SECTION 1. SOCIAL SECURITY: THE OLD AGE, SURVIVORS, AND DISABILITY INSURANCE (OASDI) PROGRAMS CONTENTS 1996 Social Security Information General Brief Description of Social Security Programs Concept of Social Insurance Financing Mechanism Brief History Social Security Coverage of the Work Force Benefits Eligibility for Workers Disability Eligibility for Dependents and Survivors Benefit Computation Full Retirement Age Trends in Retirement Age Trends in Longevity Average Indexed Monthly Earnings Benefit Formula Special Minimum Benefit Benefit Amounts Replacement Rates Benefit Reduction and Increase Dual Entitlement Actuarial Reduction Delayed Retirement Credit Maximum Family Benefit Earnings Limit Offsets Suspension of Benefits to Prisoners Cost-of-Living Adjustments Taxation of Benefits Determination of Disability Benefits Determination of Disability Application of Law and Regulations Federal Review of State Determinations Periodic Review of Individuals Receiving Disability Benefits Medical Improvement Standard Medical Evidence Attorneys' Fees and Representation Vocational Rehabilitation Disability Claims and Appeals Structure Changes in Enrollment and Applicant Backlogs Disability Insurance (DI) Awards and Recipients Pending Claims and Waiting Times Characteristics of Recipients OASDI DI Social Security Financing Current Law Status of OASDI Trust Funds How the Status of the Trust Funds is Measured Nature of the Social Security Trust Funds Budgetary Treatment of OASDI Current Budget Rules Pertaining to Social Security Current House and Senate Procedural Rules to Protect Social Security's Financial Condition Budgetary Treatment of Administrative Expenses Legislative History Changes in the 95th Congress Changes in the 96th Congress Changes in the 97th Congress Changes in the 98th Congress Changes in the 99th Congress Changes in the 100th Congress Changes in the 101st Congress Changes in the 102d Congress Changes in the 103d Congress Changes in the 104th Congress Appendix Relationship of Taxes to Benefits for Social Security Retirees: Illustrations of the Amount of Time It Takes To Recover the Value of Taxes Paid, Plus Interest Illustrative Payback Times References 1996 SOCIAL SECURITY INFORMATION Tax rate: Employee/employer each--7.65%; (6.20%--OASDI; 1.45%--HI). Self-employed--15.30%; (12.40%--OASDI; 2.90%--HI). Maximum taxable earnings base: Social Security (OASDI).................................... $62,700 Medicare (HI).............................................. No Limit Maximum FICA/SECA tax: \1\ --------------------------------------------------------------------------- \1\ FICA/SECA tax paid by employers and self-employed can be partially deducted under income tax rules. OASDI HI Employee/employer.................... $3,887 No limit. Self-employed........................ 7,774 No limit. ------------------------------------------------------------------------ OASDI workers covered.--1996 (est.)--142 million. Average Wage Level.--1994--$23,753.53. Earnings required for a quarter of coverage.--$640; ($2,560 for 4). Earnings limit exempt amounts: $12,500 for beneficiaries age 65-69; ($1 for $3 withholding rate). $8,280 for beneficiaries under age 65; ($1 for $2 withholding rate). Medicare (SMI) premium.--$42.50/month. Number of OASDI beneficiaries (12/95) (in millions): Total OASDI beneficiaries.................................. 43.4 OASI beneficiaries..................................... 37.5 Retired workers.................................... 26.7 Families and survivors............................. 10.9 DI beneficiaries....................................... 5.9 Disabled workers................................... 4.2 Family members..................................... 1.7 Average monthly benefits (12/95): Retired Worker............................................. $720 Retired worker and aged spouse............................. 1,215 Disabled worker............................................ 682 Disabled worker, spouse and children....................... 1,140 Aged widow(er)............................................. 680 Widowed mother/father and 2 children....................... 1,377 1996 SOCIAL SECURITY INFORMATION--Continued Monthly benefits for 1996 retirees At 62 At 65 Low earner (45% of average wages)....................... $430 $537 Average earner.......................................... 709 886 Maximum earner.......................................... 999 1,248 ------------------------------------------------------------------------ Long-range replacement rates (in percent): Retirement at age 67 in 2030 and later: Low earner (45% of average wages).......................... 56 Average earner............................................. 42 Maximum earner............................................. 28 COLA (effective January 1996).--2.6%. Taxation of benefits--percent of benefits taxed: Percent taxed Income threshold Filing status Up to 50%..................... $25,000-$34,000.. Individual. $32,000-$44,000.. Joint. Up to 85%..................... $34,000 +........ Individual. $44,000 +........ Joint. ------------------------------------------------------------------------ Substantial gainful activity: $500/month disabled/nonblind; $960/month blind. OASDI Trust Fund operations (in billions of dollars): OASDI Trust Fund operations --------------------------------------- Calendar year Net Income Outgo increase Balance 1995............................ $399.5 $339.8 $59.7 $496.1 1996 (est.)..................... 424.9 354.6 70.3 566.4 ------------------------------------------------------------------------ Fiscal Year 1995 OASDI Outlays.--$336 billion--21.8% of total U.S. Budget of $1.54 trillion. SAA info.--1-800-SSA-1213. SSA On Line.--http://www.ssa.gov/SSA__Home.html Source: Social Security Administration and Board of Trustees (1996). GENERAL Brief Description of Social Security Programs The Old-Age, Survivors, and Disability Insurance (OASDI) Programs provide monthly benefits to retired and disabled workers, their dependents and survivors. The OASDI Programs are contained in title II of the Social Security Act, and are commonly known as ``Social Security.'' Old-age benefits were provided for retired workers by the original Social Security Act of 1935, benefits for dependents and survivors were provided by the 1939 amendments, and benefits for disabled workers were enacted in 1956. The Hospital Insurance (HI) Program, enacted in 1965 as title XVIII of the Social Security Act, is closely related to the OASDI Program. (The HI Program is discussed in later sections.) Concept of Social Insurance When the OASDI Programs were created, ``insurance'' was included in their titles to show that their purpose is to replace income that is lost to a family through the retirement, death, or disability of a worker who has earned protection against these ``risks.'' This protection was to be obtained by working in jobs that are covered under Social Security and therefore subject to payroll taxes that finance Social Security benefits. Once workers worked long enough in covered jobs to be ``insured,'' they and their families would have eligibility for their benefits as a matter of ``earned right.'' The level of benefits is based on the amount the worker earned in covered jobs, and are paid without a test of economic need. However, the social ends the programs serve diverge somewhat from the insurance analogy. The programs are national, and coverage is generally compulsory and nearly universal. They are designed to address such social purposes as alleviating poverty, providing added protection of families versus single workers, and providing a larger degree of earnings replacement for low-paid versus high-paid workers. The OASDI Programs were therefore described as ``social'' insurance. Financing Mechanism The primary source of revenue for OASDI is the payroll tax paid by workers covered by the program and their employers. OASI and DI have separate tax rates set by law. Coverage under Social Security is generally compulsory. Currently, an estimated 96 percent of the Nation's paid work force is covered either voluntarily or mandatorily. The taxes for wage and salaried workers are imposed under the Federal Insurance Contributions Act (FICA, chapter 21 of the Internal Revenue Code). Taxes are based on earnings up to the annual maximum taxable wage base ($62,700 in 1996 for OASDI, with no limit on wages subject to HI). The employee share of the payroll tax is withheld from wage and salary payments, and is matched by employers, currently at a rate of 7.65 percent each. Self-employed persons are covered by the Self-Employment Contributions Act (SECA, chapter 2 of the Internal Revenue Code). They pay contributions on their net earnings annually up to the same maximum as employees, but at a rate that is equal to the combined employee-employer tax rate. However, the self-employed may deduct 7.65 percent from their net earnings before computing their Social Security tax and may also deduct half of their Social Security tax as a business expense for income tax purposes. Revenue from the OASI and DI portion of the tax is credited to the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. In addition, the revenue derived from the taxation of a portion of 50 percent of Social Security benefits is credited to each trust fund (for additional detail, see section on ``Taxation of Benefits''). The trust funds are the source of payment for: (1) monthly benefits when the worker retires, becomes totally disabled, or dies (including a financial interchange with the Railroad Retirement System), and (2) administrative expenses for the program. A discussion of OASDI administrative costs may be found in a later section on ``Budgetary Treatment of OASDI.'' BRIEF HISTORY The 1935 Social Security Act covered only workers in commerce and industry, then about 60 percent of the work force. At first, the act provided only monthly benefits to retired workers age 65 and over, and a lump-sum death benefit to the estate of these workers. The monthly benefits were to begin on January 1, 1942. The 1939 Social Security amendments provided benefits to dependents of retired workers (wives aged 65 and over and children under age 16); and to survivors of deceased workers (widows aged 65 and over, mothers caring for an eligible child, children under age 16, and dependent parents). In addition, the 1939 amendments provided that these benefits would begin in 1940. The 1939 amendments were the first in a nearly 40-year series of program expansions. In 1956, benefits were extended to disabled workers aged 50-64, and to disabled children over age 18 of retired, disabled, or deceased workers, if they became disabled before age 18 (changed to disabled before age 22 in 1973). The 1958 amendments provided benefits to dependents of disabled workers on the same basis as dependents of retired workers. Benefits for disabled workers under age 50 were provided in 1960. Monthly cash benefits were increased on an ad hoc basis 10 times before the first automatic cost-of-living adjustment was implemented by the Social Security amendments of 1972. Beginning in 1975, benefits have been automatically adjusted to keep pace with inflation. Since 1975, there have been increases annually except during calendar year 1983, when the adjustment was delayed 6 months (see table 1-1). SOCIAL SECURITY COVERAGE OF THE WORK FORCE In 1939, approximately 24 million persons worked in employment covered by the Social Security system. Over the years, major categories of workers were brought under the system, such as self-employed individuals, State and local government employees (on a voluntary basis), regularly employed farm and domestic workers, members of the armed services, and members of the clergy and religious orders (on a voluntary basis). In 1996, of a total work force of approximately 148.8 million workers, about 142 million workers and an estimated 96 percent of all jobs in the United States are covered under Social Security. Of the total work force, an estimated 13.7 million workers were self-employed in 1996. In 1994, an estimated 87 percent of all earnings from jobs covered by Social Security were taxable (see tables 1-2 and 1-3). TABLE 1-1.--SOCIAL SECURITY BENEFIT INCREASES SINCE THE BEGINNING OF THE PROGRAM [In percent] ------------------------------------------------------------------------ Amount of Date increase paid increase ------------------------------------------------------------------------ January 1996............................................... 2.6 January 1995............................................... 2.8 January 1994............................................... 2.6 January 1993............................................... 3.0 January 1992............................................... 3.7 January 1991............................................... 5.4 January 1990............................................... 4.7 January 1989............................................... 4.0 January 1988............................................... 4.2 January 1987............................................... 1.3 January 1986............................................... 3.1 January 1985............................................... 3.5 January 1984............................................... 3.5 July 1982.................................................. 7.4 July 1981.................................................. 11.2 July 1980.................................................. 14.3 July 1979.................................................. 9.9 July 1978.................................................. 6.5 July 1977.................................................. 5.9 July 1976.................................................. 6.4 July 1975 \1\.............................................. 8.0 April/July 1974 \2\........................................ 11.0 October 1972............................................... 20.0 February 1971.............................................. 10.0 February 1970.............................................. 15.0 March 1968................................................. 13.0 February 1965.............................................. 7.0 February 1959.............................................. 7.0 October 1954............................................... 13.0 October 1952............................................... 12.5 October 1950............................................... 77.0 ------------------------------------------------------------------------ \1\ Automatic COLAs began. \2\ Increase came in two steps. Source: Social Security Administration. TABLE 1-2.--CIVILIAN WORKERS COVERED BY SOCIAL SECURITY SYSTEM, 1939-94 [In millions] ---------------------------------------------------------------------------------------------------------------- OASDI and Year Paid civilian OASDI Percent HI-only Percent employees \1\ coverage covered coverage covered ---------------------------------------------------------------------------------------------------------------- 1939 \2\................................................ 43.6 24.0 55.1 24.0 55.1 1944 \2\................................................ 51.2 30.8 60.2 30.8 60.2 1949 \2\................................................ 56.7 34.3 60.5 34.3 60.5 1955.................................................... 62.8 51.8 82.5 51.8 82.5 1960.................................................... 64.6 55.7 86.2 55.7 86.2 1961.................................................... 65.3 56.1 85.9 56.1 85.9 1962.................................................... 66.4 57.3 86.3 57.3 86.3 1963.................................................... 67.6 58.5 86.5 58.5 86.5 1964.................................................... 69.3 60.1 86.7 60.1 86.7 1965.................................................... 71.6 62.7 87.6 62.7 87.6 1966.................................................... 73.6 64.9 88.2 64.9 88.2 1967.................................................... 74.4 65.7 88.3 65.7 88.3 1968.................................................... 75.9 67.1 88.4 67.1 88.4 1969.................................................... 78.0 68.6 87.9 68.6 87.9 1970.................................................... 77.8 69.9 89.9 69.9 89.9 1971.................................................... 79.6 71.7 90.1 71.7 90.1 1972.................................................... 82.6 74.7 90.4 74.7 90.4 1973.................................................... 85.6 77.6 90.6 77.6 90.6 1974.................................................... 85.4 77.3 90.5 77.3 90.5 1975.................................................... 86.0 77.9 90.6 77.9 90.6 1976.................................................... 89.2 81.0 90.9 81.0 90.9 1977.................................................... 93.5 85.1 91.0 85.1 91.0 1978.................................................... 97.0 88.4 91.2 88.4 91.2 1979.................................................... 99.4 90.7 91.3 90.7 91.3 1980.................................................... 98.9 89.3 90.3 89.3 90.3 1981.................................................... 99.0 90.2 91.1 90.2 91.1 1982.................................................... 98.3 89.8 91.4 89.8 91.4 1983.................................................... 102.2 93.6 91.6 96.0 94.0 1984.................................................... 105.5 97.9 92.7 100.3 95.0 1985.................................................... 107.7 100.0 92.9 102.4 95.1 1986.................................................... 110.2 104.1 94.4 106.5 96.6 1987.................................................... 113.3 107.5 94.8 110.0 97.1 1988.................................................... 115.6 109.8 95.0 112.4 97.3 1989.................................................... 117.4 111.7 95.2 114.4 97.4 1990.................................................... 117.0 111.3 95.2 114.1 97.5 1991.................................................... 116.3 111.0 95.5 113.3 97.5 1992.................................................... 117.8 112.7 95.7 114.8 97.5 1993.................................................... 120.3 115.3 95.8 117.4 97.6 1994.................................................... 124.6 119.7 96.1 121.8 97.8 ---------------------------------------------------------------------------------------------------------------- \1\ Includes paid employees and self-employed for all years. \2\ Monthly average for these years, all other years as of December. Source: Office of Research and Statistics, Social Security Administration. TABLE 1-3.--CIVILIAN WAGES COVERED BY OASDI SYSTEM, 1950-94 \1\ [Dollars in billions] ---------------------------------------------------------------------------------------------------------------- Earnings in Taxable covered employment Covered earnings as -------------------- Total earnings a percent Year Total earnings as a Taxable of total earnings Self- in covered percent earnings earnings in Employed employed employment of total covered earnings employment ---------------------------------------------------------------------------------------------------------------- 1950................................. 186.1 109.8 ........ 109.8 59.0 87.5 79.7 1955................................. 257.4 171.6 24.5 196.1 76.2 157.5 80.3 1960................................. 324.9 236.0 29.2 265.2 81.6 207.0 78.1 1965................................. 428.8 311.4 40.3 351.7 82.0 250.7 71.3 1970................................. 631.7 483.6 48.0 531.6 85.2 415.6 78.2 1975................................. 940.1 717.2 70.4 787.6 83.8 664.7 84.4 1976................................. 1,037.2 797.2 76.8 874.7 84.3 737.7 84.3 1977................................. 1,140.4 879.5 80.6 960.1 84.2 816.6 85.0 1978................................. 1,288.6 998.9 93.7 1,092.6 84.8 915.6 83.8 1979................................. 1,437.1 1,122.0 100.2 1,222.2 85.0 1,067.0 87.3 1980................................. 1,548.4 1,231.0 97.8 1,328.8 85.8 1,180.7 88.9 1981................................. 1,696.5 1,352.0 98.9 1,450.9 85.5 1,294.1 89.2 1982................................. 1,764.0 1,418.0 98.6 1,516.6 86.0 1,365.3 90.0 1983................................. 1,870.8 1,502.0 113.2 1,615.2 86.3 1,454.1 90.0 1984................................. 2,086.0 1,671.5 129.3 1,800.8 86.3 1,608.8 89.3 1985................................. 2,246.2 1,794.5 142.3 1,936.8 86.2 1,722.6 88.9 1986................................. 2,389.2 1,921.0 160.8 2,081.8 87.1 1,844.4 88.6 1987................................. 2,571.4 2,057.1 179.9 2,237.0 87.0 1,960.0 87.6 1988................................. 2,767.3 2,227.9 199.7 2,427.6 87.7 2,088.4 86.0 1989................................. 2,933.7 2,371.7 210.9 2,582.6 88.0 2,239.5 86.7 1990 \2\............................. 3,108.3 2,511.3 195.6 2,706.9 87.1 2,358.7 87.1 1991 \2\............................. 3,192.4 2,565.2 197.2 2,762.4 86.6 2,423.5 87.7 1992 \2\............................. 3,389.1 2,718.7 210.0 2,928.7 86.5 2,534.5 86.5 1993 \2\............................. 3,522.4 2,796.3 224.8 3,021.1 85.8 2,635.8 87.2 1994 \2\............................. 3,756.8 2,986.3 243.1 3,229.4 86.0 2,818.5 87.3 ---------------------------------------------------------------------------------------------------------------- \1\ Sum of wages and salaries and proprietors' income with inventory valuation and capital consumption adjustments, as estimated by the Bureau of Economic Analysis in the National Income and Product Accounts. \2\ Preliminary. Source: Social Security Administration (1995) and Office of Research and Statistics, Social Security Administration. While coverage is compulsory for most types of employment, approximately 6.7 million workers did not have any coverage under Social Security in 1994. The majority of these noncovered workers were and still are in State and local governments or the Federal Government (see tables 1-4 and 1-5 for the most recently available statistical breakout). Beginning January 1, 1983, Federal employees were covered under the Medicare (HI) portion of the Social Security tax, and all Federal employees hired after 1983 are covered under the OASDI portion as well. In 1991, 70.2 percent of State and local government workers (14.4 million out of 20.5 million) were covered by Social Security. Beginning January 1, 1984, all employees of nonprofit organizations became covered, and as of April 1983 terminations of Social Security coverage by State government entities were no longer allowed. State and local employees hired after March 31, 1986 are mandatorily covered under the Medicare Program and must pay HI payroll taxes. Beginning July 1, 1991, State and local employees who were not members of a public retirement system were mandatorily covered under Social Security. This requirement was contained in the 1990 Omnibus Budget Reconciliation Act (Public Law 101-508). TABLE 1-4.--ESTIMATED SOCIAL SECURITY COVERAGE, 1994 ------------------------------------------------------------------------ Total Noncovered Percent (millions) (millions) covered ------------------------------------------------------------------------ Workers \1\...................... 145.5 6.7 95.4 Jobs: \2\ State and local government \3\......................... 21.7 5.5 74.7 Federal civilian............. 4.2 1.5 64.3 Students \4\................. 2.3 2.2 4.3 ------------------------------------------------------------------------ \1\ Includes both employees and self employed. \2\ Because workers may work at more than one job during the year, the total number of noncovered jobs exceeds the total number of noncovered workers. Because this table includes workers who worked only in a noncovered job at any time during the year, it shows a higher number of noncovered jobs than does table 1-2, which is based on coverage status in December of each year. \3\ Excludes students. \4\ Includes students employed at both public and private colleges and universities. Source: Social Security Administration. While the most recent year for which actual data are available is 1991, the Social Security Administration estimates that in 1994, 23.2 million individuals will work at some time during the year for a State or local government, and the wages of 70 percent of these individuals will be covered by Social Security. TABLE 1-5.--ESTIMATED SOCIAL SECURITY COVERAGE OF WORKERS WITH STATE OR LOCAL GOVERNMENT EMPLOYMENT, 1991 [Based on 1-percent sample; numbers in thousands] ------------------------------------------------------------------------ All workers Covered Percent State \1\ workers covered ------------------------------------------------------------------------ Alabama.............................. 350 316 90 Alaska............................... 81 32 40 Arizona.............................. 349 309 89 Arkansas............................. 192 173 90 California........................... 2,194 916 42 Colorado............................. 326 110 34 Connecticut.......................... 252 165 65 Delaware............................. 65 50 77 Florida.............................. 983 859 87 Georgia.............................. 574 448 78 Hawaii............................... 105 80 76 Idaho................................ 113 106 94 Illinois............................. 981 499 51 Indiana.............................. 434 372 86 Iowa................................. 270 230 85 Kansas............................... 250 222 89 Kentucky............................. 319 239 75 Louisiana............................ 398 119 30 Maine................................ 110 48 44 Maryland............................. 396 345 87 Massachusetts........................ 325 43 13 Michigan............................. 784 664 85 Minnesota............................ 414 326 79 Mississippi.......................... 220 194 88 Missouri............................. 381 295 77 Montana.............................. 93 77 83 Nebraska............................. 160 142 89 Nevada............................... 89 25 28 New Hampshire........................ 88 74 84 New Jersey........................... 580 544 94 New Mexico........................... 172 136 79 New York............................. 1,673 1,491 89 North Carolina....................... 562 504 90 North Dakota......................... 70 61 87 Ohio................................. 850 32 4 Oklahoma............................. 278 244 88 Oregon............................... 259 232 90 Pennsylvania......................... 733 674 92 Rhode Island......................... 73 54 74 South Carolina....................... 310 278 90 South Dakota......................... 74 66 89 Tennessee............................ 397 324 82 Texas................................ 1,316 729 55 Utah................................. 161 144 89 Vermont.............................. 54 52 96 Virginia............................. 508 467 92 Washington........................... 428 361 84 West Virginia........................ 150 122 81 Wisconsin............................ 451 376 83 Wyoming.............................. 66 56 85 ---------------------------------- Total.......................... 20,461 14,425 70 ------------------------------------------------------------------------ \1\ Includes seasonal and part-time workers for whom State and local government employment was not their major job. Source: Office of Research and Statistics, Social Security Administration. BENEFITS Eligibility for Workers Insured status Benefits can be paid to workers, and their dependents or survivors, only if the worker has worked long enough in covered employment to be ``insured'' for these benefits. Insured status is measured in terms of ``quarters of coverage.'' Before 1978, one quarter of coverage was earned for each calendar quarter in which a worker was paid $50 or more in wages for covered employment (except for agricultural labor). Since the beginning of 1978 the crediting of quarters of coverage has been on an annual rather than a quarterly basis up to a maximum of four quarters of coverage per year. In 1978, a worker earned one quarter of coverage (up to a maximum of four) for each $250 of annual earnings reported from covered employment or self-employment. The amount of annual earnings needed for a quarter of coverage is increased each year in proportion to increases in average wages in the economy. In 1996 the amount of earnings needed for a quarter of coverage is $640. Table 1-6 shows amounts needed since 1978. TABLE 1-6.--AMOUNT OF COVERED WAGES NEEDED TO EARN ONE QUARTER OF COVERAGE SINCE 1978 1978....................................................... $250 1979....................................................... 260 1980....................................................... 290 1981....................................................... 310 1982....................................................... 340 1983....................................................... 370 1984....................................................... 390 1985....................................................... 410 1986....................................................... 440 1987....................................................... 460 1988....................................................... 470 1989....................................................... 500 1990....................................................... 520 1991....................................................... 540 1992....................................................... 570 1993....................................................... 590 1994....................................................... 620 1995....................................................... 630 1996....................................................... 