an actuarially fair manner
by the increase in benefits resulting from DRCs.
In early 2000, both the Congress and the President signaled a willingness
to repeal the Retirement Earnings Test for those above the normal
retirement age. Commissioner Apfel testified before the House
Ways and Means Subcommittee on Social Security on this issue on
February 15, 2000. Congressional action was swift. The
legislation quickly went to the full House where it was passed 422-0
on March 1, 2000 and 100-0 on March 22, 2000 in the Senate. On April
7, 2000, President Clinton signed Public Law 106-182, The Senior
Citizens' Freedom to Work Act of 2000. This Act eliminated
the RET and the 45-hour foreign work test in and after the month
in which a person attains full retirement age, retroactive to January
1, 2000. It also permitted beneficiaries to decline current
monthly benefits so that they can earn DRCs. This legislation
was estimated to have a negligible effect on the long range financing
of Social Security.
Earnings at or after the full retirement age no longer count towards
the RET. Beginning in 2000, earnings between January of the
year an individual reaches Normal Retirement Age (NRA) and the month
before the month of attainment of NRA are counted toward the $1
for $3 RET. For 2000, the excess over $17,000 is counted.
For 2001, the excess over $25,000 is counted and for 2002, the excess
over $30,000 is counted. Thereafter, the threshold is indexed
to the growth in average wages. Beneficiaries would continue
to be subject to the lower $1 for $2 test for earnings prior to
January of the year of attainment of the NRA.
As a result of this legislation, about 800,000 beneficiaries age
65-69 and 150,000 auxiliary beneficiaries, who previously lost some
or all of their benefits under the test, now receive full benefits.
In May 2000, about 400,000 beneficiaries in this group were reinstated
and received retroactive payments averaging $3,500 per person for
benefits due since January. SSA paid a total of $1.5 billion
in refunds just three weeks after the legislation was signed into
law. Beginning in June 2000, SSA automatically reinstated
working beneficiaries as they attained full retirement age.
Between May 2000 and October 2000, SSA sent a series of one-time
“Good News” notices informing over 9 million affected working and
non-working beneficiaries of the change in the RET and the new option
to earn DRCs.
Conclusion
he Social Security program has become the most successful and most
popular domestic program in the nation’s history. It has been
providing economic security for workers and their families for 65
years and is America’s greatest anti-poverty program. Social
Security has made an enormous difference in the lives of older Americans,
as more than nine in ten of them receive retirement benefits each
month.
However, the 2000 Board of Trustees Report estimates that the OASDI
Trust Funds will be exhausted in 2037. President Clinton,
Members of Congress, different commissions and organizations, and
prominent individuals with a long-standing interest in Social Security
all sponsored solvency plans. The Agency played a key role
in ensuring that the public had the information it needed to understand
the essentials of the program, so they could participate in the
discussion of how best to strengthen Social Security for the future.
Social Security provided informational materials and analyses to
help promote the discussions. [9]
While no consensus on what to do was reached, the need to resolve
the long-range financing issue has been made very clear. It
will be up to future Administrations and Congresses to address this
critical challenge of the aging of America.
[1] American Council of Life Insurance.
The Polls-Poll Trends: Social Security, An Update.
Public Opinion Quarterly, Fall 1995, pgs. 424-425.
[2] National Public Radio. 1999, “NPR, the Kaiser
Family Foundation, and Harvard University’s Kennedy School of
Government’s Poll on Social Security.”
[3] Social Security Administration, Office of
Research, Evaluation, and Statistics.
[4] Based on 2000 Trustees Report, intermediate
assumptions. The actuarial balance is the most commonly used measure
of long range solvency of the OASDI program. This measure indicates
the size of the difference between expected financing and cost
for the program over a 75 year period. The actuarial balance is
expressed as a percentage of taxable payroll over the 75 years.
[5] The panel consisted of Members of Congress
and private citizens.
[6] Daly, Mary C., Economist, Federal Reserve
Bank of San Francisco, Economic Letter, Number 99-20, June
25, 1999.
[8] The microsimulation model was developed at
Cornell University.
[9] For SSA program statistics during the Clinton
Administration, see SSA’s Annual Statistics Supplement.
Exhibit
1
Examples
of Options from the
Social Security Advisory Board
(Long-Range Actuarial Deficit
of 1.89 Percent of Taxable Payroll)
Options
|
Savings
as a % of Taxable Payroll
|
%
of Social Security Deficit Resolved
|
Lower
Benefits
|
Reduce
the COLA by 0.5 percentage point below CPI, beginning 12/2001 |
0.74%
|
39%
|
Reduce
the COLA by 1.0 percentage point below CPI, beginning 12/2001 |
1.44%
|
76%
|
Increase
the number of years used to calculate benefits for retirees
and survivors from 35 to 38, phased in 2002-2006 |
0.25%
|
13%
|
Increase
the number of years used to calculate benefits for retirees
and survivors from 35 to 40, phased in 2002-2010 |
0.40%
|
21%
|
Reduce
benefits across the board by 3 percent for new eligibles,
beginning in 2001 |
0.36%
|
19%
|
Reduce
benefits across the board by 5% for new eligibles, beginning
in 2001 |
0.60%
|
32%
|
Speed
up present law phase in of increase in the normal retirement
age to 67 by 2011 |
0.13%
|
7%
|
Increase
the normal retirement age to 67 by 2011; then index (normal
retirement age=69 by 2059 and continues to rise) |
0.52%
|
27%
|
Options
|
Savings
as a % of Taxable Payroll
|
%
of Social Security Deficit Resolved
|
Increase
Revenues
|
1.96%
|
104%
|
|
Cover
all newly-hired State and local government employees, beginning
in 2002 |
0.21%
|
11%
|
Make
90% of earnings subject to payroll tax ($145,800 maximum in
2003), with increase phased in 2001-2003 |
0.64%
|
34%
|
Other
Options
|
Invest
40% of Trust Funds in stocks over 15 years, phased in beginning
in 2001 |
1.02%
|
54%
|
Transfer
money from Federal budget surplus (general revenue) to offset
the OASDI Trust Fund deficit |
|
Use
a portion of the payroll tax (e.g., 2% or 5%) to provide mandatory
individual accounts. |
Impact
would depend on the portion of payroll taxes carved out. |
|