640 1997....................................................... \1\ 670 1998....................................................... \1\ 690 1999....................................................... \1\ 720 2000....................................................... \1\ 750 2001....................................................... \1\ 780 ------------------------------------------------------------------------ \1\ Based on economic assumptions in the 1996 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. Source: Office of the Actuary, Social Security Administration. For the purpose of the OASI Program, there are two types of insured status: ``fully insured'' and ``currently insured.'' Workers are fully insured for benefits for themselves and for their eligible dependents if they have earned one quarter of coverage for each year elapsing after the year they reached age 21 up to the year in which they reach age 62, become disabled, or die. Fully-insured status is required for eligibility for all types of benefits except certain survivor benefits. No matter how young, a worker must have at least six quarters of coverage to be fully insured, with the minimum number increasing with age. A worker with 40 quarters of coverage is fully insured for life. Survivors of a worker who was not fully insured may still be eligible for benefits if the worker was currently insured. Workers are currently insured if they have six quarters of coverage during the thirteen calendar quarters ending with the quarter in which they died. Workers are insured for disability if they are fully insured and have a total of at least 20 quarters of coverage during the 40-quarter period ending with the quarter in which they became disabled. Workers who are disabled before age 31 are insured for disability if they have total quarters of coverage equal to half the calendar quarters which have elapsed since the worker reached age 21, ending in the quarter in which they became disabled. However, a minimum of 6 quarters of coverge is required. Age Workers must be at least age 62 to be eligible for retirement benefits. There is no minimum age requirement for disability benefits, but disabled workers who attain the ``full retirement age'' (see below) automatically receive full retirement benefits, rather than disability benefits. Disability benefits are computed as if the worker reached full retirement age on the day he became totally disabled. Disability Definition Generally, disability is defined as the inability to engage in substantial gainful activity by reason of a physical or mental impairment. The impairment must be medically determinable and expected to last for not less than 12 months, or to result in death. Applicants may be determined to be disabled only if, due to such an impairment, they are unable to engage in any kind of substantial gainful work, considering their age, education, and work experience. The work need not exist in the immediate area in which the applicant lives, nor must a specific job vacancy exist for the individual. Moreover, no showing is required that the worker would be hired for the job if she applied. There are special definition and eligibility requirements for persons who are blind, which are described in the section on ``Determination of Disability Benefits.'' The Commissioner \1\ has specific regulatory authority to prescribe the criteria for determining when earnings derived from employment demonstrate an individual's ability to engage in substantial gainful activity (SGA). --------------------------------------------------------------------------- \1\ Throughout the remainder of this section when Commissioner is used, it is the Commissioner of Social Security. --------------------------------------------------------------------------- Effective January 1, 1990, the SGA earnings level was raised to $500 a month (net of impairment-related work expenses), based on regulations published by the Commissioner. Table 1-7 shows SGA amounts applicable to nonblind disabled workers since 1968. TABLE 1-7.--MONTHLY SGA AMOUNTS SINCE 1968 ------------------------------------------------------------------------ Year SGA ------------------------------------------------------------------------ July 1968-73.................................................... $140 1974-75......................................................... 200 1976............................................................ 230 1977............................................................ 240 1978............................................................ 260 1979............................................................ 280 1980-89......................................................... 300 1990 and thereafter............................................. 500 ------------------------------------------------------------------------ Source: Office of Research and Statistics, Social Security Administration. Waiting period An initial 5-month waiting period is required before DI benefits are paid. Benefits are payable beginning with the sixth full month of disability. However, benefits may be paid for the first full month of disability to a worker who becomes disabled within 60 months after termination of DI benefits from an earlier period of disability (for a disabled widow or widower the period is 84 months). Work incentive provisions The law provides a 45-month period for disabled beneficiaries to test their ability to work without losing their entitlement to all benefits. The period consists of (1) a ``trial work period'' (TWP), which allows disabled beneficiaries to work for up to 9 months (within a 5-year period) \2\ with no effect on their disability or Medicare benefits; followed by (2) a 36-month ``extended period of eligibility,'' during the last 33 of which cash disability benefits are suspended for any month in which the individual is engaged in SGA. Medicare coverage continues so long as the individual remains entitled to disability benefits and, depending on when the last month of SGA occurs, may continue for 3 to 24 months after entitlement to disability benefits ends. When Medicare entitlement ends because of the individual's work activity, but she is still medically disabled, she may purchase Medicare protection. --------------------------------------------------------------------------- \2\ Only one TWP is allowed in any one period of disability. The TWP is completed only if the 9 months are within a 60-month period. By regulation, earnings of more than $200 a month constitute ``trial work.'' --------------------------------------------------------------------------- If beneficiaries medically recover to the extent that they no longer meet the definition of disability, disability and Medicare benefits are terminated 3 months thereafter, regardless of the status of their trial work period or extended period of eligibility. However, persons who contest this determination may elect to continue to receive disability benefits (subject to recovery) and Medicare benefits while their appeal is being reviewed. Eligibility for Dependents and Survivors Dependents' benefits are payable in addition to benefits payable to the worker. Spouse's benefit A benefit is payable to a spouse of a retired or disabled worker under one of the following conditions: (1) currently- married spouse is at least 62 or is caring for one or more of the worker's entitled children who are disabled or have not reached age 16; or (2) divorced spouse is at least 62, is not married, and the marriage had lasted at least 10 years before the divorce became final. A divorced spouse may be entitled independently of the worker's retirement if both the worker and divorced spouse are age 62, and if the divorce has been final for at least 2 years. Widow(er)'s benefit A monthly survivor benefit is payable to a widow(er) or divorced spouse of a worker who was fully insured at the time of death. The widow(er) or divorced spouse must be unmarried (unless the remarriage occurred after the widow(er) first became eligible for benefits as a widow(er)); and must be either (a) age 60 or older or (b) age 50-59 and disabled throughout a waiting period of 5 consecutive calendar months that began no later than 7 years after the month the worker died or after the end of his or her entitlement to benefits as a widowed mother or father. Child's benefit A monthly benefit is payable to an unmarried child, or eligible dependent grandchild, of a retired, disabled, or deceased worker who was fully or currently insured at death. The child or grandchild must be either: (1) under age 18; (2) a full-time elementary or secondary student under age 19; or (3) a disabled person age 18 or over whose disability began before age 22. A grandchild is eligible for benefits on a grandparent's earnings record if the grandchild was adopted by the grandparent and may be entitled under certain circumstances if there is no adoption. If adopted by the surviving spouse of that grandparent, the child would be eligible if he lived with or received one-half support from the grandparent prior to the grandparent's death. Mother's/father's benefit A monthly survivor benefit is payable to a mother (father) or surviving divorced mother (father) if: (1) the deceased worker on whose account the benefit is payable was fully or currently insured at time of death and (2) the mother (father) or surviving divorced mother (father) is not married and has one or more entitled children of the worker in his or her care. These payments continue as long as the youngest child being cared for is under age 16 or disabled (see ``Child's benefit'' above). Parent's benefit A monthly survivor benefit is payable to a parent, age 62 or over, of a deceased fully-insured worker. The worker must have been providing at least one-half of the parent's support. Lump-sum death benefit A one-time lump-sum benefit of $255 is payable upon the death of a fully or currently-insured worker to the surviving spouse who was living with the deceased worker or was eligible to receive monthly cash survivor benefits upon the worker's death. If there is no eligible spouse, the lump-sum death benefit is payable to any child of the deceased worker who is eligible to receive monthly cash benefits as a surviving child. If there is no surviving spouse, or children of the worker eligible for monthly benefits, then the lump-sum death benefit is not paid. [See table 1-7a for 1995 OASDI beneficiary statistics; table 1-7b for OASDI benefits paid 1940-95; table 1-7c for monthly benefit amounts for selected families; and the ``Benefit Computation'' section for further information on AIME.] TABLE 1-7a.--OASDI BENEFICIARIES IN CURRENT PAYMENT STATUS AND NEW AWARDS, DECEMBER 1995 ---------------------------------------------------------------------------------------------------------------- Number in Number of current Percent of Average new awards Average payment beneficiary monthly (in new award (thousands) population benefit thousands) ---------------------------------------------------------------------------------------------------------------- Retired workers..................................... 26,673 61.5 $720 1,609 $689 Wives and husbands of retired workers............... 3,026 7.0 370 259 334 Children of retired workers......................... 442 1.0 322 101 298 Disabled workers.................................... 4,185 9.6 682 646 694 Wives and husbands of disabled workers.............. 264 0.6 164 63 175 Children of disabled workers........................ 1,409 3.2 183 401 176 Widowed mothers and fathers......................... 275 0.6 478 52 464 Surviving children.................................. 1,884 4.3 469 306 464 Widows and widowers................................. 5,052 11.6 680 415 667 Disabled widow(er)s................................. 173 0.4 458 30 458 Parents............................................. 4 (\1\) 591 (\2\) 607 Special age-72...................................... 1 (\1\) 192 (\2\) 136 ----------------------------------------------------------- Totals and averages........................... 43,387 100.0 $649 3,382 $587 ---------------------------------------------------------------------------------------------------------------- \1\ Less than 0.05 percent. \2\ Fewer than 500. Source: Office of Research and Statistics, Social Security Administration. TABLE 1-7b.--OASDI BENEFITS PAID, 1940-95 [In millions of dollars] ------------------------------------------------------------------------ Year OASDI OASI DI ------------------------------------------------------------------------ 1940................................... $35 $35 ......... 1950................................... 961 961 ......... 1960................................... 11,245 10,677 $568 1970................................... 31,863 28,796 3,067 1980................................... 120,511 105,074 15,437 1985 \1\............................... 186,196 167,360 18,836 1990 \1\............................... 247,796 222,993 24,803 1991 \1\............................... 268,098 240,436 27,662 1992 \1\............................... 286,030 254,939 31,091 1993 \1\............................... 302,402 267,804 34,598 1994 \1\............................... 316,772 279,068 37,704 1995 \1\............................... 332,580 291,682 40,898 ------------------------------------------------------------------------ \1\ Unnegotiated checks not deducted. Source: Office of Research and Statistics, Social Security Administration. BENEFIT COMPUTATION All monthly benefits are computed based on a worker's primary insurance amount (PIA). The PIA is a monthly amount based on the application of the Social Security benefit formula to a worker's average lifetime covered earnings. It is also the monthly benefit amount payable to a worker who retires at the full retirement age, or becomes entitled to disability benefits. Full Retirement Age Benefits for retired workers, aged spouses and widow(er)s taken before the ``full retirement age'' are subject to an actuarial reduction. The full retirement age is the earliest age at which unreduced retirement benefits can be received. The full retirement age currently is age 65, but it will gradually rise in two steps beginning in the next century. First, the full retirement age will increase by 2 months for each year that a person is born after 1937, until it reaches age 66 for those who were born in 1943. Second, it will increase again by 2 months for each year that a person is born after 1954, until it reaches age 67 for those who were born after 1959. Early retirement still will be available, beginning at age 62 for workers and their spouses, and at age 60 for widow(er)s, but benefits will be lower. The actuarial reduction on retirement benefits at age 62 ultimately will be 30 percent, instead of the present 20 percent. The age for full benefits for aged spouses and widow(er)s likewise will rise to 67. Benefits of workers who choose to retire after their full retirement age are increased by ``delayed retirement credits,'' as are the benefits payable to their widow(er)s. The delayed retirement credit is 1 percent per year for workers who attained age 65 before 1982, and 3 percent per year for workers who attained age 65 between 1982 and 1989. Starting in 1990, the delayed retirement credit increases by one-half of 1 percent every other year until it reaches 8 percent for workers reaching age 65 after 2007 (see section on ``Benefit Reduction and Increase''). Table 1-8 shows the schedule of increases in the full retirement age and delayed retirement credits for workers. TABLE 1-7c.--MONTHLY BENEFIT AMOUNTS FOR SELECTED BENEFICIARY FAMILIES WITH FIRST ELIGIBILITY IN 1995, FOR SELECTED WAGE LEVELS, DECEMBER 1995 ------------------------------------------------------------------------ Worker with yearly earnings equal to ----------------------------------- Beneficiary family Federal Maximum minimum Average taxable wage \1\ wage \2\ earnings \3\ ------------------------------------------------------------------------ RETIRED WORKER FAMILIES: \4\ Average indexed monthly earnings.... $969.00 $1,929.00 $3,493.00 Primary insurance amount............ 571.50 886.70 1,238.70 Maximum family benefit.............. 873.70 1,618.70 2,167.60 Monthly benefit amount: Retired worker claiming benefits: Worker alone at age 62 \4\.... 457.00 709.00 990.00 Worker at age 62 with spouse \4\.......................... 671.00 1,041.00 1,454.00 Worker at age 65 with spouse.. 742.00 1,152.00 1,609.00 SURVIVOR FAMILIES: \5\ Average indexed monthly earnings.... 873.00 1,931.00 4,627.00 Primary insurance amount............ 540.00 887.40 1,413.30 Maximum family benefit.............. 810.10 1,619.70 2,473.00 Monthly benefit amount: Survivors of worker deceased at age 40: \5\ One surviving child........... 405.00 665.00 1,059.00 Widowed mother/father and one child........................ 810.00 1,330.00 2,118.00 Widowed mother/father and two children..................... 810.00 1,617.00 2,472.00 DISABLED WORKER FAMILIES: \6\ Average indexed monthly earnings.... 927.00 1,929.00 4,069.00 Primary insurance amount............ 557.80 886.70 1,327.40 Disability maximum family benefit \7\................................ 808.30 1,330.10 1,991.10 Monthly benefit amount: Disabled worker age 50: \6\ Worker alone.................. 557.00 886.00 1,327.00 Worker, spouse, and one child. 807.00 1,328.00 1,989.00 ------------------------------------------------------------------------ \1\ Annual earnings are calculated by multiplying the Federal minimum hourly wage ($4.25 when this table was prepared) by 2,080 hours. In 1996, Congress increased the minimum wage in two stages to $5.15 per hour as part of Public Law 104-188. This increase will be reflected in benefit calculations for this table beginning with the fourth quarter of 1996. \2\ Worker earned the national average wage in each year used in the computation of the benefit. \3\ Worker earned the maximum amount of wages that can be credited to a worker's Social Security record in all years used in the computation of the benefit. \4\ Assumes the worker began to work at age 22, retired at age 62 in 1995 with maximum reduction, and had no prior period of disability. \5\ Assumes the deceased worker began to work at age 22, died in 1995 at age 40, had no earnings in that year, and had no prior period of disability. \6\ Assumes the worker began work at age 22, became disabled at age 50, and had no prior disability. \7\ The 1980 amendments to the Social Security Act provide for different family maximum amount for disability cases. For disabled workers entitled after June 1980, the maximum is the smaller of (1) 85 percent of the worker's AIME (or 100 percent of the PIA, if larger) or (2) 150 percent of the PIA. Source: Social Security Administration. TABLE 1-8.--INCREASES IN FULL RETIREMENT AGE AND DELAYED RETIREMENT CREDITS, WITH RESULTING BENEFIT, AS A PERCENT OF PRIMARY INSURANCE AMOUNT [PIA], PAYABLE AT SELECTED AGES, FOR PERSONS BORN IN 1924 OR LATER -------------------------------------------------------------------------------------------------------------------------------------------------------- Credit for each Benefit, as a percent of PIA, beginning at age-- year of delayed --------------------------------------------------------- Year of birth Age 62 attained in-- ``Normal retirement retirement age'' after normal 62 65 66 67 70 retirement age -------------------------------------------------------------------------------------------------------------------------------------------------------- 1924............................. 1986................ 65.................. 3 80 100 103 106 115 1925-26.......................... 1987-88............. 65.................. 3\1/2\ 80 100 103\1/2\ 107 117\1/2\ 1927-28.......................... 1989-90............. 65.................. 4 80 100 104 108 120 1929-30.......................... 1991-92............. 65.................. 4\1/2\ 80 100 104\1/2\ 109 122\1/2\ 1931-32.......................... 1993-94............. 65.................. 5 80 100 105 110 125 1933-34.......................... 1995-96............. 65.................. 5\1/2\ 80 100 105\1/2\ 111 127\1/2\ 1935-36.......................... 1997-98............. 65.................. 6 80 100 106 112 130 1937............................. 1999................ 65.................. 6\1/2\ 80 100 106\1/2\ 113 132\1/2\ 1938............................. 2000................ 65, 2 mo............ 6\1/2\ 79\1/6\ 98\8/9\ 105\5/12\ 111\11/12\ 131\5/12\ 1939............................. 2001................ 65, 4 mo............ 7 78\1/3\ 97\7/9\ 104\2/3\ 111\2/3\ 132\2/3\ 1940............................. 2002................ 65, 6 mo............ 7 77\1/2\ 96\2/3\ 103\1/2\ 110\1/2\ 131\1/2\ 1941............................. 2003................ 65, 8 mo............ 7\1/2\ 76\2/3\ 95\5/9\ 102\1/2\ 110 132\1/2\ 1942............................. 2004................ 65, 10 mo........... 7\1/2\ 75\5/6\ 94\4/9\ 101\1/4\ 108\3/4\ 131\1/4\ 1943-54.......................... 2005-16............. 66.................. 8 75 93\1/3\ 100 108 132 1955............................. 2017................ 66, 2 mo............ 8 74\1/6\ 92\2/9\ 98\8/9\ 106\2/3\ 130\2/3\ 1956............................. 2018................ 66, 4 mo............ 8 73\1/3\ 91\1/9\ 97\7/9\ 105\1/3\ 129\1/3\ 1957............................. 2019................ 66, 6 mo............ 8 72\1/2\ 90 96\2/3\ 104 128 1958............................. 2020................ 66, 8 mo............ 8 71\2/3\ 88\8/9\ 95\5/9\ 102\2/3\ 126\2/3\ 1959............................. 2021................ 66, 10 mo........... 8 70\5/6\ 87\7/9\ 94\4/9\ 101\1/3\ 125\1/3\ 1960 or later.................... 2022 or later....... 67.................. 8 70 86\2/3\ 93\1/3\ 100 124 -------------------------------------------------------------------------------------------------------------------------------------------------------- Source: Ballantyne (1984). Trends in Retirement Age Table 1-9 shows the percentage of workers who elected to receive retirement benefits at selected ages since the beginning of the Social Security Program. It clearly illustrates a trend toward early retirement. Retirement at age 62 has become the norm. Reduced benefits were not available to women until 1956, and to men until 1961. Table 1-10 shows the percentage of retired workers electing reduced benefits since they first became available. TABLE 1-9.--PERCENTAGE OF WORKERS ELECTING SOCIAL SECURITY RETIREMENT BENEFITS AT VARIOUS AGES SINCE 1940 \1\ ---------------------------------------------------------------------------------------------------------------- Ages 63- Ages Average Year Age 62 64 Age 65 66+ age ---------------------------------------------------------------------------------------------------------------- 1940............................................................... (\2\) (\2\) 8.3 91.7 68.8 1945............................................................... (\2\) (\2\) 17.9 82.1 69.6 1950............................................................... (\2\) (\2\) 23.1 76.9 68.7 1955............................................................... (\2\) (\2\) 41.2 58.8 68.4 1960............................................................... 10.0 7.9 35.3 46.7 66.8 1965............................................................... 23.0 17.7 23.4 35.9 65.8 1970............................................................... 27.8 23.2 36.9 12.1 64.4 1975............................................................... 35.7 24.5 31.1 8.7 64.0 1980............................................................... 40.5 22.2 30.7 6.6 63.9 1985............................................................... 57.2 21.1 17.7 4.0 63.7 1990............................................................... 56.6 20.2 16.6 6.7 63.7 1994............................................................... 58.9 20.0 15.7 5.4 63.6 ---------------------------------------------------------------------------------------------------------------- \1\ Excludes conversions at age 65 from disability to retirement rolls. \2\ Retirement before age 65 was not available. Source: Congressional Research Service and Social Security Administration. Trends in Longevity Table 1-11 shows how life expectancies have increased since Social Security benefits were first paid in 1940, and what they are projected to be in the future, as well as fertility and death rates. Average Indexed Monthly Earnings Except for workers who became eligible for benefits before 1984, or who are eligible for a ``Special Minimum Benefit'' (see below), the primary insurance amount (PIA) is determined through a formula applied to the worker's average indexed monthly earnings (AIME). The AIME is a dollar amount that represents the average monthly earnings from Social Security- covered employment over most of the worker's adult life indexed to the increase in average annual wages. Indexing the earnings to changes in wage levels ensures that the same relative value is accorded to wages no matter when earned. Because actual average-wage data take over a year to become available, past earnings are updated to the second calendar year (the ``indexing year'') before the worker becomes eligible for retirement (age 62) or, if earlier, becomes disabled or dies. This means that the year a worker turns age 60 is used as the indexing year for computing retirement benefits. Earnings in and after the indexing year are not indexed. TABLE 1-10.--NUMBER OF SOCIAL SECURITY RETIRED WORKER NEW BENEFIT AWARDS AND PERCENT RECEIVING REDUCED BENEFITS BECAUSE OF ENTITLEMENT BEFORE AGE 65, AS OF DECEMBER OF GIVEN YEAR \1\ [Numbers in millions] ---------------------------------------------------------------------------------------------------------------- Total Men Women Year \1\ ----------------------------------------------------- Number Percent Number Percent Number Percent ---------------------------------------------------------------------------------------------------------------- 1956...................................................... 0.9 12 0.6 ....... 0.4 31 1960...................................................... 1.0 21 0.6 ....... 0.4 60 1965...................................................... 1.2 49 0.7 43 0.4 60 1970...................................................... 1.3 63 0.8 57 0.5 72 1975...................................................... 1.5 73 0.9 69 0.6 79 1980...................................................... 1.6 76 0.9 73 0.7 80 1985...................................................... 1.7 74 1.0 70 0.7 79 1986...................................................... 1.7 74 1.0 71 0.7 79 1987...................................................... 1.7 74 1.0 71 0.7 79 1988...................................................... 1.6 74 0.9 70 0.7 78 1989...................................................... 1.7 73 1.0 69 0.7 78 1990...................................................... 1.7 74 1.0 71 0.7 78 1991...................................................... 1.7 72 1.0 69 0.7 76 1992...................................................... 1.7 72 1.0 69 0.7 76 1993...................................................... 1.7 72 1.0 70 0.7 75 1994...................................................... 1.6 73 0.9 70 0.7 76 1995...................................................... 1.6 72 0.9 69 0.7 75 ---------------------------------------------------------------------------------------------------------------- \1\ Data for 1985-90 based on a 1-percent sample; data for other years based on 100 percent. Includes conversions at age 65 from disability to retirement rolls. Source: Office of Research and Statistics, Social Security Administration. TABLE 1-11.--SELECTED DEMOGRAPHIC ASSUMPTIONS, 1940-2070 ---------------------------------------------------------------------------------------------------------------- Age-sex- Life expectancy \3\ adjusted ----------------------------------- Total death rate All birth At age 65 Calendar year fertility \2\ (per ----------------------------------- rate \1\ 100,000) Male Female Male Female ---------------------------------------------------------------------------------------------------------------- 1940............................................... 2.23 1,532.8 61.4 65.7 11.9 13.4 1945............................................... 2.42 1,366.4 62.9 68.4 12.6 14.4 1950............................................... 3.03 1,225.3 65.6 71.1 12.8 15.1 1955............................................... 3.50 1,134.2 66.7 72.8 13.1 15.6 1960............................................... 3.61 1,128.6 66.7 73.2 12.9 15.9 1965............................................... 2.88 1,103.6 66.8 73.8 12.9 16.3 1970............................................... 2.43 1,041.8 67.1 74.9 13.1 17.1 1975............................................... 1.77 934.0 68.7 76.6 13.7 18.0 1976............................................... 1.74 923.2 69.1 76.8 13.7 18.1 1977............................................... 1.79 898.0 69.4 77.2 13.9 18.3 1978............................................... 1.76 892.4 69.6 77.2 13.9 18.3 1979............................................... 1.82 864.2 70.0 77.7 14.2 18.6 1980............................................... 1.85 878.1 69.9 77.5 14.0 18.4 1981............................................... 1.83 853.8 70.4 77.8 14.2 18.6 1982............................................... 1.83 828.5 70.8 78.2 14.5 18.8 1983............................................... 1.81 836.1 70.9 78.1 14.3 18.6 1984............................................... 1.80 829.6 71.1 78.2 14.4 18.7 1985............................................... 1.84 831.8 71.1 78.2 14.4 18.6 1986............................................... 1.84 824.8 71.1 78.3 14.5 18.7 1987............................................... 1.87 816.1 71.3 78.4 14.6 18.7 1988............................................... 1.93 824.5 71.2 78.3 14.6 18.7 1989............................................... 2.01 804.1 71.5 78.6 14.8 18.9 1990............................................... 2.07 789.0 71.8 78.8 15.0 19.0 1991............................................... 2.07 778.8 71.9 78.9 15.1 19.1 1992 \4\........................................... 2.06 764.3 72.2 79.2 15.2 19.3 1993 \4\........................................... 2.04 784.2 71.9 78.9 15.1 19.0 1994 \4\........................................... 2.04 775.9 72.2 79.0 15.3 19.0 1995 \4\........................................... 2.04 763.8 72.3 79.2 15.4 19.2 1996............................................... 2.03 757.0 72.5 79.3 15.4 19.2 2000............................................... 2.02 731.3 73.0 79.7 15.6 19.4 2005............................................... 1.99 700.5 73.9 80.2 15.9 19.5 2010............................................... 1.96 677.3 74.5 80.5 16.1 19.7 2015............................................... 1.93 657.4 74.9 80.9 16.3 19.9 2020............................................... 1.90 638.4 75.3 81.2 16.5 20.1 2025............................................... 1.90 620.4 75.6 81.5 16.7 20.3 2030............................................... 1.90 603.2 76.0 81.8 16.9 20.5 2035............................................... 1.90 587.0 76.3 82.1 17.1 20.7 2040............................................... 1.90 571.5 76.6 82.4 17.3 21.0 2045............................................... 1.90 556.7 76.9 82.7 17.5 21.2 2050............................................... 1.90 542.7 77.2 83.0 17.7 21.4 2055............................................... 1.90 529.3 77.5 83.3 17.9 21.6 2060............................................... 1.90 516.5 77.8 83.6 18.0 21.8 2065............................................... 1.90 504.3 78.1 83.8 18.2 22.0 2070............................................... 1.90 492.6 78.4 84.1 18.4 22.2 ---------------------------------------------------------------------------------------------------------------- \1\ The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period. The ultimate total fertility rate is assumed to be reached in 2020. \2\ The age-sex-adjusted death rate is the crude rate that would occur in the enumerated total population as of April 1, 1980, if that population were to experience the death rates by age and sex observed in, or assumed for, the selected year. \3\ The life expectancy for any year is the average number of years of life remaining for a person if that person were to experience the death rates by age observed in, or assumed for, the selected year. \4\ Preliminary or estimated. Source: Board of Trustees (1996), intermediate assumptions. There are several steps in determining the AIME: (1) the ``index'' for a worker's earnings is determined by multiplying the earnings for a given year by the ratio of the average wage for the indexing year divided by the average wage for that year; and (2) the number of ``computation years'' is based on the number of years elapsing after 1950 (or year of attainment of age 21, if later) up to the year the worker attains age 62, becomes disabled, or dies, minus any ``dropout'' years. There are five dropout years in retirement and survivor computations (for workers disabled before age 47, the number of dropout years varies from one to four, depending on the worker's age and number of child care dropout years). The minimum number of computation years is two. The computation years are selected from the highest indexed yearly earnings in all years of earnings after 1950, up to a maximum of 35 years. (The highest 35 years are selected in computing retirement benefits for all workers born after 1929.) The sum of the indexed earnings in the selected years is divided by the number of months in the computation period (i.e, the number of the selected years times 12) to determine the AIME. The indexed earnings histories (rounded to whole dollars) are illustrated in table 1-12 for three hypothetical workers retiring in 1996 at age 62. The actual earnings for the three workers are shown in the first three columns. These are multiplied by the indexing factor (column 4) to arrive at indexed earnings (last 3 columns of table 1-12). The indexing factor for 1960 is based on average wages when the individual turned 60 ($23,753.53), divided by average wages for 1960 ($4,007.12). The highest 35 years of indexed earnings are used. For example, a lifelong full-time worker who had maximum creditable earnings would drop low earnings in 1958, 1962, 1963, 1964, and 1965, and would have total indexed earnings of $1,536,031 (see table 1-12). Dividing this by the number of months in the computation period (35 years 12 months = 420 months) results in average indexed monthly earnings (AIME) of $3,657. The corresponding AIMEs for the average and low earners are $1,981 and $891, respectively. Low earners are defined as earning 45 percent of the average wage. Benefit Formula The Primary Insurance Amount (PIA) is determined by applying the ``primary benefit formula'' to the AIME. For a worker becoming eligible in 1996, the PIA is determined as follows: ------------------------------------------------------------------------ Average indexed monthly Factor earnings ------------------------------------------------------------------------ 90 percent................................ first $437, plus 32 percent................................ $437 through $2,635, plus 15 percent................................ over $2,635 ------------------------------------------------------------------------ Applying this formula to the AIMEs of the three hypothetical workers results in PIAs of $538.50 for the low- wage worker, $887.30 for the average-wage worker, and $1,249.90 for the maximum-wage worker. (For the low-wage worker, the 1996 special minimum benefit (see below) PIA of $532.90 is less than AIME-based PIA of $538.50, and therefore is not used to determine his or her benefits.) The numbers $437 and $2,635 are often referred to as ``bend points'' of the PIA formula. These are adjusted each year by the change in average wages. After the year of initial eligibility (age 62 for retired workers), the PIA is increased each year for the increase in the Consumer Price Index (CPI). The PIAs of $538.50, $887.30, and $1,249.90 would be in effect for January through November 1996, and will be increased by the cost-of-living adjustment effective beginning December 1996. TABLE 1-12.--EARNINGS HISTORIES FOR HYPOTHETICAL WORKERS AGE 62 IN 1996 [Rounded to nearest dollar] ---------------------------------------------------------------------------------------------------------------- Nominal earnings Indexed earnings Year ------------------------------------ Indexing ----------------------------------- Low \1\ Average \2\ Maximum \3\ factor Low \1\ Average \2\ Maximum \3\ ---------------------------------------------------------------------------------------------------------------- 1956.......................... 1,590 3,532 4,200 6.7245 \4\ 10,6 89 \4\ 23,754 28,243 1957.......................... 1,639 3,642 4,200 6.5226 \4\ 10,6 89 \4\ 23,754 27,395 1958.......................... 1,653 3,674 4,200 6.4657 \4\ 10,6 89 \4\ 23,754 \4\ 27,156 1959.......................... 1,735 3,856 4,800 6.1605 \4\ 10,6 89 \4\ 23,754 29,570 1960.......................... 1,803 4,007 4,800 5.9278 \4\ 10,6 89 \4\ 23,754 28,454 1961.......................... 1,839 4,087 4,800 5.8123 10,689 23,754 27,899 1962.......................... 1,931 4,291 4,800 5.5351 10,689 23,754 \4\ 26,569 1963.......................... 1,978 4,397 4,800 5.4027 10,689 23,754 \4\ 25,933 1964.......................... 2,059 4,576 4,800 5.1905 10,689 23,754 \4\ 24,915 1965.......................... 2,096 4,659 4,800 5.0987 10,689 23,754 \4\ 24,474 1966.......................... 2,222 4,938 6,600 4.8100 10,689 23,754 31,746 1967.......................... 2,346 5,213 6,600 4.5562 10,689 23,754 30,071 1968.......................... 2,507 5,572 7,800 4.2632 10,689 23,754 33,253 1969.......................... 2,652 5,894 7,800 4.0303 10,689 23,754 31,436 1970.......................... 2,784 6,186 7,800 3.8397 10,689 23,754 29,950 1971.......................... 2,924 6,497 7,800 3.6560 10,689 23,754 28,517 1972.......................... 3,210 7,134 9,000 3.3297 10,689 23,754 29,967 1973.......................... 3,411 7,580 10,800 3.1336 10,689 23,754 33,843 1974.......................... 3,614 8,031 13,200 2.9578 10,689 23,754 39,043 1975.......................... 3,884 8,631 14,100 2.7521 10,689 23,754 38,805 1976.......................... 4,152 9,226 15,300 2.5745 10,689 23,754 39,390 1977.......................... 4,401 9,779 16,500 2.4289 10,689 23,754 40,077 1978.......................... 4,750 10,556 17,700 2.2502 10,689 23,754 39,829 1979.......................... 5,166 11,479 22,900 2.0692 10,689 23,754 47,385 1980.......................... 5,631 12,513 25,900 1.8982 10,689 23,754 49,164 1981.......................... 6,198 13,773 29,700 1.7246 10,689 23,754 51,222 1982.......................... 6,539 14,531 32,400 1.6346 10,689 23,754 52,962 1983.......................... 6,858 15,239 35,700 1.5587 10,689 23,754 55,646 1984.......................... 7,261 16,135 37,800 1.4722 10,689 23,754 55,648 1985.......................... 7,570 16,823 39,600 1.4120 10,689 23,754 55,916 1986.......................... 7,795 17,322 42,000 1.3713 10,689 23,754 57,595 1987.......................... 8,292 18,427 43,800 1.2891 10,689 23,754 56,462 1988.......................... 8,700 19,334 45,000 1.2286 10,689 23,754 55,286 1989.......................... 9,045 20,100 48,000 1.1818 10,689 23,754 56,726 1990.......................... 9,463 21,028 51,300 1.1296 10,689 23,754 57,949 1991.......................... 9,815 21,812 53,400 1.0890 10,689 23,754 58,154 1992.......................... 10,321 22,935 55,500 1.0357 10,689 23,754 57,480 1993.......................... 10,410 23,133 57,600 1.0268 10,689 23,754 59,146 1994.......................... 10,689 23,754 60,600 1.0000 10,689 23,754 60,600 1995.......................... \5\ 11,1 03 \5\ 24,673 61,200 1.0000 \5\ 11,1 03 \5\ 24,673 61,200 ---------------------------------------------------------------------------------------------------------------- \1\ Worker with earnings equal to 45 percent of the Social Security average wage index. \2\ Worker with earnings equal to the Social Security average wage index. \3\ Worker with earnings equal to the Social Security maximum taxable earnings. \4\ Dropout years. \5\ Estimated. Source: Office of the Actuary, Social Security Administration. The PIA is recomputed after each year that an entitled worker has earnings that may lead to a higher benefit. Other methods for determining a PIA also exist, and PIAs based on different methods must be compared to select the highest one, which is used to determine the worker's benefits. The most common of these other methods is the one used to determine the special minimum PIA. This PIA is designed to assist workers with long-term low earnings. Special Minimum Benefit The special minimum benefit is not based on the amount of a worker's average earnings, but instead on his or her number of years of covered employment. It is structured to provide a larger benefit than would otherwise be payable to those who worked in covered employment for many years but had low earnings. The amount of the special minimum is computed by multiplying the number of years of coverage in excess of 10 years and up to 30 years by $11.50 for monthly benefits payable in 1979, with automatic cost-of-living increases applicable to years 1979 and later. The number of years of coverage for the purpose of qualifying for a special minimum benefit equals the number obtained by dividing total creditable wages in 1937-50 by $900 (not to exceed 14), plus the number of years after 1950 and before 1991 for which the worker is credited with at least 25 percent of the annual maximum taxable earnings. For this purpose, for years after 1978, annual maximum taxable earnings are defined as the ``old-law'' taxable earnings base (i.e., the hypothetical earnings base that would be in effect if the ad hoc increases in the base enacted in 1977 were disregarded). In addition, for years after 1990, a year of coverage is earned if the worker is credited with at least 15 percent of the ``old- law'' taxable earnings base. The special minimum benefit is not subject to the delayed retirement credit provisions described earlier. BENEFIT AMOUNTS The monthly benefit amount payable to a disabled worker under age 65, or to a retired worker who first receives benefits at the full retirement age, is the PIA rounded to the next lower dollar, if not already a multiple of $1. Auxiliary benefit amounts are also based on the worker's PIA. Table 1-13 lists major types of benefits and the percent of the insured worker's PIA that is applicable to benefits paid at the full rate, unreduced for early election of retirement. REPLACEMENT RATES Frequently, Social Security benefits are discussed in terms of how much of a person's preretirement earnings the benefits represent. Benefits expressed as a percent of a person's earnings in the year before retirement are called replacement rates. Table 1-14 shows replacement rates based on the benefits of hypothetical workers who retired at the full retirement age after full-time careers with steady earnings equal to: (1) 45 percent of average earnings in the economy as recorded through the Social Security average wage index (low earner); (2) 100 percent of average earnings in the economy (average earner); and (3) the Social Security maximum taxable earnings base (maximum earner). TABLE 1-13.--PERCENTAGE OF PRIMARY INSURANCE AMOUNT (PIA) PAID FOR DEPENDENTS' AND SURVIVORS' BENEFITS ------------------------------------------------------------------------ Percent Type of monthly benefit of PIA ------------------------------------------------------------------------ Dependents: \1\ Wives, husbands--age 65..................................... \3\ 50.0 Mothers, fathers, children, grandchildren................... 50.0 Survivors: \1\ Widows, widowers--age 65 \2\................................ \3\ 100. 0 Dependent parent--age 62.................................... 82.5 Widows, widowers--age 60; disabled--ages 50-59.............. 71.5 Mothers, fathers, children.................................. 75.0 ------------------------------------------------------------------------ \1\ Subject to maximum family benefit limitation. \2\ Subject to general limitation that the survivor cannot get a higher benefit than the deceased worker would be getting if alive. \3\ These percentages decrease as the full retirement age increases for workers born after 1937. Source: Congressional Research Service. BENEFIT REDUCTION AND INCREASE Social Security benefits may be reduced, withheld, or increased for various reasons. Dual Entitlement An individual may be entitled to benefits both as a worker, based on his or her own earnings, and also as a dependent (spouse or widow(er)) of another worker. In these cases, the individual does not collect both benefits. The amount of the benefit as a spouse or widow(er) is offset dollar for dollar by the amount of any benefit the individual is entitled to as a worker. In other words, she first always receives the benefit based on his or her work record, and the dependent benefit is payable only to the extent it is greater than the worker benefit. In effect, the total amount ``dually entitled'' recipients receive is equal to the larger of the two benefits. Actuarial Reduction This term is used to signify that the reduction imposed on ``early retirement'' benefits is approximately one that will, if the recipient lives a normal lifespan, lead to the same total lifetime benefits as would be paid if the person chose ``full retirement'' benefits. It applies to: entitlement before the full retirement age for retired workers; spouses (including divorced spouses) of a retired or disabled worker (if entitlement is not based on having a child beneficiary in their care); and widows, widowers, and surviving divorced spouses. At the time of initial entitlement, reductions in benefit amounts are made for these benefit categories, as described below. TABLE 1-14.--SOCIAL SECURITY REPLACEMENT RATES, 1940-2040 [In percent] ---------------------------------------------------------------------------------------------------------------- Year of Replacement rates \1\ attaining ----------------------------------- Year of birth normal retirement Low earner Average Maximum age \2\ \3\ earner \4\ earner \5\ ---------------------------------------------------------------------------------------------------------------- 1875............................................................ 1940 39.4 26.2 16.5 1885............................................................ 1950 33.2 19.7 21.2 1895............................................................ 1960 49.1 33.3 29.8 1900............................................................ 1965 45.6 31.4 32.9 1905............................................................ 1970 48.5 34.3 29.2 1910............................................................ 1975 \7\ 59.9 42.3 30.1 1911............................................................ 1976 60.1 43.7 32.1 1912............................................................ 1977 61.0 44.8 33.5 1913............................................................ 1978 63.4 46.7 34.7 1914............................................................ 1979 64.4 48.1 36.1 1915............................................................ 1980 68.1 51.1 32.5 1916............................................................ 1981 72.5 54.4 33.4 1917............................................................ 1982 \6\ 65.8 \6\ 48.7 \6\ 28.6 1918............................................................ 1983 \7\ 63.5 45.8 26.3 1919............................................................ 1984 \7\ 62.6 42.8 23.7 1920............................................................ 1985 \7\ 61.1 40.9 22.8 1921............................................................ 1986 \7\ 60.3 41.1 23.1 1922............................................................ 1987 \7\ 59.5 41.2 22.6 1923............................................................ 1988 \7\ 58.4 40.9 23.0 1924............................................................ 1989 \7\ 57.9 41.6 24.1 1925............................................................ 1990 58.2 43.2 24.5 1935............................................................ 2000 57.1 42.4 25.6 1945............................................................ 2011 56.2 41.9 27.2 1955............................................................ 2021 56.2 41.8 27.8 1965............................................................ 2032 56.0 41.8 27.7 1975............................................................ 2042 56.0 41.8 27.6 ---------------------------------------------------------------------------------------------------------------- \1\ Total monthly benefits payable for year of entitlement at normal retirement age expressed as percent of earnings in year prior to entitlement for workers with steady career earnings. Projections for 1996 and later are based on the intermediate II assumptions of the 1996 OASDI Trustees' Report. \2\ Normal retirement age will rise from 65 starting with workers who attain age 62 in 2000 and will ultimately reach 67 for workers attaining age 62 in 2022 and later. \3\ Earnings equal to 45 percent of the ``Social Security average-wage index.'' \4\ Earnings equal to the ``Social Security average-wage index.'' \5\ Earnings equal to the maximum wage taxable for Social Security purposes. \6\ ``Transition guarantee'' under 1977 amendments. \7\ Special minimum benefit. Source: Office of the Actuary, Social Security Administration. Retired workers Today, the reduction rate is five-ninths of 1 percent for each month of entitlement before age 65 (maximum reduction of 20 percent). Workers retiring today at age 62 therefore receive 80 percent of the PIA. Although the minimum age of eligibility for reduced benefits remains age 62 (age 60 for widows and widowers), the increase in the full retirement age will be accompanied by increases in the amount of reduction for retirement at age 62 for individuals born after 1937. For them, the PIA will be reduced by five-twelfths of 1 percent for each month in excess of 36. For example, for persons born from 1943 through 1954, for whom the normal retirement age will be 66, the benefit payable at age 62 will be 75 percent of the PIA. For persons born in 1960 and later, for whom the normal retirement age will be 67, the benefit payable at age 62 will be 70 percent of the PIA (see table 1-8). Spouses The current reduction rate is twenty-five thirty-sixths of 1 percent for each month of entitlement before full retirement age. The maximum reduction is 25 percent. For spouses born after 1937, the benefit will be reduced by five-twelfths of 1 percent for each month of early retirement in excess of 36 months. Widow(er)s Today, the rate of reduction is nineteen-fortieths of 1 percent for each month of entitlement between age 60 and age 65 (maximum reduction of 28.5 percent). There is no scheduled increase in the maximum reduction for widow(er)s. Disabled widow(er)s ages 50 to 59 receive 71.5 percent of the PIA. Generally benefits continue to be paid at these reduced rates for as long as the recipients remain on the rolls. However, at attainment of the full retirement age for all recipients, and also at age 62 for a widow, widower, and a surviving divorced spouse, the number of months of reduction is adjusted by dropping months for which full benefits were not paid. Data on benefits paid to new retired workers in 1995 indicates that 72 percent of all such benefits were actuarially reduced (69 percent of those payable to men, and 75 percent to women). Table 1-10 presents information on the number of workers retiring in a given year who file for actuarially reduced benefits. Delayed Retirement Credit A worker is eligible for a delayed retirement credit (DRC) for each month the worker: (1) was fully insured; (2) had attained full retirement age but was not yet age 70; and (3) did not receive benefits because the worker had not filed an application or was working. Each DRC increases the worker's monthly benefit by one-twelfth of 1 percent for workers who attained age 62 before 1979 and by one-fourth of 1 percent for workers attaining age 62 from 1979 through 1986 (unless the benefit is based on a special minimum PIA). The increase is applicable to the worker's monthly benefit amount but not to the PIA. Therefore, dependents' benefits are generally not affected. The exception is that an individual receiving benefits as a widow(er) or surviving divorced spouse is entitled, for months after May 1978, to the same increase that was applied to the benefit of the worker, or for which the worker was eligible at the time of death. As a result of the Social Security amendments of 1983, beginning with workers who attain age 65 in 1990 (i.e., age 62 in 1987) the increment for delaying retirement past the normal retirement age (DRC) will increase by one-half of 1 percent every second year until reaching 8 percent per year of delayed retirement for workers attaining age 65 after 2007 (see table 1-8). Maximum Family Benefit Old Age and Survivor Insurance (OASI) The maximum monthly amount that can be paid on a worker's earnings record varies with the PIA. For benefits payable on the earnings records of retired and deceased workers, the maximum varies from 150 to 188 percent of the PIA. The family maximum cannot be exceeded regardless of the number of recipients entitled on that earnings record. The family maximum is computed by adding fixed percentages of dollar amounts that are part of the PIA. For the family of a worker who turns 62 or dies in 1996, the total amount of benefits payable is limited to: 150 percent of the first $559 of PIA, plus; 272 percent of PIA from $559 through $806, plus; 134 percent of PIA from $806 through $1,052, plus; 175 percent of PIA over $1,052. The dollar amounts in this benefit formula (i.e., the ``bend points'') are adjusted annually by the same index used to update the bend points in the primary benefit formula. Whenever the total of the individual monthly benefits payable to all the recipients entitled on one earnings record exceeds the maximum, each dependent's or survivor's benefit is reduced in equal proportion to bring the total within the maximum. In computing the maximum family benefit for entitlements based on a single earnings record, any benefit payable to a divorced spouse or to a surviving divorced spouse is not included. Disability Insurance (DI) The maximum family benefit is the smaller of 85 percent of the worker's average indexed monthly earnings (AIME), or 150 percent of the worker's primary insurance amount (PIA). However, in no case can the benefit be less than 100 percent of the worker's PIA. Earnings Limit The earnings limit is a provision in the law that reduces benefits for nondisabled recipients who earn income from work above a certain amount. Variations of the earnings limit have been part of the Social Security Program since its beginning. In 1996, recipients under age 65 may earn up to $8,280 a year in wages or self-employment income without having their benefits affected. Those aged 65-69 can earn up to $12,500 a year. For earnings above these amounts, recipients under age 65 lose $1 of benefits for each $2 of earnings, and those age 65-69 lose $1 in benefits for every $3 of earnings. The earnings limit does not apply to recipients over age 69, or to those who are disabled. The earnings limits rise each year indexed to the rise in average wages in the economy. Beginning in 1996, the exempt amounts for those who have attained the full retirement age will be increased on an ad hoc basis, according to the following schedule: ------------------------------------------------------------------------ Year Exempt amount ------------------------------------------------------------------------ 1996.................................................... $12,500 1997.................................................... 13,500 1998.................................................... 14,500 1999.................................................... 15,500 2000.................................................... 17,000 2001.................................................... 25,000 2002.................................................... 30,000 ------------------------------------------------------------------------ These changes were included in Public Law 104-121 enacted on March 29, 1996. After 2002, the exempt amounts for those who have attained the full retirement age again will be adjusted to rise at the same rate as average wages in the economy. Before enactment of Public Law 104-121, about 1.4 million recipients lost some or all of their benefits because of the earnings limit each year. They represented about 4 percent of all recipients. Of recipients age 65-69, about 10 percent (925,999) were affected, and an additional 140,000 persons were estimated to be deterred from filing for benefits because of the earnings limit. Retired workers whose benefits are not paid due to the earnings limit for one or more months are compensated through future increases in their benefit amount known as delayed retirement credits, or DRCs (discussed earlier). For workers under age 65, their actuarial reduction factor is reduced. Beneficiaries age 65-69 get a DRC for each month benefits were not paid. Examples of effects of the earnings limit: 1. John--Age 63 with $4,000 in annual benefits before the earnings limit is applied: Earnings in 1996................................... $9,280 Exempt amount for under age 65..................... 8,280 ------------ Excess over exempt amount.......................... 1,000 Benefit reduction = 50 percent of excess........... 500 Benefits John will receive in 1996................. 3,500 2. Ida--Age 67 with $4,000 in annual benefits before the earnings limit is applied: Earnings in 1996................................... 13,100 Exempt amount for 65 and older..................... 12,500 ------------ Excess over exempt amount.......................... 600 Benefit reduction = 33\1/3\ percent of excess...... 200 Benefits Ida will receive in 1996.................. 3,800 The earnings limit does not apply to pensions, rents, dividends, interest, and other types of ``unearned'' income. These forms of income have always been exempted in order to encourage savings for retirement to supplement Social Security. History of the earnings limit The earnings limit was part of the original plan that led to Social Security. The 1935 report of the Committee on Economic Security appointed by President Franklin D. Roosevelt recommended that no benefits be paid before a person had ``retired from gainful employment.'' Initially, the Social Security Act provided that benefits would not be paid for any month in which the individual had received ``wages with respect to regular employment.'' Before any benefits were payable under the program, Congress modified this provision in the Social Security amendments of 1939. No benefits would be paid for any month in which wages from covered employment were $15 or more. This arrangement prevailed until 1950. The 1950 amendments extended Social Security coverage to the bulk of nonfarm self-employed workers. Because it was believed that many self-employed people never retired and therefore would never receive benefits, the 1950 act exempted persons age 75 and over from the earnings limit. In addition, in the first of many legislative actions to increase the amount of earnings permitted, allowable monthly income from wages was increased from $14.99 to $50. Over the years, the earnings limits, the affected ages, and the formulas for reducing benefits have been changed many times. Starting with the 1954 amendments, benefits were no longer totally withheld if the retiree had earnings above the monthly exempt amount. Instead, a reduced benefit was payable. In addition, the 1954 act exempted persons age 72 and over from the earnings limit. The 1972 amendments reduced benefits by $1 for every $2 of earnings above the exempt amount. The 1972 amendments also provided that, beginning in 1975, the exempt amounts would be ``indexed'' to rise at the same rate as wage growth. To compensate workers who did not receive benefits for months between ages 65 and 72, the amendments established the delayed retirement credit. In the consideration of major Social Security legislation in 1977, there was considerable pressure to eliminate the earnings limit for persons over age 65. As a compromise, the earnings limit was raised for persons age 65 and older, and since then two different exempt amounts have applied, one for those under full retirement age (currently age 65) and one for those between full retirement age and age 70. (The 1977 amendments also lowered from 72 to 70 the age at which the earnings limit would no longer apply, to be effective in 1982, later postponed until 1983.) In response to criticism that the monthly earnings limit discriminated in favor of workers who had substantial but irregular employment (e.g., teachers), Congress also eliminated the monthly limit except for the first year of retirement. In 1980, Congress extended the monthly limit to the year a dependent beneficiary became ineligible for benefits. As part of major legislation restoring financial integrity to the Social Security system in 1983, Congress made two liberalizations affecting persons who continue to work after attaining retirement age. The first provided that, beginning in 1990, beneficiaries who have attained the full retirement age will lose only $1 in benefits for each $3 in earnings above the exempt amount. The second increased the delayed retirement credit (DRC). Prior to the increase, the DRC was equal to one- fourth of 1 percent for each month (3 percent a year) beyond the full retirement age that a person did not receive benefits. Under the 1983 provision, the DRC increases gradually to two- thirds of 1 percent per month between 1990 and 2009 (8 percent a year). As a result of a legislative change in the Deficit Reduction Act of 1984, the Social Security Administration requests earlier reports of earnings from beneficiaries who are most likely to have earnings in excess of the exempt amount. As a result, these beneficiaries have their benefits reduced in the actual year that they have excess earnings, rather than receiving overpayments which must then be recouped later when they may no longer be working. On March 29, 1996, President Clinton signed H.R. 3136, the Contract with America Advancement Act of 1996 (Public Law 104- 121), which increases the Social Security earnings limit ``exempt amounts''--the amount of earnings Social Security recipients may earn before their benefits are reduced--for recipients between the ``full retirement age'' (currently age 65) and age 70. Their exempt amounts will increase gradually by higher amounts than under prior law over the period 1996-2000, and then more rapidly over the next 2 years, reaching $30,000 in 2002. Table 1-14a shows amounts exempt from the earnings limit since 1975. Earnings of retired workers Of 9.5 million recipients entitled to retired worker benefits who were under the age of 70 in 1993, about 3.5 million had earnings from work. Table 1-15 shows the distribution of the earnings of these workers. Offsets Offset for other public disability benefits When a worker receiving Social Security disability benefits also qualifies for other disability benefits that are provided by Federal, State or local governments or worker's compensation, any Social Security benefits payable to him or her and his or her family are reduced by the amount, if any, that the total monthly benefits payable under the two or more programs exceed 80 percent of average current earnings before he became disabled. Needs-tested benefits, Veterans' Administration disability benefits, and benefits based on public employment covered by Social Security are not subject to the provision. A worker's average current earnings for this purpose are the larger of (a) the average monthly earnings used for computing Social Security benefits, or (b) the average monthly earnings in employment or self-employment covered by Social Security during the 5 consecutive years of highest covered earnings after 1950, or (c) the average monthly earnings during the calendar year of highest covered earnings during a period consisting of the year in which disability began and the preceding 5 years without regard to the limitations which specify a maximum amount of earnings creditable for Social Security benefits. The combined payments after the reduction are never less than the total amount of the DI benefits payable before the reduction. In addition, the Social Security benefit after the reduction is increased by the full amount of the cost-of-living increase as applied to the unreduced benefit. Every 3 years the original amount of benefits subject to reduction is redetermined to reflect changes in average wage levels. If increases in average national wages would result in a higher benefit than that payable based on the original computation, the benefit is increased effective January of the redetermination year. TABLE 1-14a.--AMOUNTS EXEMPT FROM THE EARNINGS LIMIT, 1975-2002 ------------------------------------------------------------------------ Age 65 Year Under age and over 65 \2\ ------------------------------------------------------------------------ 1975.............................................. $2,520 $2,520 1976.............................................. 2,760 2,760 1977.............................................. 3,000 3,000 1978.............................................. 3,240 4,000 1979.............................................. 3,480 4,500 1980.............................................. 3,720 5,000 1981.............................................. 4,080 5,500 1982.............................................. 4,440 6,000 1983.............................................. 4,920 6,600 1984.............................................. 5,160 6,960 1985.............................................. 5,400 7,320 1986.............................................. 5,760 7,800 1987.............................................. 6,000 8,160 1988.............................................. 6,120 8,400 1989.............................................. 6,480 8,880 1990.............................................. 6,840 9,360 1991.............................................. 7,080 9,720 1992.............................................. 7,440 10,200 1993.............................................. 7,680 10,560 1994.............................................. 8,040 11,160 1995.............................................. 8,160 11,280 1996.............................................. 8,280 \3\ 12,50 0 1997.............................................. \1\ 8,640 \3\ 13,50 0 1998.............................................. \1\ 9,000 \3\ 14,50 0 1999.............................................. \1\ 9,360 \3\ 15,50 0 2000.............................................. \1\ 9,720 \3\ 17,00 0 2001.............................................. \1\ 10,08 0 \3\ 25,00 0 2002.............................................. \1\ 10,56 0 \3\ 30,00 0 ------------------------------------------------------------------------ \1\ Based on economic assumptions in the 1996 Annual Report of the Board of Trustees of the Federal Old-Age, Survivors, and Disability Insurance Trust Funds. \2\ From 1955 to 1982, earnings limits did not apply at ages 72 and over; beginning in 1983, they do not apply at ages 70 and over. \3\ Public Law 104-121. Source: Office of the Actuary, Social Security Administration. The offset begins in the month during which concurrent entitlement begins under a Federal or State law. However, the offset will not be made if the State workers' compensation law provides for an offset against Social Security disability benefits. Offsets for receipt of pension from noncovered employment Government pension offset.--Social Security benefits payable to spouses of retired, disabled, or deceased workers are generally reduced to take account of any public pension the spouse receives as a result of work in a government job (Federal, State, or local) not covered by Social Security. The amount of the reduction is equal to two-thirds of the government pension. This provision is intended to place spouses who worked in jobs not covered by Social Security in the same position as other workers by imposing on them the equivalent of the Social Security ``dual entitlement'' rule, which imposes a dollar-for-dollar offset of spouses' benefits (discussed earlier). Two-thirds of the government pension represents a surrogate of the Social Security worker's benefit that would be subtracted from any Social Security spousal benefit. The offset does not apply to workers whose government job is covered by Social Security on the last day of the person's employment. TABLE 1-15.--RETIRED WORKERS WITH EARNINGS IN 1993 ------------------------------------------------------------------------ Total earnings Ages 62-64 Ages 65-69 ------------------------------------------------------------------------ $1-4,999.................................... 501,800 919,100 5,000-9,999................................. 344,000 568,600 10,000-14,999............................... 106,000 285,300 15,000-19,999............................... 55,800 126,000 20,000-24,999............................... 32,700 93,500 25,000-29,999............................... 20,000 68,500 30,000-34,999............................... 14,900 54,300 35,000-39,999............................... 9,300 37,300 40,000-44,999............................... 7,300 34,000 45,000-49,999............................... 4,600 22,300 50,000-54,999............................... 3,000 16,900 55,000-59,999............................... 2,700 19,900 60,000-64,999............................... 2,600 12,900 65,000-69,999............................... 1,000 9,600 70,000-74,999............................... 900 8,800 75,000-79,999............................... 1,000 5,800 80,000-84,999............................... 300 5,300 85,000-89,999............................... 400 6,500 90,000-94,999............................... 800 4,400 95,000-99,999............................... 300 10,100 100,000 +................................... 4,000 30,700 --------------------------- Total................................. 1,113,400 2,339,800 ------------------------------------------------------------------------ Source: Social Security Administration. Generally, Federal workers hired before 1984 are part of the Civil Service Retirement System (CSRS) and are not covered by Social Security. Federal workers hired after 1983 are covered by the Federal Employee's Retirement System Act of 1986 (FERS), which includes coverage by Social Security. Employees covered by the CSRS were given the opportunity in 1987, to join FERS and thereby obtain Social Security coverage. Windfall elimination provision.--Under the so-called ``windfall elimination'' provision of the Social Security amendments of 1983, a different benefit formula reduces the Social Security benefits of most workers who also have pensions from work that was not covered by Social Security (e.g., work under the Federal Civil Service Retirement System). The regular benefit formula (see earlier discussion) is weighted, in order to help workers who spend their work careers in low-paying jobs, by providing them with a benefit that replaces a higher proportion of their earnings than the benefit that is provided for workers with high earnings. However, the formula cannot differentiate between those who worked in low-paid jobs throughout their careers and other workers who appeared to have been low paid because they worked many years in jobs not covered by Social Security (these noncovered earnings are shown as zeros for Social Security benefit purposes). Thus, before the law was changed, workers who were employed for only a portion of their careers in jobs covered by Social Security also received the advantage of the ``weighted'' formula, because their few years of covered earnings were averaged over their entire working career to determine the average covered earnings on which their Social Security benefits were based. This was the case even if their noncovered earnings were high. The windfall benefit formula is intended to remove this advantage for these workers. It does so by substituting 40 percent for the 90 percent factor in the first bracket of the benefit formula (see discussion in earlier section on ``Benefit Formula''). (The second and third factors remain the same.) The resulting reduction in the worker's Social Security benefit is limited to one-half the amount of the noncovered pension. The new law was phased in over a 5-year period and affects those first eligible for both Social Security benefits and noncovered pensions after 1985. Workers who have 30 years or more of substantial Social Security coverage are fully exempt from this provision. For workers who have 21-29 years of coverage, the percentage in the first bracket in the formula increases by 5 percentage points for each year over 20, as shown in table 1-16. Suspension of Benefits to Prisoners In 1980, legislation was enacted barring payment of disability benefits to prisoners who committed felonies (Public Law 96-473). In 1983, the prohibition was broadened to include retirement and survivor benefits (Public Law 98-21); and in 1994, payment of benefits was barred to those in public institutions who committed serious crimes, but who were found incompetent to stand trial, or not guilty by reason of insanity (Public Law 103-387). Only benefits to the prisoner are barred; benefits to a prisoner's eligible spouse and/or children are payable. COST-OF-LIVING ADJUSTMENTS Monthly cash benefits were increased on an ad hoc basis 10 times before the first automatic cost-of-living adjustment (COLA) was implemented as a result of the Social Security amendments of 1972. Beginning in 1975, benefits have been automatically adjusted to keep pace with inflation. Since 1975, there have been increases annually except during calendar year 1983, when the adjustment was delayed 6 months (see table 1-1). TABLE 1-16.--WINDFALL BENEFIT FORMULA FACTORS ------------------------------------------------------------------------ First factor in Years of Social Security coverage formula (percent) ------------------------------------------------------------------------ 20 or fewer.................................................. 40 21........................................................... 45 22........................................................... 50 23........................................................... 55 24........................................................... 60 25........................................................... 65 26........................................................... 70 27........................................................... 75 28........................................................... 80 29........................................................... 85 30 or more................................................... 90 ------------------------------------------------------------------------ Source: Social Security Administration. Social Security beneficiaries receive a COLA in January of each year if there is a measurable annual increase in prices (0.1 percent). The Consumer Price Index for Wage Earners and Clerical Workers (CPI-W), updated monthly by the Bureau of Labor Statistics (BLS), is the measure used to compute the increase. The average CPI-W for the third calendar quarter of one year is compared to the average CPI-W for the third calendar quarter of the next year, and the resulting percentage increase represents the COLA that will become effective for the following December. The increase actually becomes effective for Social Security checks payable beginning in January, since Social Security checks always reflect the benefits due for the preceding month. A COLA of 2.6 percent beginning with checks payable in January 1996 was triggered by the rise in the CPI-W from the third quarter of 1994 to the third quarter of 1995. As in all years since 1975, this COLA, in turn, triggered identical percentage increases in Supplemental Security Income (SSI), veterans' pensions, and railroad retirement benefits, and caused other changes in the Social Security and Medicare Programs. Although COLAs under the Federal Civil Service Retirement System (CSRS) and the Federal Military Retirement Program are not triggered by the Social Security COLA, these programs use the same measuring period and formula for computing their COLAs. Determination of the COLA The 2.6 percent COLA for January 1996 became known on October 13, 1995, when the BLS announced the CPI-W figure for September 1995. With release of the September index, the two July-September sets of CPI-W figures needed to compute the COLA--one for 1994 and another for 1995--became available. Table 1-17 shows how the January 1996 COLA was computed under procedures set forth in the law. \3\ Table 1-18 shows the comparison between average wage increases and changes in the CPI from 1965 to 1995. --------------------------------------------------------------------------- \3\ Under section 215(i) of the Social Security Act. TABLE 1-17.--COMPUTATION OF THE SOCIAL SECURITY COLA, JANUARY 1996 ------------------------------------------------------------------------ CPI-W index points Month ------------------------- 1994 1995 ------------------------------------------------------------------------ July.......................................... 145.8 149.9 August........................................ 146.5 150.2 September..................................... 146.9 150.6 3-month average........................... 146.4 150.2 ------------------------------------------------------------------------ Note.--The reference base period for the CPI-W is 1982-84, i.e., the period when the index equalled 100. Source: Bureau of Labor Statistics. Increase in CPI index points from the third quarter of 1994 to the third quarter of 1995: 150.2 - 146.4 = 3.8 Percent increase in average CPI for the 2 quarters: 3.8 146.4 = 2.596% COLA = 2.6%. By law, the change must be rounded to the nearest tenth of a percent. TAXATION OF BENEFITS Beneficiaries with income (defined as adjusted gross income plus tax-exempt bond interest plus one-half of Social Security benefits) above certain thresholds are required to include a portion of their Social Security benefits (and railroad retirement tier 1 benefits) in their federally taxable income. The Social Security Amendments of 1983 required beneficiaries with income of more than $25,000 if single, and $32,000 if married, to include up to 50 percent of their benefits in their taxable income, beginning in 1984. Revenues from this provision are credited to the OASDI Trust Funds. The Omnibus Budget Reconciliation Act of 1993 required beneficiaries with incomes of more than $34,000 if single, and $44,000 if married, to include up to 85 percent of their benefits in their taxable income, beginning in 1994. Revenues from this provision are credited to the Medicare HI Trust Fund. TABLE 1-18.--HISTORICAL COMPARISON OF AVERAGE WAGE INCREASES TO BENEFIT INCREASES AND CHANGES IN CPI, 1965-95 [In percent] ---------------------------------------------------------------------------------------------------------------- Increase in wages Increase in CPI \2\ Increase in \1\ --------------------- benefits \3\ --------------------- -------------------- Calendar year Cumulative Over Cumulative Cumulative Over from each prior from each Over from each prior year to year year to prior year to year 1995 1995 year 1995 ---------------------------------------------------------------------------------------------------------------- 1965............................................. 1.8 429.6 1.6 372.6 7.0 472.5 1966............................................. 6.0 399.6 3.2 358.1 0.0 472.5 1967............................................. 5.6 373.3 2.8 345.8 0.0 472.5 1968............................................. 6.9 342.8 4.2 328.0 13.0 406.6 1969............................................. 5.8 318.6 5.4 306.0 0.0 406.6 1970............................................. 5.0 298.8 5.7 284.1 15.0 340.6 1971............................................. 5.0 279.8 4.4 268.1 10.0 300.5 1972............................................. 9.8 245.9 3.4 255.8 20.0 233.8 1973............................................. 6.3 225.5 6.2 235.1 0.0 233.8 1974............................................. 5.9 207.2 11.0 202.0 11.0 200.7 1975............................................. 7.5 185.9 9.1 176.9 8.0 178.4 1976............................................. 6.9 167.4 5.7 161.9 6.4 161.7 1977............................................. 6.0 152.3 6.5 146.0 5.9 147.1 1978............................................. 7.9 133.7 7.7 128.4 6.5 132.0 1979............................................. 8.7 114.9 11.4 104.9 9.9 111.1 1980............................................. 9.0 97.2 13.4 80.7 14.3 84.7 1981............................................. 10.1 79.1 10.3 63.9 11.2 66.1 1982............................................. 5.5 69.8 6.0 54.6 7.4 54.6 1983............................................. 4.9 61.9 3.0 50.1 \4\ 3.5 49.4 1984............................................. 5.9 52.9 3.5 45.0 3.5 44.4 1985............................................. 4.3 46.7 3.5 40.1 3.1 40.0 1986............................................. 3.0 42.4 1.6 37.9 1.3 38.2 1987............................................. 6.4 33.9 3.6 33.2 4.2 32.7 1988............................................. 4.9 27.6 4.0 28.0 4.0 27.6 1989............................................. 4.0 22.8 4.8 22.2 4.7 21.8 1990............................................. 4.6 17.3 5.2 16.1 5.4 15.6 1991............................................. 3.7 13.1 4.1 11.5 3.7 11.5 1992............................................. 5.2 7.6 2.9 8.4 3.0 8.2 1993............................................. 0.9 6.7 2.8 5.4 2.6 5.5 1994............................................. 2.7 3.9 2.5 2.9 2.8 2.6 1995............................................. \5\ 3.9 NA \6\ 2.9 NA 2.6 NA ---------------------------------------------------------------------------------------------------------------- \1\ Average annual wages used to index earnings records. \2\ Increase in annual average CPI-W. \3\ Legislated benefit increases through 1975 and increases based on CPI thereafter. After 1975, the CPI and benefit increases are different because they reflect the change in prices measured over different periods of time. \4\ As a result of the Social Security amendments of 1983, COLAs are provided on a calendar year basis, with the benefit increase payable in January rather than July. The July 1983 COLA was delayed to January 1984. This delay and a change in the computation period led to the last 6 months of 1983 not being accounted for in any COLA increase--a period during which the CPI increased 2.4 percent. \5\ Preliminary. \6\ Effective December 1995, payable January 3, 1996. NA--Not available. Source: Office of the Actuary, Social Security Administration. The following worksheet shows the steps involved in determining how much of a beneficiary's Social Security benefits are taxable. Worksheet for Determining the Taxable Portion of Social Security Benefits 1. Enter yearly Social Security benefits ________________ 2. Multiply line 1 by 0.50 ________________ 3. Enter adjusted gross income plus tax-free interest ________________ 4. Add line 2 and line 3 ________________ 5. Enter: $25,000 if single or head of household; $32,000 if married filing jointly; $0 if married filing separately ________________ 6. Subtract line 5 from line 4 ________________ (If result on line 6 is zero or a negative number, stop; no benefits are taxable.) 7. Divide line 6 by 2 ________________ 8. Enter smaller of amounts on line 2 or line 7 ________________ 9. Enter amount on line 4 ________________ 10. Enter: $34,000 if single or head of household; $44,000 if married filing jointly; $0 if married filing separately ________________ 11. Subtract line 10 from line 9 ________________ (If result on line 11 is zero or a negative number, stop; amount on line 8 is amount of benefits taxable.) 12. Multiply line 11 by 0.85 ________________ 13. Enter smallest of: amount on line 8; $4,500 if single or head of household; $6,000 if married filing jointly; $0 if married filing separately ________________ 14. Add amounts on line 12 and line 13 ________________ 15. Multiply line 1 by 0.85 ________________ 16. Enter smaller of amounts on line 14 or line 15 ________________ (The amount on line 16 is the total amount of benefits taxable.) Source: Congressional Research Service. Examples of results of applying worksheet (1996): ---------------------------------------------------------------------------------------------------------------- Single Single Married Married Married ---------------------------------------------------------------------------------------------------------------- Total income (including Social Security)................. $27,000 $35,000 $38,000 $50,000 $80,000 Social Security benefits................................. 12,000 7,000 12,000 12,000 18,000 Amount of benefits taxable............................... 0 3,250 0 6,000 15,300 Percent of benefits taxable.............................. 0 46 0 50 85 Income tax liability on all benefits taxable............. 0 488 0 900 4,284 ---------------------------------------------------------------------------------------------------------------- For calendar year 1997 (see table 1-19), CBO projects that 25 percent of Social Security beneficiaries will be affected by the taxation of benefits (see table 1-19). Table 1-20 shows amounts credited to trust funds from taxation of benefits. DETERMINATION OF DISABILITY BENEFITS Determination of Disability Disability determinations are generally made by State agencies, which are 100 percent federally funded. These agencies agree to make such determinations and in doing so to substantially comply with the regulations of the Commissioner, which specify performance standards and administrative requirements and procedures to be followed in performing the disability determination function. The law authorizes the Commissioner to terminate State administration and assume responsibility for making disability determinations when a State Disability Determination Service (DDS) is substantially failing to make determinations consistent with regulations. The law also allows for termination by the State. Application of Law and Regulations Claims are adjudicated on a sequential basis. The first step is to determine whether the individual is engaging in substantial gainful activity (SGA). Under current regulations, if a person is earning more than $500 a month (net of impairment-related work expenses), she ordinarily will be considered to be engaging in SGA. By law, SGA is $960 a month for disabled blind individuals in 1996. If it is determined that the individual is engaging in SGA, a decision is made that he is not disabled without considering medical factors. If an individual is found not to be engaging in SGA, the severity and duration of the impairment are explored. If the impairment is determined to be ``not severe'' (i.e., it does not significantly limit the individual's capacity to perform work), the individual's disability claim is denied. If the impairment is ``severe,'' a determination is made as to whether the impairment ``meets'' or ``equals'' the medical listings published in regulations by SSA, \4\ and whether it will last for 12 months. If the impairment neither ``meets'' nor ``equals'' the listing (which would result in an allowance), but meets the 12-month duration rule, the individual's residual functional capacity (what an individual still can do despite his or her limitations), and the physical and mental demands of his or her past relevant work, must be evaluated. If the impairment does not prevent the individual from meeting the demands of his past relevant work, then benefits are denied. If it does, then it must be determined if the impairment prevents other work. --------------------------------------------------------------------------- \4\ The Listing of Impairments contains over 100 examples of medical conditions that would ordinarily prevent an individual from engaging in substantial gainful activity. Each listing describes a degree of severity such that an individual who is not working, and has such an impairment, is considered unable to work by reason of the medical impairment. The listing describes specific medically acceptable clinical and laboratory findings and signs which establish the severity of the impairments. An impairment or combination of impairments is said to ``equal the listings'' if the medical findings for the impairment are at least equivalent in severity and duration to the listed findings of a listed impairment. --------------------------------------------------------------------------- At this stage in the adjudication process, because of a judicial opinion and subsequent administrative and legislative ratification, the burden of proof switches to the government to show that the individual can, considering his impairment, age, education, and work experience, engage in some other kind of substantial gainful activity that exists in the national economy. Such work does not have to exist in the immediate area in which he lives, and a specific job vacancy does not have to be available to him. Work in the national economy is defined in statute as work which exists in significant numbers either in the region where such individual lives or in several regions of the country. SSA has developed a vocational ``grid'' designed to reduce the subjectivity and lack of uniformity in applying the vocational factor. The grid regulations embody in a formula certain worker characteristics such as age, education, and past work experience, in relation to the individual's residual functional capacity to perform work-related physical and mental activities. If the applicant has a particular level of residual work capability--characterized by the terms sedentary, light, medium, heavy and very heavy--an automatic finding of ``disabled'' or ``not disabled'' is required when such capability is applied to various combinations of age, education, and work experience. Federal Review of State Determinations The law requires that the Commissioner review 50 percent of the disability allowances and a sufficient number of other determinations to ensure a high degree of accuracy. The Commissioner may also, on his or her own motion, review any determination by a DDS. Periodic Review of Individuals Receiving Disability Benefits The 1980 disability amendments required that, at least once every 3 years, the Social Security Administration reexamine every individual on the rolls who is determined to be nonpermanently disabled. Where there is a finding of permanent disability, the Commissioner may reexamine at such times as is determined to be appropriate. These reviews are in addition to the administrative eligibility review procedures existing before the 1980 amendments. TABLE 1-19.--EFFECT OF TAXING SOCIAL SECURITY BENEFITS BY INCOME CLASS, PROJECTED CALENDAR YEAR 1997 [Numbers of persons in thousands; dollars in billions] -------------------------------------------------------------------------------------------------------------------------------------------------------- Persons age 65 and over All recipients Aggregate ------------------------------------------------------------------------------------- amount of Aggregate Taxes as a Level of individual or couple Number Percent Number of Social Number Percent Social amount of percent of income \1\ Number affected by affected by Security affected by affected by Security taxes on benefits taxation \2\ taxation \2\ beneficiaries \3\ taxation \3\ taxation \3\ benefits benefits -------------------------------------------------------------------------------------------------------------------------------------------------------- Less than $10,000................ 7,062 0 0 10,049 0 0 57,246 0 0 $10,000-$15,000.................. 4,392 0 0 6,043 0 0 47,906 0 0 $15,000-$20,000.................. 3,762 0 0 4,828 0 0 39,179 0 0 $20,000-$25,000.................. 3,100 0 0 3,936 0 0 34,402 0 0 $25,000-$30,000.................. 2,805 69 2.5 3,644 146 4.0 31,748 12 0 $30,000-$40,000.................. 4,315 988 22.9 5,518 1,466 26.6 48,676 410 0.8 $40,000-$50,000.................. 2,730 2,167 79.4 3,405 2,886 84.8 30,864 1,338 4.3 $50,000-$100,000................. 4,171 3,771 90.4 5,124 5,016 97.9 48,128 7,084 14.7 Over $100,000.................... 1,553 1,192 76.8 1,508 1,350 89.5 15,492 3,474 22.4 ---------------------------------------------------------------------------------------------------------------------- All.......................... 33,890 8,187 24.2 44,055 10,864 24.7 353,641 12,318 3.5 -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ Cash income (based on income of tax filing unit) plus capital gains realizations. \2\ Some elderly individuals do not receive Social Security benefits and are therefore not affected by taxation of benefits. \3\ Includes beneficiaries under and over age 65. Note.--Aggregate benefits and revenues are understated by about 10 percent because of benefits paid abroad, deaths of recipients before March interview, and exclusion of institutionalized beneficiaries. The number of beneficiaries is also understated. Source: Congressional Budget Office simulations based on data from the Current Population Survey. TABLE 1-20.--TAXATION OF OASDI BENEFITS BY TRUST FUNDS CREDITED AND AS A PERCENT OF TOTAL BENEFIT PAYMENTS, 1984- 2001 [Dollars in millions] ---------------------------------------------------------------------------------------------------------------- Taxes credited to trust Taxes credited to trust funds from the taxation of funds as percent of OASDI Total OASDI benefits benefits Fiscal year OASDI ------------------------------------------------------- benefits Hospital Hospital OASDI insurance Total OASDI insurance Total ---------------------------------------------------------------------------------------------------------------- Past experience: 1984..................................... $173,603 $2,275 ......... $2,275 1.3 ......... 1.3 1985..................................... 183,959 3,368 ......... 3,368 1.8 ......... 1.8 1986..................................... 193,869 3,558 ......... 3,558 1.8 ......... 1.8 1987..................................... 202,430 3,307 ......... 3,307 1.6 ......... 1.6 1988..................................... 213,907 3,390 ......... 3,390 1.6 ......... 1.6 1989..................................... 227,150 3,772 ......... 3,772 1.7 ......... 1.7 1990..................................... 243,275 3,081 ......... 3,081 1.3 ......... 1.3 1991..................................... 263,104 5,921 ......... 5,921 2.3 ......... 2.3 1992..................................... 281,650 6,237 ......... 6,237 2.2 ......... 2.2 1993..................................... 298,176 6,161 ......... 6,161 2.1 ......... 2.1 1994..................................... 313,129 5,656 $1,625 7,281 1.8 0.5 2.3 1995..................................... 328,841 5,449 3,883 9,332 1.7 1.2 2.8 Projected: \1\ 1996..................................... 343,778 6,159 3,976 10,135 1.8 1.2 2.9 1997..................................... 361,123 7,195 4,331 11,526 2.0 1.2 3.2 1998..................................... 379,488 7,694 4,623 12,317 2.0 1.2 3.2 1999..................................... 399,288 8,242 4,926 13,168 2.1 1.2 3.3 2000..................................... 420,885 8,837 5,259 14,096 2.1 1.2 3.3 2001..................................... 444,329 9,500 5,626 15,126 2.1 1.3 3.4 ---------------------------------------------------------------------------------------------------------------- \1\ Based on intermediate assumptions in the 1996 Annual Reports of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds and the Hospital Insurance Trust Fund. Note.--Tax amounts are the amounts collected through the Federal income tax system (including adjustments for actual experience in prior years) plus, for OASDI only, taxes withheld from the OASDI benefits of certain nonresident aliens. Source: Office of the Actuary, Social Security Administration. Medical Improvement Standard The 1984 Disability Benefits Reform Act amended the law to require that in continuing eligibility review cases, benefits may be terminated only if the Commissioner finds that there has been medical improvement in the person's condition and that the individual is now able to engage in substantial gainful activity. There are several exceptions to this standard, which are described in greater detail in the ``Recent Legislation'' section of this chapter. Medical Evidence An individual is not considered to be under a disability unless he furnishes such medical and other evidence as the Commissioner may require. Under the law, the Commissioner will generally reimburse physicians or hospitals for supplying medical evidence in support of claims for DI benefits. The Commissioner also pays for medical examinations that are needed to adjudicate the claim. Attorneys' Fees and Representation Attorneys and other individuals who represent disability applicants in any proceeding before SSA, and who wish to charge a fee for their services, must have the fee authorized by SSA. SSA approves a fee agreement filed before the date of the favorable decision and signed jointly by the applicant and the representative, if the agreed-upon fee does not exceed the lesser of 25 percent of past-due benefits or $4,000. Under both the fee petition and fee arrangement process, SSA withholds 25 percent of the past-due benefits of an applicant represented by an attorney and certifies direct payment of the authorized fee to the attorney. A court that renders a favorable decision for Social Security benefits is permitted to set a reasonable fee for the attorney who represented the applicant before the court. The fee cannot exceed 25 percent of the past-due benefits that result from the court's decision. VOCATIONAL REHABILITATION The Social Security Act requires that persons applying for a determination of disability be promptly referred to State vocational rehabilitation (VR) agencies for necessary rehabilitation services. The act provides for withholding of benefits for refusal, without good cause, to accept rehabilitation services available under a State plan approved under the Vocational Rehabilitation Act. Public Law 97-35 eliminated reimbursement from the DI Trust Funds to the State vocational rehabilitation agencies for rehabilitation services except in cases where the services result in the beneficiary's performance of substantial gainful activity (SGA) for a continuous period of at least 9 months. Such a 9-month period could begin while the individual is under a vocational rehabilitation program and may also coincide with the trial work period or the individual's waiting period for benefits. The services must be performed under a State plan for vocational rehabilitation services under title I of the Rehabilitation Act. In the case of any State that is unwilling to participate or does not have a plan that meets the requirements of the Vocational Rehabilitation Act, the Commissioner of Social Security may provide such services by agreement or contract with other public or private agencies, organizations, institutions or individuals. The determination that the vocational rehabilitation services contributed to the successful return of the individual to SGA, and the determination of the amount of costs to be reimbursed, are made by the Commissioner. Payments under this provision can be made in advance or by reimbursement, with necessary adjustments for overpayments or underpayments. Using the rulemaking process, SSA gained significant new authority when regulations were published in the Federal Register on March 15, 1994. The regulations expanded the use of private vocational rehabilitation providers and public non- State VR providers when a State VR agency declines to provide services for an individual referred to it. DISABILITY CLAIMS AND APPEALS STRUCTURE The Social Security appeals and case review process is a complex multilayered structure that is inextricably linked with the disability determination process. The application for disability benefits is made at the Social Security district office where the applicant is interviewed and the sources of medical evidence are recorded. After determining whether the applicant meets the insured status requirements, the SSA district office then sends the case to the State Disability Determination Service (DDS), which makes the initial determination of disability. If an applicant or beneficiary is dissatisfied with an initial denial or termination of disability benefits by the DDS, she can request a reconsideration within 60 days of receipt of the notice of denial. The reconsideration on the disability claim is also carried out by the DDS, but by personnel other than those who made the initial determination. If upon reconsideration the applicant is again denied benefits, the applicant will be given a hearing before an administrative law judge (ALJ) in SSA's Office of Hearings and Appeals (OHA), providing he files a request for hearing within 60 days of receipt of the notice of denial. If the claim is denied by the ALJ, the applicant has 60 days to request review by the Appeals Council. The Appeals Council is a 15-member body located in the OHA. The Appeals Council may also, on its own motion, review a decision within 60 days of the ALJ's decision. The 1980 disability amendments required a review of a percentage of ALJ hearing decisions, and this review is being conducted by the Appeals Council. The Appeals Council may review, affirm, modify or reverse the decision of the ALJ, or it may remand it to the ALJ for further development. The applicant is notified in writing of the final action of the Appeals Council, and is informed of his right to obtain further review by commencing a civil action within 60 days in a U.S. District Court. Under current law, as amended by the 1984 Disability Benefits Reform Act, DI beneficiaries whose benefits have been terminated because of recovery or improvement in the medical condition that was the basis for the disability can elect to continue to receive disability and Medicare benefits through the hearing stage of the appeals process, subject to recovery. Chart 1-1 shows the number of cases allowed and appealed at various levels of appeal for application decisions and continuing disability reviews (CDRs) processed by State agencies. Table 1-21 presents information for fiscal years 1979 through 1995 on the number of cases that were reviewed and reversed at the ALJ level. Table 1-22 presents information on the number of title II DI continuing disability reviews that were conducted in fiscal years 1977-95. Due to an unprecedented increase in initial claims, the number of CDRs processed declined sharply in the early 1990s. National implementation of a new CDR process in 1993 enabled SSA to increase the number of CDRs being conducted significantly. CHART 1-1. DISABILITY DETERMINATIONS AND APPEALS, FISCAL YEAR 1995 TITLE II, TITLE XVI AND CONCURRENT TITLE II AND XVI DECISIONS FOR DISABILITY CLAIMS BY WORKERS, WIDOWS, WIDOWERS AND DISABLED ADULT CHILDREN \1\ \1\ The data relate to workloads processed (but not necessarily received) in fiscal year 1995, i.e., the case processed at each adjudicatory level may include cases received at one or more of the lower adjudicatory levels prior to fiscal year 1995. The data include determinations on initial applications as well as continuing disability reviews (both periodic reviews and medical diary cases). \2\ Includes non-State CDR mailer continuations. Also includes 12,800 CDRs where there was ``no decision.'' The continuance and termination rates are computed without the ``no decision'' cases. \3\ Many ALJ dispositions and AC decisions are based on DDS determinations from a previous year. Therefore, a percent appealed is not provided. \4\ Preliminary data. \5\ Includes ALJ decisions not appealed further by the claimant but reviewed by the Appeals Council on ``own motion'' authority. \6\ Includes affirmations, denials and dismissals of requests for review, own motion reopening cases. Source: Social Security Administration. Public Law 104-121 authorized significant additional administrative funding exempt from the discretionary spending cap, and above the annual $200 million currently authorized, to enable SSA to clear its CDR backlog of roughly 3.4 million cases more quickly. Total fiscal year authorizations are: 1996, $260 million; 1997, $360 million; 1998, $570 million; and 1999- 2002, $720 million. TABLE 1-21.--ADMINISTRATIVE LAW JUDGE DISABILITY INSURANCE \1\ FAVORABLE DECISION RATES, INITIAL DENIALS AND TERMINATIONS, \2\ FISCAL YEARS 1979-95 ---------------------------------------------------------------------------------------------------------------- Percent Fiscal year Dismissed Unfavorable Favorable Total favorable ---------------------------------------------------------------------------------------------------------------- Initial denials: 1979............................................... 6,332 31,485 48,934 86,751 56.4 1980............................................... 7,093 31,703 56,733 95,529 59.4 1981............................................... 15,141 59,930 98,129 173,200 56.7 1982............................................... 15,403 67,481 91,865 174,749 52.6 1983............................................... 14,334 65,626 79,427 159,387 49.8 1984............................................... 15,075 63,381 88,301 166,757 53.0 1985............................................... 14,806 61,161 92,118 168,085 54.8 1986............................................... 28,792 44,223 78,737 151,752 51.9 1987............................................... 15,271 58,412 98,180 171,863 57.1 1988............................................... 18,213 58,788 111,748 188,749 59.2 1989............................................... 19,695 54,284 122,070 196,049 62.3 1990............................................... 19,297 45,264 127,707 192,268 66.4 1991 \3\........................................... 19,880 44,594 144,945 209,419 69.2 1992 \3\........................................... 19,665 48,407 166,661 234,733 71.0 1993 \3\........................................... 20,190 47,579 171,508 239,277 71.7 1994 \4\........................................... 23,576 49,110 189,373 262,059 72.3 1995............................................... 44,234 65,415 220,558 330,207 66.8 Terminations: 1979............................................... 1,401 4,078 8,052 13,531 59.5 1980............................................... 1,431 4,197 9,909 15,537 63.8 1981............................................... 2,623 6,945 16,685 26,253 63.6 1982............................................... 4,670 17,502 37,306 59,478 62.7 1983............................................... 9,247 37,284 73,821 120,352 61.3 1984............................................... 25,681 22,590 56,327 104,598 53.9 1985............................................... 4,176 2,415 3,126 9,717 32.2 1986............................................... 1,095 2,129 2,014 5,238 38.4 1987............................................... 812 1,954 2,014 4,780 42.1 1988............................................... 1,031 2,807 3,426 7,264 47.2 1989............................................... 1,220 3,482 4,882 9,584 50.9 1990............................................... 1,166 2,940 4,695 8,801 53.3 1991 \3\........................................... 1,007 2,140 3,935 7,082 55.6 1992 \3\........................................... 812 1,642 2,812 5,266 53.4 1993 \3\........................................... 720 1,281 2,079 4,080 51.0 1994 \4\........................................... 656 1,082 1,540 3,278 47.0 1995............................................... 821 1,173 1,807 3,801 47.5 ---------------------------------------------------------------------------------------------------------------- \1\ Includes title II and concurrent title II/title XVI disability cases and concurrent title II/title XVI aged cases. \2\ Includes all termination cases regardless of the basis for termination. \3\ Final data. \4\ Revised February 1996. Source: Office of Hearings and Appeals, Social Security Administration. TABLE 1-22.--CONTINUING DISABILITY REVIEW (CDR) CESSATIONS AND CONTINUATIONS, FISCAL YEARS 1977-95 ---------------------------------------------------------------------------------------------------------------- Cessations Continuations Total cases --------------------------------------------------------------------------- Cessations Total Number Percent Number Percent and disabled Percent continuations persons reviewed ---------------------------------------------------------------------------------------------------------------- 1977................................ 41,475 38.7 65,745 61.3 107,220 \1\ 3,322,2 30 3.2 1978................................ 38,847 46.4 44,804 53.6 83,651 3,447,767 2.4 1979................................ 45,216 48.1 48,868 51.9 94,084 3,457,837 2.7 1980................................ 44,273 46.8 50,227 53.2 94,550 3,454,010 2.7 1981................................ 80,956 47.9 87,966 52.1 168,922 3,413,602 4.9 1982................................ 179,857 44.8 221,325 55.2 401,182 3,263,354 12.3 1983................................ 182,074 41.7 254,424 58.3 436,498 3,226,888 13.5 1984 \2\............................ 31,927 24.6 97,752 75.4 129,679 3,249,367 4.0 1985 \2\............................ 475 14.6 2,785 85.4 3,260 3,332,870 0.1 1986................................ 2,554 5.6 42,805 94.4 45,359 3,261,768 1.4 1987................................ 20,343 12.4 143,712 87.6 164,055 3,433,524 4.8 1988................................ 33,565 11.5 257,377 88.5 290,942 3,492,762 8.3 1989................................ 24,102 9.2 237,722 90.8 261,824 3,559,840 7.4 1990 \3\............................ 15,154 10.5 129,026 89.5 144,180 3,678,509 3.9 1991 \4\............................ 5,697 12.5 39,749 87.5 45,446 3,866,645 1.2 1992................................ 6,923 15.0 39,291 85.0 46,214 4,165,133 1.1 1993 \5\............................ 4,886 9.9 44,316 90.1 49,202 4,457,500 1.1 1994 \5\............................ 13,940 14.1 85,189 85.9 99,129 4,729,948 2.1 1995 \5\............................ 31,694 16.1 164,281 83.9 196,575 4,980,462 4.0 ---------------------------------------------------------------------------------------------------------------- \1\ In current pay at end of fiscal year. \2\ The decline in the number of reviews in 1984 and 1985 was due to the national moratorium on reviews pending enactment and implementation of new legislation that revised criteria for CDRs (legislation enacted in fiscal year 1984; regulations promulgated late fiscal year 1985). \3\ The decline in CDR processing in 1990 was due to the unanticipated demands of processing approximately 40,000 class action court cases. \4\ The continued decline in CDR processing is due to the increase in the initial claims workloads. \5\ Includes non-State CDR mailer continuations. Source: Office of Disability, Social Security Administration. CHANGES IN ENROLLMENT AND APPLICANT BACKLOGS Disability Insurance (DI) Awards and Recipients Over the past 18 years, the DI Program experienced a period of declining enrollment followed by a rebound in growth. The number of DI beneficiaries (disabled workers and their dependents) receiving benefits peaked at 4.9 million in May 1978. The beneficiary population then declined sharply to 3.8 million in July 1984. Thereafter, the number of beneficiaries rose steadily, reaching 5.9 million in December 1995. Similarly, the number of new DI benefit awards declined from 592,000 in 1975 to approximately 299,000 in 1982. As shown in table 1-23, awards then rose almost steadily, reaching 646,000 in 1995. (The large 1992 increase is partially attributable to SSA's short-term measures for dealing with increased DI applications. Increasing the volume of applications processed resulted in increases in both awards and denials.) TABLE 1-23.--DISABLED WORKERS' APPLICATIONS, AWARDS, RATIO OF AWARDS TO APPLICATIONS, AND INSURED WORKERS FOR SELECTED YEARS, 1960-95 ---------------------------------------------------------------------------------------------------------------- Number of Awards as a Awards per applications Total awards percent of 1,000 insured (in thousands) applications workers ---------------------------------------------------------------------------------------------------------------- 1960............................................ 418.6 207,805 50 4.5 1965............................................ 532.9 253,499 48 4.7 1970............................................ 868.2 350,384 40 4.8 1971............................................ 924.4 415,897 45 5.6 1972............................................ 947.8 455,438 48 6.0 1973............................................ 1,066.9 491,616 46 6.3 1974............................................ 1,330.2 535,977 40 6.7 1975............................................ 1,285.3 592,049 46 7.1 1976............................................ 1,232.2 551,460 45 6.5 1977............................................ 1,235.2 568,874 46 6.5 1978............................................ 1,184.7 464,415 39 5.2 1979............................................ 1,187.8 416,713 35 4.4 1980............................................ 1,262.3 396,559 31 4.0 1981............................................ 1,161.3 345,254 30 3.4 1982............................................ 1,020.0 298,531 29 2.9 1983............................................ 1,017.7 311,491 31 3.0 1984............................................ 1,035.7 357,141 34 3.4 1985............................................ 1,066.2 377,371 35 3.5 1986............................................ 1,118.4 416,865 37 3.8 1987............................................ 1,108.9 415,848 37 3.7 1988............................................ 1,017.9 409,490 40 3.6 1989............................................ 984.9 425,582 43 3.7 1990............................................ 1,067.7 467,977 44 4.0 1991............................................ 1,208.7 536,434 44 4.5 1992............................................ 1,335.1 636,637 48 5.2 1993............................................ 1,425.8 635,238 45 5.2 1994............................................ 1,443.8 631,870 44 5.1 1995............................................ 1,338.1 645,832 48 5.1 ---------------------------------------------------------------------------------------------------------------- Source: Office of the Actuary, Social Security Administration. The incidence of disability (number of awards per 1,000 insured workers) fell from an all-time high of 7.1 in 1975 to an all-time low of 2.9 in 1982. In 1995, the rate was 5.1 percent (see table 1-23). Table 1-24 shows the number of DI beneficiaries for selected fiscal years. Pending Claims and Waiting Times In recent years, the combination of increasing workloads and reduced staff left the State Disability Determination Services unable to keep pace with their workloads. \5\ As shown in table 1-25, pending cases rose sharply between 1988 and 1992. During that time, applications pending at the DDSs rose from 323,000 to 725,000, causing applicants to wait 50 percent longer, or 3 months instead of 2, for an eligibility decision. However, by the end of 1995, applications pending had dropped to 590,000, with applicants' waiting time reduced to about 2 months. Additional budgetary resources were directed specifically to disability case processing in fiscal years 1994 and 1995. These targeted resources have assisted SSA in efforts to hold down the growth in pending disability work. Table 1-25 shows actual disability cases pending and applicant waiting times since fiscal year 1988. --------------------------------------------------------------------------- \5\ Between 1984 and 1990, DDS staff was cut by 19 percent--from 14,500 to 11,800. TABLE 1-24.--NUMBER OF DISABILITY INSURANCE BENEFICIARIES FOR SELECTED YEARS, 1960-95 [Current payment status, December] ---------------------------------------------------------------------------------------------------------------- Disabled workers Spouses Children Total ---------------------------------------------------------------------------------------------------------------- Year: 1960................................................... 455,371 76,599 155,481 687,451 1965................................................... 988,074 193,362 557,615 1,739,051 1970................................................... 1,492,948 283,447 888,600 2,664,995 1975................................................... 2,488,774 452,922 1,410,504 4,352,200 1980................................................... 2,861,253 462,204 1,358,715 4,682,172 1981................................................... 2,776,519 428,212 1,251,543 4,456,274 1982................................................... 2,603,713 365,883 1,003,869 3,973,465 1983................................................... 2,568,966 308,060 935,904 3,812,930 1984................................................... 2,596,535 303,984 921,285 3,821,804 1985................................................... 2,656,500 305,528 945,141 3,907,169 1986................................................... 2,727,386 300,592 965,301 3,993,279 1987................................................... 2,785,885 290,895 967,944 4,044,724 1988................................................... 2,830,284 280,821 963,195 4,074,300 1989................................................... 2,895,364 271,488 961,975 4,128,827 1990................................................... 3,011,294 265,890 988,797 4,265,981 1991................................................... 3,194,938 266,219 1,051,883 4,513,040 1992................................................... 3,467,783 270,674 1,151,239 4,889,696 1993................................................... 3,725,966 272,759 1,254,841 5,253,566 1994................................................... 3,962,954 271,054 1,349,511 5,583,519 1995................................................... 4,185,263 263,539 1,408,854 5,857,656 ---------------------------------------------------------------------------------------------------------------- Source: Office of Research and Statistics, Social Security Administration. CHARACTERISTICS OF RECIPIENTS OASDI Table 1-26 provides detailed information on the number of OASDI beneficiaries in various categories, and the average amount of monthly benefits by type of beneficiary for both new awards and all beneficiaries currently receiving payments. DI Tables 1-27 and 1-28 present data on the demographic, social, and medical characteristics of the disabled population over time. For instance, table 1-27 shows the increase in the receipt of benefits by women, which reflects larger societal trends in female work force participation. Table 1-27 also indicates the higher levels of educational attainment that characterize the present disabled population in comparison to that of 1970. TABLE 1-25.--DISABILITY CASES PENDING AND WAITING TIMES, 1988-95 [Cases pending and weeks of work on hand at State Disability Determination Services (DDSs)] ------------------------------------------------------------------------ Total claims Year pending at end of Weeks of work year on hand \1\ ------------------------------------------------------------------------ 1988................................ 323,000 8.4 1989................................ 479,000 10.0 1990................................ 538,000 11.3 1991................................ 693,000 14.3 1992................................ 725,000 12.1 1993................................ 712,000 10.9 1994................................ 729,000 10.3 1995................................ 590,000 8.4 ------------------------------------------------------------------------ \1\ The number of weeks of work pending in DDSs provides the best approximation of the amount of time an applicant must wait for an eligibility decision. Source: National Council of Disability Determination Directors. TABLE 1-26.--NUMBER OF PERSONS RECEIVING VARIOUS TYPES OF OASDI BENEFITS BY AGE, SEX, AND AVERAGE MONTHLY BENEFIT AMOUNTS, DECEMBER 1995 [Based on a 10-percent sample] ---------------------------------------------------------------------------------------------------------------- Percent of Average Percentage Beneficiaries Number total monthly of total (thousands) beneficiaries benefit benefits ---------------------------------------------------------------------------------------------------------------- Retired workers................................................ 26,763 61.5 $720 68.2 Retired men................................................ 13,914 32.1 810 40.0 Retired women.............................................. 12,759 29.4 621 28.2 Disabled workers............................................... 4,185 9.6 682 10.1 Disabled men............................................... 2,568 5.9 762 6.9 Disabled women............................................. 1,617 3.7 555 3.2 Spouses of retired workers..................................... 3,026 7.0 370 4.0 Wives of retired workers................................... 2,996 6.9 372 4.0 Wives with entitled children............................... 79 0.2 257 0.1 Wives age 62 and over without entitled children............ 2,918 6.7 375 3.9 Husbands of retired workers................................ 30 0.1 221 (\1\) Spouses of disabled workers.................................... 264 0.6 164 0.2 Wives of disabled workers.................................. 256 0.6 165 0.1 Wives with entitled children............................... 202 0.5 143 0.1 Wives age 62 and over without entitled children............ 54 0.1 247 (\1\) Husbands of disabled workers............................... 8 (\1\) 117 (\1\) Children....................................................... 3,734 8.6 344 4.6 Children of retired workers................................ 442 1.0 322 0.5 Minor children (age 0-17).............................. 242 0.6 287 0.2 Student children (age 18 and 19)....................... 11 (\1\) 360 (\1\) Disabled children (age 18 and over).................... 189 0.4 364 0.2 Children of deceased workers............................... 1,884 4.3 469 3.1 Minor children (age 0-17).............................. 1,386 3.2 460 2.3 Student children (age 18 and 19)....................... 51 0.1 547 0.1 Disabled children (age 18 and over).................... 446 1.0 487 0.8 Children of disabled workers............................... 1,409 3.2 183 0.9 Minor children (age 0-17).............................. 1,329 3.1 178 0.8 Student children (age 18 and 19)....................... 29 0.1 284 (\1\) Disabled children (age 18 and over).................... 51 0.1 270 (\1\) Widowed mothers and fathers.................................... 275 0.6 478 0.5 Widowed mothers............................................ 260 0.6 485 0.4 Widowed fathers............................................ 15 (\1\) 351 (\1\) Widows and widowers (nondisabled).............................. 5,052 11.6 680 12.2 Widows (nondisabled)....................................... 5,015 11.6 681 12.1 Widowers (nondisabled)..................................... 38 0.1 500 0.1 Widows and widowers (disabled)................................. 173 0.4 458 0.3 Widows (disabled).......................................... 169 0.4 461 0.3 Widowers (disabled)........................................ 4 (\1\) 308 (\1\) Parents total.................................................. 4 (\1\) 591 (\1\) Special age 72 (primary)....................................... 1 (\1\) 192 (\1\) Total OASI beneficiaries................................. 37,530 86.5 666 88.8 Total DI beneficiaries................................... 5,858 13.5 539 11.2 Total OASDI beneficiaries................................ 43,387 100.0 649 100.0 ---------------------------------------------------------------------------------------------------------------- \1\ Less than 0.1 percent. Note.--Columns may not add due to rounding. Source: Office of Research and Statistics, Social Security Administration. TABLE 1-27.--PERCENT DISTRIBUTION BY AGE, SEX AND EDUCATION OF TITLE II DISABLED WORKER BENEFICIARIES ALLOWED BENEFITS IN SELECTED CALENDAR YEARS 1970-95, COMPARED WITH ADULT U.S. POPULATION IN 1990 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Year allowed benefits Characteristics ---------------------------------------------------------------------------------------------------------------- Adult U.S. 1970 1975 1979 1982 1985 1987 1988 1989 1990 1991 1992 1993 1994 1995 population \1\ ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Age: Under 35...................................................... 9.0 11.0 13.6 14.4 16.8 17.1 15.2 16.2 15.7 15.7 16.8 16.2 14.7 13.3 46 35-44......................................................... 11.0 10.0 11.5 12.3 15.0 16.0 16.5 17.9 18.7 19.6 20.4 20.9 20.7 20.4 24 45-54......................................................... 26.0 26.0 27.2 26.5 25.7 22.9 23.3 24.7 24.7 25.1 25.6 26.8 27.7 28.3 16 55-59......................................................... 24.0 23.0 27.0 27.2 23.9 20.8 20.6 20.4 19.9 19.5 18.5 18.6 19.2 19.9 7 60 and over................................................... 30.0 30.0 20.6 19.6 18.7 23.2 24.4 20.9 21.0 20.1 18.7 17.6 17.8 18.0 7 Median age (years)............................................ 56.0 55.6 53.4 53.1 51.7 53.0 53.3 52.1 51.9 51.4 50.5 50.3 50.8 51.3 32.9 Sex: Male.......................................................... 74 68 69 70 67 66 66 64 64 64 63 62 60 58.4 49 Female........................................................ 26 32 31 30 33 34 34 36 36 36 37 38 40 41.4 51 Education (years of school completed): No schooling \2\.............................................. 2 1 1 1 2 1 1 1 1 1 1 1 1 NA 1 Elementary school (1-8)....................................... 44 37 29 26 23 18 18 17 16 16 12 11 12 NA 9 High school................................................... 46 52 55 56 59 57 59 60 62 62 50 45 55 NA 45 9-11........................................................ 23 24 23 22 22 19 20 19 19 19 15 14 16 NA 11 12.......................................................... 23 28 32 34 37 38 39 41 43 43 35 31 39 NA 34 Some college.................................................. 9 10 12 14 14 16 15 17 17 17 14 12 16 NA 45 Unknown....................................................... 0 0 3 3 2 8 7 5 5 5 23 31 16 NA 0 ------------------------------------------------------------------------------------------------------------------------------- Total percent............................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \1\ Derived from 1990 census. Figures for age based on population aged 18-64. Figures for education based on persons aged 25 and over. \2\ Also includes special schools for handicapped. NA--Not available. Source: Office of Disability, Social Security Administration. TABLE 1-28.--PERCENT DISTRIBUTION BY DISABLING CONDITION OF TITLE II DISABLED WORKER BENEFICIARIES ALLOWED BENEFITS IN SELECTED CALENDAR YEARS 1970-95 -------------------------------------------------------------------------------------------------------------------------------------------------------- Year allowed benefits Disabling condition and mobility ------------------------------------------------------------------------------------------------- 1970 1975 1979 1982 1985 1987 1988 1989 1990 1991 1992 1993 1994 1995 -------------------------------------------------------------------------------------------------------------------------------------------------------- Disabling condition: Infective and parasitic diseases \1\................ 3 1 1 1 1 1 0 1 6 6 7 7 6 6 Neoplasms........................................... 10 10 14 17 15 12 16 18 17 16 13 15 16 16 Allergic, endocrine system, metabolic and nutritional diseases............................... 4 3 3 4 5 5 3 3 3 4 5 5 5 5 Mental, psychoneurotic and personality disorders.... 11 11 11 11 18 23 22 22 23 24 25 26 24 22 Diseases of the nervous system and sense organs..... 6 7 8 9 8 8 8 9 9 8 8 7 8 8 Circulatory system.................................. 31 32 28 25 19 17 18 17 16 15 14 15 14 14 Respiratory system.................................. 7 7 6 7 5 5 5 5 5 5 4 5 5 5 Digestive system.................................... 3 3 2 2 2 1 2 2 2 2 2 2 2 2 Skeletal musculo.................................... 15 17 17 16 13 14 14 11 12 13 13 12 12 12 Accidents, poisonings and violence.................. 8 6 6 6 4 5 5 4 4 4 4 3 3 3 Other/unknown....................................... 2 3 3 2 11 9 7 9 5 5 5 5 6 6 ------------------------------------------------------------------------------------------------- Total percent \2\............................... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ Beginning in 1990, AIDS/HIV cases are included in this category. \2\ Due to rounding, may not add to 100 percent. Source: Office of Disability, Social Security Administration. SOCIAL SECURITY FINANCING Current Law Financing for Social Security--Old Age, Survivors, and Disability Insurance (OASDI)--and the Hospital Insurance (HI) part of Medicare--is provided primarily by taxes levied on wages and net self-employment income. These taxes often are referred to as FICA and SECA taxes (Federal Insurance Contributions Act and Self-Employment Contributions Act, respectively). More than 95 percent of the work force, or an estimated 145.3 million workers in 1996 (of whom 3.2 million pay only HI taxes), is required to pay FICA or SECA. The FICA tax is paid equally by both employees and employers; the SECA tax is paid by the self-employed. Both taxes have three components: One each for OASI, DI, and HI. The FICA tax was first levied in 1937 at a rate of 1 percent each for the employee and employer on earnings up to $3,000 a year. In 1996, the rate is 7.65 percent of which 6.2 percent goes to OASDI and 1.45 percent goes to HI. The SECA rate for the self-employed is 12.4 percent for OASDI and 2.9 percent for HI. The OASDI rate is levied on earnings up to $62,700. (This level rises annually at the same rate as average wages in the economy.) For the HI portion, all earnings are taxable. The three programs also receive interest income on securities recorded to its trust funds, income taxes levied on Social Security benefits, and income from various other minor sources. Most income to the system goes out directly to meet current benefit obligations. Any funds collected in excess of the amount needed to make benefit payments are credited to the OASI and DI Trust Funds as reserves, in the form of government securities. These reserves serve as a cushion against temporary shortfalls in revenues or large increases in outlays due to economic fluctuations. The trust funds also are credited with interest income. Social Security benefit outlays are drawn against the trust funds and are made under a permanent appropriation provided for in the Social Security Act. Administrative expenses also are charged against the trust funds, but are subject to an annual limitation set by appropriations acts. Before 1984, self-employed workers paid a tax rate which was less than the combined employee-employer rate. Effective in 1984, self-employed workers began to pay Social Security taxes that were equivalent to the combined employer-employee rate and to receive a partial credit against that tax through 1989. Effective in 1990 and thereafter, the credit was replaced with a system designed to achieve parity between employees and the self-employed. Under this system: --The base of the self-employment tax is adjusted downward to reflect the fact that employees do not pay FICA tax on the value of the employer's FICA tax. The base is equivalent to net earnings from self-employment (up to the taxable wage base), less 7.65 percent, and --A deduction is allowed for income tax purposes for half of SECA liability, to allow for the fact that employees do not pay income tax on the value of the employer's FICA tax. Tables 1-29, 1-30, 1-31 and 1-32 show FICA and SECA tax rates (in percent), taxes (in dollars), and taxable earnings bases, both past and future. Table 1-32a shows categories of workers exempt from FICA and SECA taxes. TABLE 1-29.--FICA AND SECA TAX RATES, SELECTED YEARS 1937-2000 [In percent] ---------------------------------------------------------------------------------------------------------------- Rate paid by employee and employer Self- Maximum Calendar year OASI ---------------------------- employed taxable DI OASDI HI Total rate earnings ---------------------------------------------------------------------------------------------------------------- 1937.................................................... 1.0 ..... ..... ..... 1.0 ........ $3,000 1950.................................................... 1.5 ..... ..... ..... 3.0 ........ 3,000 1960.................................................... 3.0 0.25 2.75 ..... 3.0 4.5 4,800 1970.................................................... 3.65 0.55 4.20 0.60 4.8 6.9 7,800 1980.................................................... 4.52 0.56 5.08 1.05 6.13 8.1 25,900 1990.................................................... 5.60 0.60 6.20 1.45 7.65 15.3 51,300 1995.................................................... 5.26 0.94 6.20 1.45 7.65 15.3 \1\ 61,20 0 1996.................................................... 5.26 0.94 6.20 1.45 7.65 15.3 \1\ 62,70 0 1997-99................................................. 5.26 0.85 6.20 1.45 7.65 15.3 (\2\) 2000.................................................... 5.30 0.90 6.20 1.45 7.65 15.3 (\2\) ---------------------------------------------------------------------------------------------------------------- \1\ OASDI; no limit (HI). \2\ Not yet determined for OASDI; no limit (HI). Note.--Until 1991 the maximum taxable earnings for HI were the same as for OASDI. In 1991, 1992, and 1993 maximum taxable earnings were $125,000, $130,200, and $135,000 respectively, with no limit after 1993. Only 92.35 percent net self-employment earnings are taxable and half of the SECA taxes so computed is deductible for income tax purposes. Source: Congressional Research Service. TABLE 1-30.--FICA AND SECA TAXES, SELECTED YEARS 1950-96 ------------------------------------------------------------------------ Annual tax payments --------------------------------------- Average earner \1\ High earner \1\ --------------------------------------- FICA \1\ SECA \2\ FICA \1\ SECA \2\ ------------------------------------------------------------------------ 1950............................ $38 ........ $45 ........ 1960............................ 120 $180 144 $216 1970............................ 297 427 374 538 1980............................ 767 1,014 1,588 2,098 1995............................ 1,887 2,998 6,694 10,615 Cumulative 1951-95 \3\.......... 99,656 143,815 190,332 285,164 1996............................ 1,963 3,118 6,787 10,768 ------------------------------------------------------------------------ \1\ Employee share only for FICA column. Average earner means someone who earned average wages throughout his or her working years (average wages are estimated for 1995 and 1996). For years before 1994, high earner means someone who earned at least the maximum wage level subject to OASDI and HI taxes. For 1994, 1995, and 1996, it is assumed to be someone who earns $200,000 a year. \2\ For 1995 and 1996, figures in table are net of income tax deduction equal to one half of SECA taxes. \3\ Includes interest compounded at rates of long-term Treasury issues. Encompasses a hypothetical 44-year career that began at age 21 and ended at age 65. Source: Congressional Research Service. TABLE 1-31.--PAYROLL TAX RATES FOR EMPLOYEES AND EMPLOYERS, 1937-2000 ---------------------------------------------------------------------------------------------------------------- Tax rates (percent) for employer and OASDI employee, each Calendar years wage base ------------------------------------------- \1\ Total OASI DI HI ---------------------------------------------------------------------------------------------------------------- 1937-49.................................................. $3,000 1.000 1.000 ......... ......... 1950..................................................... 3,000 1.500 1.500 ......... ......... 1951-53.................................................. 3,600 1.500 1.500 ......... ......... 1954..................................................... 3,600 2.000 2.000 ......... ......... 1955-56.................................................. 4,200 2.000 2.000 ......... ......... 1957-58.................................................. 4,200 2.250 2.000 0.250 ......... 1959..................................................... 4,800 2.500 2.250 0.250 ......... 1960-61.................................................. 4,800 3.000 2.750 0.250 ......... 1962..................................................... 4,800 3.125 2.875 0.250 ......... 1963-65.................................................. 4,800 3.625 3.375 0.250 ......... 1966..................................................... 6,600 4.200 3.500 0.350 0.350 1967..................................................... 6,600 4.400 3.550 0.350 0.500 1968..................................................... 7,800 4.400 3.325 0.475 0.600 1969..................................................... 7,800 4.800 3.725 0.475 0.600 1970..................................................... 7,800 4.800 3.650 0.550 0.600 1971..................................................... 7,800 5.200 4.050 0.550 0.600 1972..................................................... 9,000 5.200 4.050 0.550 0.600 1973..................................................... 10,800 5.850 4.300 0.550 1.000 1974..................................................... 13,200 5.850 4.375 0.575 0.900 1975..................................................... 14,100 5.850 4.375 0.575 0.900 1976..................................................... 15,300 5.850 4.375 0.575 0.900 1977..................................................... 16,500 5.850 4.375 0.575 0.900 1978..................................................... 17,700 6.050 4.275 0.775 1.000 1979..................................................... 22,900 6.130 4.330 0.750 1.050 1980..................................................... 25,900 6.130 4.520 0.560 1.050 1981..................................................... 29,700 6.650 4.700 0.650 1.300 1982..................................................... 32,400 6.700 4.575 0.825 1.300 1983..................................................... 35,700 6.700 4.775 0.625 1.300 1984..................................................... 37,800 7.000 5.200 0.500 1.300 1985..................................................... 39,600 7.050 5.200 0.500 1.350 1986..................................................... 42,000 7.150 5.200 0.500 1.450 1987..................................................... 43,800 7.150 5.200 0.500 1.450 1988..................................................... 45,000 7.510 5.530 0.530 1.450 1989..................................................... 48,000 7.510 5.530 0.530 1.450 1990..................................................... 51,300 7.650 5.600 0.600 1.450 1991..................................................... 53,400 7.650 5.600 0.600 1.450 1992..................................................... 55,500 7.650 5.600 0.600 1.450 1993..................................................... 57,600 7.650 5.600 0.600 1.450 1994..................................................... 60,600 7.650 5.260 0.940 1.450 1995..................................................... 61,200 7.650 5.260 0.940 1.450 1996..................................................... 62,700 7.650 5.260 0.940 1.450 1997-99.................................................. (\2\) 7.650 5.350 0.850 1.450 2000-.................................................... (\2\) 7.650 5.300 0.900 1.450 ---------------------------------------------------------------------------------------------------------------- \1\ The maximum amount of taxable earnings for the HI Program is the same as that for the OASDI Program for 1966- 90; $125,000, $130,200, and $135,000 for 1991-93, respectively; no limit after 1993. \2\ Increases automatically with increases in the average wage index. The CBO estimates that the OASDI wage base will be $63,900 in 1997; $66,900 in 1998; and $72,000 in 1999. Source: Office of the Actuary, Social Security Administration. TABLE 1-32.--TAX RATES FOR SELF-EMPLOYED INDIVIDUALS, 1980 AND AFTER ---------------------------------------------------------------------------------------------------------------- OASDI OASDHI Calendar year OASI DI combined HI combined ---------------------------------------------------------------------------------------------------------------- 1980..................................................... 6.2725 0.7775 7.05 1.05 8.10 1981..................................................... 7.0250 0.9750 8.00 1.30 9.30 1982..................................................... 6.8125 1.2375 8.05 1.30 9.35 1983..................................................... 7.1125 0.9375 8.05 1.30 9.35 1984..................................................... 10.4000 1.0000 11.40 2.60 \1\ 14.00 1985..................................................... 10.4000 1.0000 11.40 2.70 \1\ 14.10 1986-87.................................................. 10.4000 1.0000 11.40 2.90 \1\ 14.30 1988-89.................................................. 11.0600 1.0600 12.12 2.90 \1\ 15.02 1990-93.................................................. 11.2000 1.2000 12.40 2.90 15.30 1994-96.................................................. 10.5200 1.8800 12.40 2.90 15.30 1997-99.................................................. 10.7000 1.7000 12.40 2.90 15.30 2000-.................................................... 10.6000 1.8000 12.40 2.90 15.30 ---------------------------------------------------------------------------------------------------------------- \1\ Tax credits for the self-employed equaled 2.7 percent in 1984, 2.3 percent in 1985, and 2.0 percent in 1986- 89. The tax rate shown is not reduced for these credits. See text for explanation of change in tax treatment of the self-employed. Source: Congressional Research Service. TABLE 1-32a.--WORKERS EXEMPT FROM FICA AND SECA TAXES ------------------------------------------------------------------------ ------------------------------------------------------------------------- State and local government workers participating in alternative retirement systems (HI tax is mandatory for state and local government workers hired since April 1, 1986). Election workers earning $1,000 or less a year (beginning in 1995). Ministers who choose not to be covered, and certain religious sects. Federal workers hired before 1984 (the HI portion is mandatory for all Federal workers). \1\ College students working at their academic institutions. Household workers earning less than $1,000 a year (effective in 1994), or for those under age 18 for whom household work is not their principal occupation. Self-employed workers with annual net earnings below $400. ------------------------------------------------------------------------ \1\ Elected office holders, political appointees, and judges are mandatorily covered by both OASDI and HI regardless of when their service began. Source: Congressional Research Service. Status of OASDI Trust Funds Summary Social Security's financial condition is assessed annually by its Board of Trustees, comprised of the Secretaries of Treasury (Managing Trustee), Labor, and Health and Human Services, the Commissioner of Social Security, and two representatives of the public. Their 1996 report was released on June 5, 1996. The Congressional Budget Office (CBO) also makes Social Security projections, the latest of which were released on May 23, 1996. The Trustees' projections cover a period extending 75 years into the future, whereas CBO's projections are only for the next 10 years. For this near-term period, both the Trustees and CBO show that through the remainder of this decade, and for some period into the next century, the favorable demographic pattern of a large baby boom generation at peak earning years, combined with the retirement of the relatively small generation born during the Depression, should ensure large trust fund reserves. Under CBO's assumptions, the annual excess of income over outlays will reach $127 billion by fiscal year 2005 and the reserve balance of the trust funds will represent 2.6 years' worth of outgo. Under the Trustees' ``intermediate'' (or moderate) set of assumptions, the annual excess of income over outlays will reach $115 billion by fiscal year 2005, and the reserve balance of the trust funds will represent 2.2 years' worth of outgo. Table 1-33 shows both historical and estimated operations of the OASI and DI Trust Funds in the short run. For the long run, the projections are more troubling. For a number of years, the Trustees' reports have projected long- range financing problems for the system. Although their latest report continues to show a near-term buildup of ``trust fund'' reserves, their ``intermediate'' forecast for the next 75 years shows that, on average, Social Security expenditures will be 16.4 percent more than its income. The trust fund buildup would peak at $2.9 trillion in nominal dollars in 2018, and then be drawn down as the post-World War II baby boomers retire (see chart 1-2). The Trustees estimate that by 2015 the DI Trust Fund would be exhausted, and by 2031 the OASI Trust Fund would be exhausted as shown in table 1-34. On a combined basis the two trust funds would be exhausted in 2029. The term ``exhausted'' is commonly used to indicate that trust fund reserves plus payroll taxes and other revenues would be insufficient to pay all benefits when they are due. Background The Social Security taxes people pay flow into the Federal Treasury, with each program's share credited to separate trust funds (one for OASI, another for DI). The crediting occurs through the posting of interest-bearing Federal securities (the interest rate is the same as the average rate prevailing on outstanding Federal bonds with a maturity of 4 years or longer). When the government receives the money, it records new securities to the appropriate fund; when it makes payments, it writes some off. These securities represent obligations that the government has issued to itself. In effect, they are not assets for the government, but claims against it. Their primary role is to be reserve ``spending authority.'' As long as a trust fund has a balance, the Treasury Department is authorized to make payments owed against it from the Treasury; the fund itself does not contain actual cash resources to do so. For more than three decades after Social Security taxes were first levied in 1937, the system's income routinely exceeded its outgo, and its trust funds grew. However, the situation changed in the early 1970s. Enactment of major benefit increases in the 1968-72 period was followed by higher inflation and leaner economic conditions than had been expected. Prices rose faster than wages, the post-World War II baby boom ended precipitously (leading to a large cut in projected birth rates), and Congress adopted faulty benefit rules in 1972 that overcompensated new Social Security retirees for inflation. These factors combined to sour the outlook for Social Security and it remained poor through the mid-1980s. TABLE 1-33.--OPERATIONS OF THE OASDI TRUST FUNDS DURING SELECTED FISCAL YEARS 1960-95 AND ESTIMATED FUTURE OPERATIONS DURING FISCAL YEARS 1996-2005, ON THE BASIS OF THE INTERMEDIATE SET OF ASSUMPTIONS [In millions of dollars] ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Income Expenditures Assets -------------------------------------------------------------------------------------------------------------------------------------------- Income Payments Transfers Fiscal year \1\ from from the to Net Amount at Total Net contributions taxation general fund Net interest Total Benefit Administrative Railroad increase end of \2\ of of the \4\ payments \6\ expenses Retirement during period benefits Treasury \3\ Program year ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Historical data: 1960........................................... 11,394 10,830 ........ ............ 564 11,606 10,798 234 574 -212 22,996 1965........................................... 17,681 17,032 ........ ............ 648 17,456 16,618 379 459 224 22,187 1970........................................... 36,127 34,096 ........ 458 1,572 30,275 29,063 623 589 5,851 37,720 1975........................................... 66,677 63,374 ........ 499 2,804 64,658 62,547 1,101 1,010 2,018 48,138 1980........................................... 117,427 114,413 ........ 675 2,339 118,548 115,624 1,494 1,430 -1,121 32,246 1985........................................... 197,865 192,181 3,368 105 2,211 188,504 183,959 2,192 2,353 \7\ 7,53 8 39,750 1986........................................... 215,461 205,146 3,558 3,310 3,447 198,730 193,869 2,209 2,653 \7\ 6,11 7 45,867 1987........................................... 226,893 218,878 3,307 69 4,638 207,323 202,430 2,279 2,614 19,570 65,437 1988........................................... 258,090 248,145 3,390 55 6,500 219,290 213,907 2,532 2,851 38,800 104,237 1989........................................... 284,936 270,811 3,772 43 10,310 232,491 227,150 2,407 2,934 52,445 156,682 1990........................................... 306,822 288,797 3,081 34 14,909 248,605 243,275 2,280 3,049 58,217 214,900 1991........................................... 322,611 299,794 5,921 -2,864 19,759 269,096 263,104 2,535 3,457 53,515 268,415 1992........................................... 338,270 308,377 6,237 19 23,637 287,524 281,650 2,668 3,206 50,746 319,161 1993........................................... 351,354 318,391 6,161 14 26,788 304,566 298,176 2,955 3,435 46,788 365,949 1994........................................... 376,307 341,438 5,656 10 29,203 319,551 313,129 2,896 3,526 56,757 422,706 1995........................................... 396,276 357,516 5,449 7 33,304 335,830 328,841 2,870 4,120 60,446 483,152 Estimates: 1996........................................... 416,220 373,897 6,159 -327 36,491 350,453 343,778 3,119 3,556 65,766 548,918 1997........................................... 437,852 390,169 7,195 3 40,485 368,446 361,123 3,484 3,838 69,407 618,325 1998........................................... 460,545 408,185 7,694 2 44,664 386,552 379,488 3,180 3,884 73,993 692,318 1999........................................... 486,582 429,177 8,242 2 49,162 406,623 399,288 3,373 3,962 79,959 772,277 2000........................................... 513,841 451,064 8,837 1 53,939 428,449 420,885 3,506 4,057 85,393 857,670 2001........................................... 540,892 472,145 9,500 170 59,078 452,110 444,329 3,636 4,145 88,782 946,452 2002........................................... 571,743 496,973 10,228 (\5\) 64,541 477,922 469,910 3,778 4,234 93,821 1,040,273 2003........................................... 604,793 523,434 11,019 (\5\) 70,340 505,812 497,531 3,934 4,347 98,981 1,139,254 2004........................................... 639,417 551,086 11,887 (\5\) 76,444 536,128 527,554 4,102 4,472 103,289 1,242,543 2005........................................... 683,612 587,871 12,836 (\5\) 82,905 568,700 559,820 4,280 4,600 114,912 1,357,455 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \1\ Under the Congressional Budget Act of 1974 (Public Law 93-344) fiscal years 1977 and later consist of the 12 months ending on September 30 of each year. Fiscal years prior to 1977 consisted of the 12 months ending on June 30 of each year. \2\ Beginning in 1983, includes transfers from general fund of Treasury representing contributions that would have been paid on deemed wage credits for military service in 1957 and later, if such credits were considered to be covered wages. \3\ Includes payments (1) in 1947-52 and in 1967 and later, for costs of noncontributory wage credits for military service performed before 1957; (2) in 1972-83, for costs of deemed wage credits for military service performed after 1956; and (3) in 1969 and later, for costs of benefits to certain uninsured persons who attained age 72 before 1968. \4\ Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative expenses are charged currently to the trust funds on an estimated basis, with a final adjustment, including interest made in the following fiscal year. The amounts of these interest adjustments are included in net interest. For years prior to 1967, a description of the method of accounting for administrative expenses is contained in the 1970 Annual Report. Beginning in October 1973, the figures shown include relatively small amounts of gifts to the funds. Net interest for 1983-86 reflects payments from a borrowing trust fund to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During 1983-91, interest paid from the trust funds to the general fund on advance tax transfers is reflected. The amounts shown for 1985 and 1986 include interest adjustments of $91.3 million and $11.5 million, respectively, on unnegotiated checks issued before April 1985. \5\ Less than $500,000. \6\ Beginning in 1967, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount of reimbursement for unnegotiated benefit checks. \7\ Reflects offset for repayment from the OASI Trust Fund of amounts borrowed from the HI Trust Fund in 1982. The amount repaid in 1985 was $1,824 million; in 1986, the amount was $10,613 million. Note.--Totals do not necessarily equal the sums of rounded components. Source: Board of Trustees (1996). CHART 1-2. OASDI TRUST FUND RESERVES AT END OF SELECTED CALENDAR YEARS Note._In nominal dollars. Source: Board of Trustees (1996), intermediate assumptions, and Office of the Actuary, Social Security Administration. TABLE 1-34.--MAXIMUM TRUST FUND RATIOS AND YEAR OF EXHAUSTION FOR THE OASI, DI AND COMBINED TRUST FUNDS UNDER ALTERNATIVE ASSUMPTIONS ------------------------------------------------------------------------ Assumption OASI DI Combined ------------------------------------------------------------------------ Alternative I (optimistic): Maximum trust fund ratio (percent).... 487 1390 479 Year attained......................... 2017 2070 2018 Year of exhaustion.................... ........ ........ ........ Alternative II (moderate): Maximum trust fund ratio (percent).... 284 136 245 Year attained......................... 2012 2002 2011 Year of exhaustion.................... 2031 2015 2029 Alternative III (pessimistic): Maximum trust fund ratio (percent).... 172 103 159 Year attained......................... 2001 1998 2000 Year of exhaustion.................... 2020 2005 2016 ------------------------------------------------------------------------ Source: Board of Trustees (1996). Before 1971, the balances of the trust funds had never fallen below 1 year's worth of outgo. Beginning in 1973, the program's income lagged its outgo, and its trust funds declined rapidly. Congress had to step in five times to keep them from being exhausted. Although major changes enacted in 1977 greatly reduced the program's longrun deficit, they did not eliminate it, and the shortrun changes made by the legislation were not large enough to enable the program to withstand back-to-back recessions in 1980 and 1982. A disability bill in 1980 and temporary fixes in 1980 and 1981 were followed by another major reform package in 1983. The 1983 changes, along with better economic conditions, helped to alter the picture. Income began to exceed outgo in 1983 and the trust funds grew substantially. Cumulatively, the changes were projected to yield $96 billion in surplus income by 1990, and to raise the trust funds' balances to $123 billion. The funds actually were credited with $200 billion in surplus income by 1990, and their balances reached $225 billion by the end of that year. Under the Trustees' 1996 ``intermediate'' forecast (the one cited as their ``best estimate''), surplus income of $656 billion is projected for the 1991-2000 period, and the trust funds' balances would rise to $881 billion by the beginning of 2001. This would be equivalent to 192 percent of annual expenditures (or 1.9 years' worth). The longer range picture for Social Security has been worsening gradually since 1983. By raising Social Security's age for full benefits from 65 to 67, subjecting benefits to income taxes, and making new Federal and nonprofit workers join the system, Congress had attempted in 1983 to eliminate the longrun problem. In fact, projections made then showed that it had, at least on average, for the following 75 years. However, the average condition of the two trust funds did not represent their condition over the entire period. The funds were not shown to be insolvent at any point, but their expenditures were expected to exceed their income in 2025 and to remain higher thereafter. Simply stated, 40 years of surpluses were to be followed by an indefinite period of deficits. With each passing year since 1983, the Trustees' 75-year averaging period has picked up 1 deficit year at the back end and dropped a surplus year from the front end. This, by itself, would cause the average condition to worsen. However, in recent reports assumptions about birth rates, economic growth, and wages have been lowered, causing further deterioration in the outlook. A small long-range deficit appeared in the 1984 report and the gap has grown larger (with the point of insolvency coming closer) in subsequent reports. The Trustees' June 1996 long-range forecast The 1996 report showed an average 75-year deficit equal to 16 percent of program income and projected that the trust funds (viewed on a combined basis) will become insolvent in 2029. These long-range projections assume that GDP will rise annually at rates ranging from 2.2 percent in 1996 to 1.2 percent in 2050, wages will rise at an ultimate rate of 5 percent per year, the cost of living will go up at a 4 percent rate, unemployment will average 6 percent, and that Social Security benefits will fall in relative terms as the age at which full benefits are payable rises from 65 to 67 over the first few decades of the next century. The higher age for full benefits will mean that people retiring in the future at age 67 or younger will get less than under the previous age rules. These assumptions by themselves would seem to bode well for the system; however, looming demographic shifts are projected to overwhelm them. During the next two decades, the 76 million baby boomers born between 1946 and 1964 will be in their prime productive years, and the baby trough generation of the 1930s Depression will be in retirement. Together, these factors will lead to a stable ratio of workers to recipients. However, as the baby boomers begin retiring around 2010, this ratio will erode quickly. By 2025, most of the surviving baby boomers will be 65 and older. The number of people 65 and older will have nearly doubled, growing from 34 million today to 61 million then. The number of workers will have grown from 142 million to 163 million, or by only 15 percent. Consequently, the ratio of workers to recipients will have fallen from 3.2 to 1 today to 2.2 to 1 in 2025 and 2 to 1 in 2030. Projected worker/ beneficiary ratios and dependency rates are shown in table 1- 35. TABLE 1-35.--COVERED WORK FORCE--NUMBER OF BENEFICIARIES AND DEPENDENCY RATES, SELECTED YEARS 1960-2040 ---------------------------------------------------------------------------------------------------------------- Work force measure 1960 1980 2000 2020 2040 ---------------------------------------------------------------------------------------------------------------- Total population (in millions)..................................... 190 235 285 327 353 Covered workers.................................................... 73 112 146 162 168 Beneficiaries (OASDI).............................................. 14 35 46 68 85 Aged dependency ratio \1\.......................................... 0.173 0.195 0.210 0.275 0.368 Total dependency ratio \2\......................................... 0.904 0.749 0.695 0.700 0.789 Worker/beneficiary ratio........................................... 5.1 3.2 3.2 2.4 2.0 ---------------------------------------------------------------------------------------------------------------- \1\ Ratio of persons aged 65 and over to the number of persons aged 20-64. \2\ Ratio of non-working-age to working-age population--population under 20 plus population 65 and over divided by population 20-64. Source: Board of Trustees (1996), intermediate assumptions. Under this forecast, the trust funds (on a combined basis) would be credited with surplus income until 2018 or so, bringing their balances to a level of $2.9 trillion. They would decline thereafter and would be depleted by 2029. However, tax receipts begin lagging outgo much sooner, in 2012. At that point, the program would have to rely on the interest credited to its trust funds for part of its income. Repayment of this interest would have to be funded from general revenue. Beginning in 2019, the principal on the trust funds would begin to be drawn down. By 2025, $1 out of every $5 of the program's outgo would be dependent upon general fund expenditures for interest payments and the redemption of the government bonds credited to the trust funds. The government has never defaulted on the securities it posts to its trust funds, but the magnitude of these potential claims has prompted many observers to ask where the government will find the money to cover them, given the large deficits it is running today. Unless economic and demographic conditions are better than currently assumed, the government will have three basic options: raise other taxes, curtail other spending, or borrow money from the financial markets. There is nothing now in the law that will dictate or determine what the government actually will (or can) do then. Economists argue that if the surplus taxes projected for the next 16 years were to cause the government to borrow less from financial markets, more money would be available for investment, which could lead to greater economic growth. If this happened, extracting resources from the economy in the future to honor Social Security claims may be less burdensome. Said another way, if one accepts the premise that reductions in Federal borrowing today will increase the amount of resources available for investment, then surplus Social Security taxes today could help build a higher economic base in the future from which to draw the needed resources. However, surplus Social Security taxes do not necessarily reduce government borrowing from the markets. Reductions in borrowing occur when the government reduces its overall deficit, not when one of its programs generates surplus taxes. Even if economic growth were enhanced in the coming decades by less government borrowing, Social Security's problems would not necessarily be resolved. Enhanced economic growth could improve actuarial balance somewhat if it also improves worker productivity, but not proportionately so, since higher productivity would likely result in higher wages, which in turn would lead to larger benefits (see table 1-36). Further, as their numbers swell, the baby boomers and subsequent retirees will raise financial demands on all retirement systems, not only Social Security. The goods and services to be consumed by society cannot be stockpiled in advance, and the economy will have to adjust. Whether this adjustment would be mild or severe is mostly conjecture. TABLE 1-36.--ESTIMATED OASDI INCOME RATES, COST RATES, AND ACTUARIAL BALANCES \1\ [As a percentage of taxable payroll] ------------------------------------------------------------------------ Ultimate percentage increase in wages--CPI \2\ Valuation period -------------------------------- 4.5-4.0 5.0-4.0 5.5-4.0 ------------------------------------------------------------------------ Summarized income rate: 25-year: 1996-2020................. 13.59 13.54 13.49 50-year: 1996-2045................. 13.41 13.35 13.29 75-year: 1996-2070................. 13.40 13.33 13.26 Summarized cost rate: 25-year: 1996-2020................. 13.58 13.18 12.78 50-year: 1996-2045................. 15.32 14.74 14.17 75-year: 1996-2070................. 16.14 15.52 14.90 Balance: 25-year: 1996-2020................. +.01 +.36 +.71 50-year: 1996-2045................. -1.91 -1.39 -0.87 75-year: 1996-2070................. -2.75 -2.19 -1.63 ------------------------------------------------------------------------ \1\ Based on intermediate estimates with various real-wage assumptions. \2\ The first value in each pair is the assumed ultimate annual percentage increase in average wages in covered employment. The second value is the assumed ultimate annual percentage increase in the Consumer Price Index. The difference between the two values is the real-wage differential. Source: Board of Trustees (1996). The 1996 report projects that Social Security will generate sufficient tax receipts to cover its commitments during the next 16 years. The long-range outlook, however, leaves little to be sanguine about. The program has a growing 75-year average deficit. The HI Trust Fund's problems are more imminent, as insolvency is projected for 2001. Resources could be reallocated to HI from Social Security; however, this would only move Social Security's problems closer. If Social Security and HI are considered together, their combined expenditures are expected to be higher than their tax receipts beginning in 1999 and to remain higher thereafter. Their outgo as a percent of the Nation's payrolls would rise from 15.2 percent today to 23.8 percent in 2025, a level that contrasts sharply with a combined tax rate that is set now in the law at 15.3 percent. As a percent of GDP, Social Security and HI outgo would rise from about 6.4 percent today to 9.7 percent in 2025 (see table 1-37). Including supplemental medical insurance (SMI) expenditures would raise it from 7 to 13 percent. In contrast, the tax receipts and premiums collected to support these programs are projected to hover in the range of 7 to 8 percent of GDP throughout the period. These projections are not based on pessimistic economic assumptions. A modest but sustained rise in GDP and moderate inflation and unemployment are assumed as shown in table 1-38. In large part, the projections hinge on demographic factors that are in place today--the post-World War II baby boom, the subsequent birth dearth, and the general aging of society. These projections suggest that to restore long run solvency, income needs to be raised or expenditures cut. Beyond possible changes to the programs themselves, important unknowns that can alter the outlook include whether an effective means can be found to rein in the spiraling cost of medical care generally, and whether future technological advances will propel productivity. Also unknown and little understood is the effect of potential shifts in society's wants and needs, from raising families, buying houses, and educating children to meeting the health and service demands of an older population. Will the higher future costs of Social Security and Medicare place a large strain on the economy or merely reflect a shift of the Nation's consumption priorities? How the Status of the Trust Funds is Measured In the short range, the financial soundness of each of the trust funds can be assessed by considering the size of the trust fund balance, in absolute terms and as a percentage of the annual expenditures, and whether the balance is growing or declining. In the long range, the traditional measure of financial soundness has been the actuarial balance of the system. The actuarial balance is defined as the difference between the total summarized income rate and the total summarized cost rate. Because the Social Security Program has been designed as a contributory system in which those who pay the taxes supporting it are considered to be earning the right to future benefits, Congress has traditionally required long-range estimates of the program's actuarial balance and has set future tax rates with a view to assuring that the income of the program will be sufficient to cover its outgo. Under current procedures, the long-range actuarial analysis of the cash benefits program covers a 75-year period, which would generally be long enough to cover the anticipated retirement years of those currently in the work force. TABLE 1-37.--ESTIMATED COST OF OASDI AND HI SYSTEMS, SELECTED CALENDAR YEARS 1996-2070 [As percent of gross domestic product] ------------------------------------------------------------------------ Calendar year OASDI HI OASDI and HI ------------------------------------------------------------------------ Annual cost rates: 1996.......................... 4.68 1.71 6.39 1997.......................... 4.68 1.78 6.46 1998.......................... 4.68 1.85 6.53 1999.......................... 4.69 1.91 6.60 2000.......................... 4.70 1.97 6.68 2001.......................... 4.71 2.03 6.74 2002.......................... 4.72 2.07 6.79 2003.......................... 4.72 2.12 6.83 2004.......................... 4.73 2.16 6.88 2005.......................... 4.73 2.20 6.93 2010.......................... 4.85 2.41 7.26 2015.......................... 5.22 2.73 7.95 2020.......................... 5.73 3.13 8.86 2025.......................... 6.15 3.52 9.67 2030.......................... 6.42 3.92 10.34 2035.......................... 6.47 4.22 10.69 2040.......................... 6.37 4.40 10.78 2045.......................... 6.32 4.52 10.84 2050.......................... 6.33 4.59 10.92 2055.......................... 6.42 4.65 11.07 2060.......................... 6.50 4.75 11.25 2065.......................... 6.53 4.89 11.42 2070.......................... 6.56 5.04 11.59 Summarized cost rates: 1996-2020..................... 5.16 2.46 7.62 1996-2045..................... 5.66 3.14 8.80 1996-2070..................... 5.85 3.55 9.40 ------------------------------------------------------------------------ Note.--Summarized rates are calculated on the present value basis including the value of the trust funds in the first year and the cost of reaching and maintaining a target trust fund level of 1 year's expenditures by the last year. Totals do not necessarily equal the sum of rounded components. Source: Board of Trustees (1996), intermediate assumptions. The long-range status of the trust funds is ordinarily expressed in terms of ``percent of taxable payroll'' rather than in dollar amounts. This permits a direct comparison between the tax rate actually in the law and the cost of the program. For example, if the program is projected to have a deficit of ``2 percent of taxable payroll,'' this means that the OASDI tax rates now in the law would have to be increased by 1 percentage point each for employee and employer, in order to pay for the benefits due under present law. Alternatively, the program could be brought back into balance by an equivalent reduction in benefit outgo or by a combination of revenue increases and outgo reductions. If the program is projected to have a deficit of 2 percent of taxable payroll, and expenditures are projected to be 10 percent of taxable payroll, then, under the given set of assumptions, 20 percent (2 divided by 10) of expenditures could not be met with that tax schedule. In 1996, the total taxable payroll is estimated to be $3.05 trillion so that, in 1996 terms, 2 percent of payroll represented about $61 billion. TABLE 1-38.--SELECTED ECONOMIC ASSUMPTIONS, 1960-2070 -------------------------------------------------------------------------------------------------------------------------------------------------------- Average annual percentage change in-- Average Average Average ---------------------------------- Real-wage annual annual annual Calendar year Average differential \3\ interest unemployment percentage Real annual wage Consumer (percent) rate \4\ rate \5\ increase GDP \1\ in covered Price (percent) (percent) in labor employment Index \2\ force \6\ -------------------------------------------------------------------------------------------------------------------------------------------------------- 1960-64........................................................ 4.6 3.4 1.2 2.2 3.7 5.7 1.3 1965-69........................................................ 4.2 6.1 3.9 2.2 5.2 3.8 2.1 1970-74........................................................ 3.5 6.6 6.2 0.4 6.7 5.4 2.3 1975........................................................... -0.6 6.7 9.1 -2.4 7.4 8.5 1.9 1976........................................................... 5.6 8.5 5.7 2.8 7.1 7.7 2.4 1977........................................................... 4.9 6.8 6.5 0.3 7.1 7.1 2.9 1978........................................................... 5.0 8.9 7.7 1.2 8.2 6.1 3.2 1979........................................................... 2.9 10.1 11.4 -1.3 9.1 5.8 2.6 1980........................................................... -0.3 9.4 13.4 -4.0 11.0 7.1 1.9 1981........................................................... 2.5 9.7 10.3 -0.6 13.3 7.6 1.6 1982........................................................... -2.1 6.4 6.0 0.4 12.8 9.7 1.4 1983........................................................... 4.0 5.0 3.0 2.0 11.0 9.6 1.2 1984........................................................... 6.8 7.3 3.5 3.8 12.4 7.5 1.8 1985........................................................... 3.7 4.7 3.5 1.2 10.8 7.2 1.7 1986........................................................... 3.0 4.6 1.6 3.0 8.0 7.0 2.0 1987........................................................... 2.9 4.6 3.6 1.0 8.4 6.2 1.7 1988........................................................... 3.8 5.3 4.0 1.3 8.8 5.5 1.4 1989........................................................... 3.4 3.9 4.8 -0.9 8.7 5.3 1.8 1990........................................................... 1.3 5.1 5.2 -0.1 8.6 5.5 0.7 1991........................................................... -1.0 3.0 4.1 -1.1 8.0 6.7 0.4 1992........................................................... 2.7 \7\ 4.9 2.9 2.0 7.1 7.4 1.2 1993........................................................... 2.2 \7\ 2.3 2.8 -0.5 6.1 6.8 0.7 1994........................................................... 3.5 \7\ 2.5 2.5 0.0 7.1 6.1 2.3 1995........................................................... \7\ 2.1 \7\ 4.1 2.9 1.2 6.9 5.6 0.9 1996........................................................... 2.1 4.1 2.7 1.3 6.4 5.7 0.9 1997........................................................... 2.2 4.3 3.2 1.1 6.5 5.8 1.0 1998........................................................... 2.0 4.0 3.2 0.8 6.5 5.8 1.0 1999........................................................... 2.0 4.2 3.4 0.8 6.5 5.9 0.9 2000........................................................... 2.0 4.3 3.5 0.8 6.5 6.0 0.9 2001........................................................... 2.0 4.4 3.6 0.7 6.5 6.0 0.9 2002........................................................... 2.0 4.6 3.9 0.7 6.5 6.0 0.9 2003........................................................... 2.0 4.9 4.0 0.9 6.5 6.0 0.8 2004........................................................... 2.0 5.0 4.0 1.1 6.5 6.0 0.8 2005........................................................... 2.0 5.1 4.0 1.1 6.4 6.0 0.8 2010........................................................... 1.8 5.0 4.0 1.0 6.3 6.0 0.6 2020........................................................... 1.3 5.1 4.0 1.1 6.3 6.0 0.2 2030........................................................... 1.4 5.0 4.0 1.0 6.3 6.0 0.2 2040........................................................... 1.4 5.0 4.0 1.0 6.3 6.0 0.2 2050........................................................... 1.2 5.0 4.0 1.0 6.3 6.0 0.0 2060........................................................... 1.3 5.0 4.0 1.0 6.3 6.0 0.1 2070........................................................... 1.2 5.0 4.0 1.0 6.3 6.0 0.1 -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ The real GDP is the value of total output of goods and services, expressed in 1992 dollars. \2\ The Consumer Price Index is the annual average value for the calendar year of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). \3\ The real-wage differential is the difference between the percentage increases, before rounding, in (1) the average annual wage in covered employment, and (2) the average annual Consumer Price Index. \4\ The average annual interest rate is the average of the nominal interest rates, which, in practice, are compounded semiannually, for special public- debt obligations issuable to the trust funds in each of the 12 months of the year. \5\ Through 2005, the rates shown are unadjusted civilian unemployment rates. After 2005, the rates are total rates (including military personnel), adjusted by age and sex based on the average labor force for 1994. \6\ Labor force is the total for the United States (including military personnel) and reflects the average of the monthly numbers of persons in the labor force for each year. \7\ Preliminary. Wages in covered employment are considered preliminary for several years primarily due to uncertainty associated with estimates of amounts above the benefit and contribution base. Source: Board of Trustees (1996), intermediate assumptions. Long-range projections are affected by three basic types of factors: (1) demographic factors, such as rates of fertility, life expectancy, and labor force participation, which determine how many workers there will be in society in relation to nonworking beneficiaries; (2) economic factors such as unemployment, productivity, and inflation; and (3) factors specifically related to the Social Security Program, such as benefit levels, total number of covered workers, and percent of eligible workers drawing early retirement benefits. The actuaries at SSA employ three sets of alternative economic and demographic assumptions. Alternative I is based on optimistic assumptions; alternative II, based on ``intermediate'' assumptions, is considered their ``best guess'' forecast, and is the most frequently cited; and alternative III is based on pessimistic assumptions. In general, alternative II is considered the most balanced estimate of long-term solvency. It is clear that underlying factors cannot be predicted with any certainty as far into the future as 75 years, and that long- range projections should not be taken as absolute predictions of deficits or surpluses in the funds. Beginning with the 1988 Trustees' Report, the Social Security Trustees used an alternative method of determining actuarial balance. Under the ``present value'' method, interest earnings on the fund are more fully recognized. Calculations were based on the present value of future income, outgo, and taxable payroll by discounting the future annual amounts at an assumed rate of interest. Traditionally, the Trustees based their conclusion about the long-range actuarial condition of the program on the ``closeness'' of the income and cost rates when averaged over a 75-year period. If the income rate was between 95 and 105 percent of the cost rate over this projection period, the system was said to be in close actuarial balance. The 1991 Trustees' Report incorporated a more refined measure of actuarial soundness ``designed to reveal problems occurring at any time during the'' 75-year measuring period. The 5-percent ``tolerance'' (i.e., the amount of acceptable actuarial deficit) was retained in measuring the program's actuarial soundness for the 75-year period as a whole, but less tolerance is now permitted for shorter periods of valuation. The spread between income and outgo is evaluated throughout the measuring period in reaching a conclusion of whether close actuarial balance exists, with the amount of acceptable deviation gradually declining from 5 percent for the full 75- year period to 0 (or no acceptable deviation) for the first 10- year segment of the measuring period. To meet the short-range test of financial adequacy, the reserve balance at the end of the first 10-year segment must be at or higher than 100 percent of annual expenditures, a condition that is consistent with the 10-year segment of the long-range test of close actuarial balance. It also must be expected to reach that level within the first 5 years and then remain there. Under this revised limit, if income were at least 95 percent of the cost level for the 75-year period as a whole, the trust funds still could be deemed to be out of close actuarial balance if income and outgo were too small, compared to cost, for shorter segments of the measuring period. Under these measures, the Trustees concluded in their 1996 report, as they did in their five previous reports, that OASDI is not in close actuarial balance over the long run. In the long run, income and expenditures are generally expressed as a percentage of the total amount of earnings subject to taxation under the OASDI Program. Summarized income and cost rates over the 75-year long-range period are determined through present- value calculations and by taking into account actual beginning fund balances and targeted ending fund balances (or reserves) of 100 percent of annual expenditures. Overall, for the period 1996-2070, the difference between the summarized income and cost rates for the OASDI Program is a deficit of 2.19 percent of taxable payroll based on the intermediate assumptions. Therefore, on a combined basis, the OASDI Program is not in close actuarial balance over the next 75 years. In addition, the individual OASI and DI Trust Funds are not in close actuarial balance. Income from OASDI payroll taxes represents 12.4 percent of taxable payroll. Since the tax rate is not scheduled to change in the future under present law, OASDI payroll tax income as a percentage of taxable payroll remains constant at 12.4 percent. Adding the OASDI income from the income taxation of benefits to the income from payroll taxes yields a total ``income rate'' of 12.63 percent. This rate is estimated to increase gradually to 13.32 percent of taxable payroll by the end of the 75-year projection period based on the intermediate assumptions. The growth is attributable, in part, to increasing proportions in both the number of beneficiaries and the amount of their benefits subject to taxation in the future. These proportions will increase because the income thresholds, above which benefits are taxable, are fixed dollar amounts, and, as time goes by, the incomes of more people will exceed them due to the expected rise in wages and prices. OASDI expenditures for benefit payments and administrative expenses currently represent about 11.64 percent of taxable payroll. This ``cost rate'' is estimated to remain below the corresponding income rate for the next 15 years, based on the intermediate assumptions. With the retirement of the 76 million members of the ``baby boom'' generation starting in about 2010, OASDI costs will increase rapidly relative to the taxable earnings of workers. By the end of the 75-year projection period, the OASDI cost rate is estimated to reach 18.8 percent under the intermediate assumptions, resulting in an annual deficit of 5.5 percent, as shown in table 1-39. Table 1-40 shows estimated trust fund assets, and table 1-41 shows estimated trust fund operations, both over the long run. Nature of the Social Security Trust Funds Contrary to popular belief, Social Security taxes are not deposited into the Social Security Trust Funds. They flow each day into thousands of depository accounts maintained by the government with financial institutions across the country. Along with many other forms of revenues, these Social Security taxes become part of the government's operating cash pool, or what is more commonly referred to as the U.S. Treasury. In effect, once these taxes are received, they become indistinguishable from other moneys the government takes in. They are accounted for separately through the issuance of Federal securities to the Social Security Trust Funds--which basically involves a series of bookkeeping entries by the Treasury Department--but the trust funds themselves do not receive or hold money. They are simply accounts. Similarly, benefits are not paid from the trust funds, but from the Treasury. As the checks are paid, securities of an equivalent value are removed from the trust fund accounts. When more Social Security taxes are received than are spent, the money does not sit idle in the Treasury, but is used to finance other operations of the government. The surplus is then reflected in a higher balance of securities being posted to the trust funds. Simply put, these balances, like those of a bank account, represent a promise that, if needed to pay Social Security benefits, the government will obtain resources in the future equal to the value of the securities. TABLE 1-39.--ESTIMATED INCOME RATES AND COST RATES, SELECTED CALENDAR YEARS 1996-2070 [As a percentage of taxable payroll] -------------------------------------------------------------------------------------------------------------------------------------------------------- OASI DI Combined ----------------------------------------------------------------------------------------------------------- Calendar year Income Income Income rate Cost rate Balance rate Cost rate Balance rate Cost rate Balance -------------------------------------------------------------------------------------------------------------------------------------------------------- 1996........................................ 10.73 10.15 0.58 1.89 1.49 0.40 12.63 11.64 0.98 1997........................................ 10.92 10.15 0.77 1.71 1.54 0.17 12.63 11.69 0.94 1998........................................ 10.92 10.13 0.79 1.71 1.58 0.13 12.63 11.72 0.92 1999........................................ 10.93 10.14 0.78 1.71 1.63 0.08 12.64 11.77 0.87 2000........................................ 10.83 10.15 0.68 1.81 1.68 0.13 12.65 11.84 0.81 2001........................................ 10.84 10.16 0.68 1.82 1.73 0.09 12.65 11.89 0.76 2002........................................ 10.84 10.16 0.68 1.82 1.77 0.04 12.66 11.93 0.72 2003........................................ 10.84 10.15 0.69 1.82 1.82 -0.01 12.66 11.97 0.69 2004........................................ 10.85 10.15 0.70 1.82 1.88 -0.06 12.67 12.03 0.64 2005........................................ 10.85 10.14 0.71 1.82 1.93 -0.11 12.67 12.07 0.61 2010........................................ 10.92 10.34 0.58 1.82 2.11 -0.29 12.74 12.46 0.29 2015........................................ 11.01 11.32 -0.31 1.83 2.17 -0.34 12.84 13.50 -0.66 2020........................................ 11.11 12.73 -1.62 1.83 2.22 -0.39 12.94 14.95 -2.02 2025........................................ 11.19 13.92 -2.72 1.83 2.29 -0.45 13.03 16.20 -3.17 2030........................................ 11.27 14.80 -3.53 1.84 2.29 -0.45 13.10 17.08 -3.98 2035........................................ 11.31 15.14 -3.83 1.84 2.24 -0.40 13.15 17.38 -4.23 2040........................................ 11.33 15.05 -3.71 1.84 2.25 -0.41 13.17 17.29 -4.12 2045........................................ 11.35 14.96 -3.61 1.84 2.35 -0.51 13.19 17.31 -4.12 2050........................................ 11.37 15.10 -3.73 1.84 2.41 -0.57 13.21 17.51 -4.30 2055........................................ 11.40 15.47 -4.07 1.85 2.45 -0.61 13.25 17.92 -4.67 2060........................................ 11.43 15.88 -4.44 1.85 2.43 -0.59 13.28 18.31 -5.03 2065........................................ 11.46 16.17 -4.71 1.85 2.43 -0.58 13.30 18.59 -5.29 2070........................................ 11.47 16.39 -4.91 1.85 2.44 -0.60 13.32 18.83 -5.51 -------------------------------------------------------------------------------------------------------------------------------------------------------- Note.--Totals do not necessarily equal the sums of rounded components. Source: Board of Trustees (1996), intermediate assumptions. TABLE 1-40.--ESTIMATED TRUST FUND ASSETS, SELECTED CALENDAR YEARS 1996- 2070 [As a percentage of annual expenditures] ------------------------------------------------------------------------ Beginning of calendar year OASI DI OASDI ------------------------------------------------------------------------ 1996................................... 148 83 140 1997................................... 159 108 152 1998................................... 170 118 163 1999................................... 182 124 174 2000................................... 193 127 183 2001................................... 202 133 192 2002................................... 212 136 201 2003................................... 221 136 208 2004................................... 230 133 215 2005................................... 239 127 221 2010................................... 278 76 244 2015................................... 276 9 232 2020................................... 226 0 181 2025................................... 143 0 98 2030................................... 37 0 0 2035................................... 0 0 0 2040................................... 0 0 0 2045................................... 0 0 0 2050................................... 0 0 0 2055................................... 0 0 0 2060................................... 0 0 0 2065................................... 0 0 0 2070................................... 0 0 0 Trust fund is estimated to become exhausted in.......................... 2031 2015 2029 ------------------------------------------------------------------------ Note.--The assets for the combined funds for years after a component fund has been exhausted are shown for illustrative purposes only since no legal authority currently exists for interfund borrowing between OASI and DI. Source: Board of Trustees (1996), intermediate assumptions. Are the Federal securities issued to the trust funds the same sort of financial assets that individuals and other entities buy? Yes. They earn interest at market rates, have specific maturity dates, and by law represent ``obligations'' of the U.S. Government. But what confuses people is that they often see these securities as assets for the government. When an individual buys a government bond, he has established a financial claim against the government. When the government issues a security to one of its own accounts, it hasn't purchased anything or established a claim against some other person or entity. It is simply creating an IOU from one of its accounts to another. Hence, the building up of Federal securities in a Federal trust fund--like that of Social Security--is not a means in and of itself for the government to accumulate assets. It certainly has established claims against the government for the Social Security system, but the Social Security system is part of the government. Those claims are not resources the government has at its disposal to pay future Social Security benefits. TABLE 1-41.--ESTIMATED OPERATIONS OF THE COMBINED OASI AND DI TRUST FUNDS, SELECTED CALENDAR YEARS 1996-2070 [Constant 1996 dollars, in billions] ---------------------------------------------------------------------------------------------------------------- Income Assets at Calendar year excluding Interest Total Outgo end of interest income income year ---------------------------------------------------------------------------------------------------------------- 1996..................................................... 386.5 38.4 424.9 354.6 566.4 1997..................................................... 389.2 41.2 430.4 361.0 617.9 1998..................................................... 395.3 44.0 439.3 367.2 670.7 1999..................................................... 400.3 46.7 447.0 373.6 722.0 2000..................................................... 406.1 49.5 455.7 380.6 772.8 2001..................................................... 412.0 52.3 464.3 387.7 822.2 2002..................................................... 417.6 54.9 472.5 394.5 869.3 2003..................................................... 423.8 57.4 481.2 401.6 915.3 2004..................................................... 430.2 59.9 490.2 409.5 961.0 2005..................................................... 437.9 62.5 500.4 417.7 1,006.6 2010..................................................... 478.1 72.8 550.9 468.1 1,223.8 2015..................................................... 516.6 79.2 595.8 543.8 1,315.5 2020..................................................... 552.0 70.1 622.1 638.9 1,137.0 2025..................................................... 587.3 40.2 627.5 731.5 613.9 2030..................................................... 0.0 0.0 0.0 0.0 0.0 2035..................................................... 0.0 0.0 0.0 0.0 0.0 2040..................................................... 0.0 0.0 0.0 0.0 0.0 2045..................................................... 0.0 0.0 0.0 0.0 0.0 2050..................................................... 0.0 0.0 0.0 0.0 0.0 2055..................................................... 0.0 0.0 0.0 0.0 0.0 2060..................................................... 0.0 0.0 0.0 0.0 0.0 2065..................................................... 0.0 0.0 0.0 0.0 0.0 2070..................................................... 0.0 0.0 0.0 0.0 0.0 ---------------------------------------------------------------------------------------------------------------- Note.--Figures are not shown for years after which the combined OASI and DI Trust Funds are estimated to be exhausted. Adjustment from current to constant dollars is by the CPI. Totals do not necessarily equal the sum of rounded components. Source: Board of Trustees (1996), intermediate assumptions. What then is the purpose of the trust funds? Generally speaking, the Federal securities issued to any Federal trust fund represent ``permission to spend.'' As long as a trust fund has a balance of securities posted to it, the Treasury Department has legal authority to keep issuing checks for the program. In a sense, the mechanics of a Federal trust fund are similar to those of a bank account. The bank takes in a depositor's money, credits the amount to the depositor's account, and then loans it out. As long as the account shows a balance, the depositor can write checks that the bank must honor. In Social Security's case, its taxes flow into the Treasury, and its trust funds are credited with Federal securities. The government then uses the money to meet whatever expenses are pending at the time. The fact that this money is not set aside for Social Security purposes does not dismiss the government's responsibility to honor the trust funds' account balances. As long as they have balances, the Treasury Department must continue to issue Social Security checks. The key point is that the trust funds themselves do not hold financial resources to pay benefits. Rather, they provide authority for the Treasury Department to use whatever money it has on hand to pay them. The significance of having trust funds for Social Security is that they represent a long-term commitment of the government to the program. While the funds do not hold ``resources'' that the government can call on to pay Social Security benefits, the balances of Federal securities posted to them represent and have served as financial claims against the government--claims on which the Treasury has never defaulted, nor used directly as a basis to finance anything but Social Security expenditures. Is this trust fund arrangement really different from that used by other programs of the government? Doesn't the Treasury Department maintain accounts for them as well? The Treasury Department maintains accounts for all government programs. The difference is that many other programs, particularly those not accounted for through trust funds, get their operating balances--i.e., their permission to spend--through the annual appropriations process. Congress must pass legislation (an appropriations act) each year giving the Treasury Department permission to expend funds for them. In technical jargon, this permission to spend is referred to as ``budget authority.'' For many programs accounted for through trust funds, annual appropriations are not needed. As long as their trust fund accounts show a balance of Federal securities, the Treasury Department has ``budget authority'' to expend funds for them. Another difference is that a trust fund account earns interest, since it is comprised of Federal securities. In the case of the Social Security Trust Funds, the interest is equal to the prevailing average rate on outstanding Federal securities with a maturity of 4 years or longer. This interest is credited to the trust funds twice a year (on June 30 and December 31) by issuing more securities to them. So in effect, a trust fund account can automatically build future ``budget authority'' for the program, but other accounts, dependent on annual appropriations, cannot. Does taking Social Security out of the Federal budget change where the surplus taxes go? Legislation enacted in 1990 (the Budget Enforcement Act, included in Public Law 101-508) removed Social Security taxes and benefits from the budget and from calculations of the budget deficit. In large part this was done to prevent Social Security from masking the size of the deficit and to protect it from budgetary cuts. It was based on the supposition that Congress would act differently in trying to achieve deficit- reduction targets if Social Security surpluses were not counted in reaching the budget totals; i.e., that Congress would ignore Social Security in devising the Nation's overall fiscal policies. It was not done to change where Social Security taxes go. The Federal budget is not a cash management account--it is simply a statement or summary of what policymakers want the government's financial flows to be during any given time period. Whether this summary is presented in a unified or fragmented form will not in and of itself change how much money is received and spent by the government, and it will not alter where Federal tax receipts of any sort go. Social Security taxes will go into the Treasury regardless of whether the program is counted in reaching budget totals. Social Security taxes will go elsewhere only if Congress decides they will go elsewhere. Are surplus Social Security taxes giving the government more money to spend? The fact that surplus Social Security taxes are used by the government to meet other financial commitments does not necessarily mean that the government has more money to spend than it would have if these receipts were not available. Decisions about Social Security funds and the finances of the rest of the government have never been made in isolation of one another, and those decisions have had overlapping influences. Past increases in Social Security taxes may have made it more difficult for Congress to raise other forms of taxes. For instance, Social Security taxes were raised in 1977 to shore up the program's financing, but the following year Congress enacted reductions in income taxes to offset the impact of these hikes. Similarly, the earned income credit (EIC), which reduces income taxes or permits a refundable credit to be paid to low-income workers with children, is intended in part to offset the Social Security tax bite. Hence, other taxes might have taken the place of the surplus Social Security taxes if Social Security tax rates were lower than they are now. Therefore, whether these surplus taxes are allowing the government to spend more is a matter of conjecture. Are surplus Social Security taxes allowing the government to borrow less from the public? Today, the government is spending more overall than it is taking in through taxes, and it covers the shortfall by borrowing money. No single activity of the government determines the size of this shortfall. To say surplus Social Security taxes are reducing the amount that must be borrowed assumes that all other spending and taxation decisions have been made without any regard for Social Security's income and outgo, and vice versa. If increases in Social Security taxes over the past decade have caused other taxes to be reduced or kept them from rising, such increases may have added little to the government's total revenues. By the same token, when Social Security taxes are smaller than the program's spending--as they were for all but five fiscal years after 1957 and through 1984--it is not clear that this shortfall causes the government to borrow more than it would otherwise. Government borrowing from the public is not clearly linked to any particular aspect of what the government does. It borrows as it needs to, for whatever obligations it has to meet. Therefore, whether surplus Social Security taxes are currently allowing the government to borrow less from the public than it otherwise would is also a matter of conjecture. Isn't there some way to actually save the Social Security surpluses? Perceiving that surplus Social Security taxes simply give the government more money to spend, people sometimes ask why they can't be invested in stocks or bonds. They believe that this would really save the money for the future. Actually, the surplus Social Security taxes being collected today are not the means through which much of the future cost of the system will be met. Most of today's taxes are used to cover payments to today's retirees. In 1996, the system's taxes will amount to an estimated $386 billion; its expenditures, $355 billion. At their peak in 2010, the balances of the Social Security Trust Funds are expected to equal only 2\1/2\ years' worth of payments. Thus, the future costs of the system, as is the case today, will largely be met through future taxation. The promise of future benefits rests primarily on the government's ability to levy taxes in the future, not on the balances of the trust funds. The more immediate concern about investing the surplus taxes elsewhere is that doing so would reduce the government's revenues. How would the government make up this loss? What other taxes would take their place, what spending would be cut--or would the government simply borrow more money from the financial markets? In a sense, the idea of investing surplus Social Security taxes in private investments is only half a proposal. If the government borrowed money from the financial markets to make up the loss, it simply would be putting money into the markets with one hand and taking it back with another. On balance, it would not have added any new money to the Nation's pool of investment resources. If, on the other hand, the government were to reduce its spending or raise other taxes, it would not have to borrow any new funds (or it would borrow less than the full amount of Social Security money it diverted to the markets). This presumably would result in a net increase in savings in the economy. The bottom line is that it is not simply how surplus Social Security taxes are invested that determines whether or not real savings is increased. It is the steps that fiscal policymakers take to reduce the government's overall draw on financial markets that really matter. BUDGETARY TREATMENT OF OASDI Social Security and other Federal programs that operate through trust funds were counted officially in the budget beginning in fiscal year 1969. This was done administratively by President Johnson. At the time Congress did not have a budgetmaking process. In 1974, with passage of the Congressional Budget and Impoundment Control Act (Public Law 93-344), Congress adopted procedures for setting budget goals through passage of annual budget resolutions. Like the budgets prepared by the President, these resolutions were to reflect a ``unified'' budget that included trust fund programs such as Social Security. Beginning in the late 1970s, financial problems confronting Social Security and concern over its growing costs led to enactment of a number of benefit changes in 1977, 1980, 1981, and 1983. However, because the Federal budget deficit remained large, interest in curbing Social Security spending continued. This consideration of Social Security constraints led to concerns that changes in Social Security were being proposed for budgetary purposes rather than programmatic ones. In response, measures were enacted in 1983, 1985, and 1987 making the program a more distinct part of the budget and permitting floor objections (points of order) to be raised against budget bills containing Social Security changes. Later in the decade, when Social Security surpluses emerged, critics argued that the program was masking the size of the budget deficits. In response, Congress in 1990 excluded it from calculations of the budget and largely exempted it from procedures for controlling spending (Omnibus Budget Reconciliation Act of 1990, Public Law 101-508). By these actions, however, Congress excluded Social Security from procedural constraints designed to discourage measures that would increase the deficits. Concerned that this would encourage Social Security spending increases and tax cuts that could weaken Social Security's financial condition, Congress also included provisions permitting floor objections to be raised against bills that would erode the balances of the Social Security Trust Funds. A more detailed explanation of budget and procedural rules affecting Social Security follows. Table 1-42 shows projected budget deficits with and without Social Security. TABLE 1-42.--PROJECTED BUDGET DEFICITS WITH AND WITHOUT SOCIAL SECURITY, 1996-2006 [By fiscal year, in billions of dollars] ------------------------------------------------------------------------ Without Year With Social Social Security Security ------------------------------------------------------------------------ 1996.......................................... $144 $208 1997.......................................... 171 243 1998.......................................... 194 270 1999.......................................... 219 303 2000.......................................... 244 336 2001.......................................... 259 356 2002.......................................... 285 389 2003.......................................... 311 421 2004.......................................... 342 459 2005.......................................... 376 503 2006.......................................... 403 540 ------------------------------------------------------------------------ Source: Congressional Budget Office, May 1996 baseline projections. Current Budget Rules Pertaining to Social Security Two key elements of the budget process are explicit dollar limits on discretionary spending (mostly for programs requiring annual appropriations) and a ``pay-as-you-go'' rule that requires that increases in direct spending (mostly for entitlement programs) and/or cuts in revenues must be offset by other changes so as not to increase the deficit. Originally written to cover the period from fiscal years 1991 to 1995, these budget rules will now apply through fiscal year 1998 (as a result of provisions in the Omnibus Budget Reconciliation Act of 1993--Public Law 103-66). If the explicit spending limits or ``pay-as-you-go'' rules are violated during this period, the President may be required to sequester funds (i.e., cut spending). By law, Social Security is not to be included in these calculations and is exempt from any potential sequestration, with the exception of administrative expenses (which are counted as discretionary spending). Table 1-43 shows total OASDI administrative expenses, and administrative expenses as a percentage of benefit payments. The law further permits floor objections to be raised against budget bills (so- called ``reconciliation'' bills) that contain Social Security measures. TABLE 1-43.--OASDI ADMINISTRATIVE EXPENSES IN BILLIONS OF DOLLARS AND AS A PERCENTAGE OF BENEFIT PAYMENTS, FISCAL YEARS 1989-95 ---------------------------------------------------------------------------------------------------------------- Total administrative OASI DI Total Fiscal year expenses (in administrative administrative administrative billions of expenses \1\ expenses \1\ expenses \1\ dollars) ---------------------------------------------------------------------------------------------------------------- 1989............................................ $2.407 0.8 3.3 1.1 1990............................................ 2.280 0.7 3.0 0.9 1991............................................ 2.535 0.7 2.9 1.0 1992............................................ 2.668 0.7 2.8 0.9 1993............................................ 2.955 0.8 2.8 1.0 1994............................................ 2.896 0.7 2.8 0.9 1995............................................ 2.870 0.6 2.7 0.9 ---------------------------------------------------------------------------------------------------------------- \1\ As a percentage of OASI, DI and total benefit payments. Source: Office of the Actuary, Social Security Administration. Current House and Senate Procedural Rules to Protect Social Security's Financial Condition Under the budget rules that existed before 1991, Social Security was included in calculations of the budget deficit. This had the effect of potentially thwarting attempts to expand its benefits or cut its taxes if they were not accompanied by measures to offset the cost or revenue loss. Floor objections could be raised against such actions if they violated the budget totals or allocations. If enacted, other programs were potentially threatened with sequestration because the deficit would be made larger. The old process imposed the same fiscal discipline on Social Security as applied to other programs. Since Social Security is now exempt from the budget limits (excepting its administrative expenses), these fiscal constraints no longer apply. In their place are rules intended to make it difficult to bring up measures for a vote that would weaken the program's financial condition. These procedural rules are sometimes referred to as the Social Security ``firewall'' provisions. In the House, a floor objection can be raised against a bill that proposes more than $250 million in Social Security spending increases or tax cuts over 5 years (counting the fiscal year it becomes effective and the following 4 years) unless the bill also contains offsetting changes to bring the net impact within the $250 million limit. Costs of prior legislation that fall within the 5-year period must be counted. An objection also can be raised against a measure that would increase long-range (75-year) average costs or reduce long- range revenues by at least 0.02 percent of taxable payroll (i.e., national earnings subject to Social Security taxes). In the Senate, budget resolutions must include separate amounts for Social Security income and outgo for the first year and 5-year period covered by the resolution (i.e., separate from the budget totals). These amounts cannot cause the balances of the Social Security Trust Funds to be lower than projected under current law. Measures that would do so could draw an objection, which can be overridden only by a vote of three-fifths of the Senate. Once the resolution is enacted, subsequent measures that on balance would cause Social Security outlay increases or revenue reductions could draw an objection, which again can be overridden only when three-fifths of the Senate votes to do so. Budgetary Treatment of Administrative Expenses The costs of administering the Social Security Retirement and Disability Programs are financed from the Social Security Trust Funds, subject to annual appropriations. Traditionally these costs are low, comprising between 1 and 2 percent of annual benefit payments (see table 1-43). During fiscal year 1995, they amounted to $2.9 billion. These trust-fund-financed administrative funds comprised 46 percent of the Social Security Administration's fiscal year 1995 administrative budget. The agency received another 14 percent from the Medicare Trust Funds, as well as 40 percent from general revenues for administration of the Supplemental Security Income Program. This brought SSA's total 1995 administrative budget to $5.1 billion (excluding the special appropriations for disability processing and automation investments). Social Security benefit payments were taken off budget as provided by the Budget Enforcement Act (BEA) of 1990. The BEA specifically exempts certain programs from the discretionary spending cap, but not SSA's administrative expenses. LEGISLATIVE HISTORY Changes in the 95th Congress The 95th Congress had to resolve major problems in the financing of the Social Security Program. The 1977 amendments (Public Law 95-216) increased future revenues by raising tax rates and the earnings base, but more significantly, they changed the benefit formula that was raising initial benefits too rapidly. For individuals who became eligible after 1978, benefits were to be determined by a formula designed to give a stable relationship between one's benefit and preretirement career earnings. This would be accomplished by indexing both the formula for determining initial benefits and a person's earnings to reflect changing wage levels. The change in the computation rules was called ``decoupling,'' which, according to some, resulted in a so-called benefit ``notch.'' The following is a summary of the major provisions of the law. Change in benefit formula For those reaching age 62, becoming disabled, or dying in 1979 or later, initial benefits would be computed using a formula that would be indexed to the growth in average wages over the years, so that they would generally maintain pace with the standard of living. To ease transition to the new rules, those attaining age 62 in 1979-83 could have their benefits computed under the old rules, with some limitations, if they were higher than benefits computed under the new rules. Increases in payroll tax rates Raised OASDI tax rates slightly in 1979 and 1980, and more significantly in 1981 and later. The ultimate OASDHI tax rate would be 7.65 percent each on employees and employers in 1990. (Formerly, the rate in 1990 was 6.45 percent, and the ultimate rate, 7.45 percent in 2011.) Increases in the earnings base On an ad hoc basis, the base was raised to $22,900 in 1979, $25,900 in 1980, and $29,700 in 1981. After 1981, the base would be adjusted automatically to keep up with increases in average wages as under the prior law. Increases in the delayed retirement credit (DRC) Raised the DRC to 3 percent a year for workers reaching age 62 after 1978 (those subject to the new way of computing benefits). Earnings limit changes Lowered from 72 to 70 the age at which the earnings limit no longer applies, effective in 1982. Also increased, on an ad hoc basis for 5 years, the annual exempt amount in the earnings limit for those age 65 and over. (The amount for those under age 65 was not changed but left to continue to be indexed to wage growth.) After 1982, the annual exempt amount for those over age 65 would again rise automatically with wage growth. Government pension offset Reduced a spouse's and surviving spouse's benefits dollar for dollar by the amount of the government pension derived from his or her own work not covered by Social Security. (Later modified to a two-thirds offset by Public Law 98-21.) Change in quarter-of-coverage measure Beginning in 1978, a worker would receive one quarter of coverage (up to four per year) for each $250 of annual wages (instead of for $50 or more earned per calendar quarter). The $250 figure would be increased automatically in future years to take account of increases in average wages. Divorced spouses Reduced the duration-of-marriage requirement for divorced spouses and surviving divorced spouses from 20 to 10 years. Freeze in minimum benefit ``Froze'' initial minimum benefit levels--at $122--so they would not rise in future years (although COLAs would be given beneficiaries once they were on the rolls). Changes in the 96th Congress Public Law 96-265, the Social Security disability amendments of 1980, made substantial changes to the disability programs. Major provisions were: Periodic review of disability determinations Required that, unless a finding has been made that a recipient's disability is permanent, the case will be reviewed every 3 years to determine if the recipient is still disabled. Family benefit cap Limited family benefits in disability cases to the lesser of 85 percent of the average indexed monthly earnings (AIME) or 150 percent of the primary insurance amount (PIA), but no less than 100 percent of the PIA. Variable dropout years In the computation of benefits for workers disabled before age 47, the dropout years were reduced from 5 years to a range of from 1 to 4 years, depending on the worker's age and child care dropout years. Automatic reentitlement to benefits Medically disabled recipients who return to work would be automatically reentitled to benefits if they stopped performing substantial gainful activity (SGA) within 15 months following the end of the trial work period (TWP). Extension of Medicare coverage Provided continued Medicare coverage for up to 24 months after the entitlement to disability benefits ends for medically disabled recipients who return to work. Work expense deductions Allowed deductions in DI cases of the cost of impairment- related services and devices and attendant care costs from earnings in determining SGA, if they are necessary for the recipient to work and the recipient pays for them. Administration of the DI Program Gave the Federal Government the authority to set standards for Disability Determinations Services (DDS) performance and the option of taking over the State disability determination process. Also required the SSA to review DDS allowances before they go into effect. Also in 1980, Public Law 96-473 modified the earnings limit to allow a ``grace year'' in which the monthly earnings limit could be used rather than the yearly one, so that dependents could use the monthly earnings limit in their last year of entitlement and retirees would not be penalized for earnings before their retired. In addition, in order to shore up financing of the OASI Program, Public Law 96-403 reallocated part of the DI tax to OASI, and denied DI benefits to prisoners incarcerated upon conviction of a felony. Changes in the 97th Congress The 97th Congress made numerous changes in the OASDI Program. The major changes were included in the Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35). Table 1-44 lists these changes. TABLE 1-44.--ESTIMATES FOR LEGISLATIVE CHANGES MADE IN OASDI DURING 1981 (PUBLIC LAW 97-35) (JANUARY 1982 ESTIMATES), FISCAL YEARS 1982-84 [In millions of dollars] ------------------------------------------------------------------------ Fiscal year ----------------------------- 1982 1983 1984 ------------------------------------------------------------------------ Elimination of minimum benefit for future beneficiaries............................ -81 -180 -210 Elimination of benefits for postsecondary students................................. -567 -1,580 -2,033 Restrictions on payment of lump-sum death benefits................................. -200 -210 -215 Modification of month of initial entitlement for certain workers and their dependents............................... -190 -220 -240 Temporary extension of earnings limitation to include all persons aged less than 72. -380 -120 0 Termination of mother's and father's benefits when youngest child attains age 16....................................... -30 -88 -496 Modification of rounding rules............ -79 -272 -314 Cost reimbursement for provision of earnings information..................... -1 -2 -5 Revision of reimbursements for vocational rehabilitation services.................. -87 -86 -73 Modification of worker's compensation offset to: (1) apply offset to certain other public disability benefits-megacap; (2) apply offset to benefits of workers aged 62-64; and (3) begin offset in first month of dual-benefit payment............ -87 -122 -156 Extension of coverage to first 6 months of sick pay (revenue increase).............. -534 -762 -828 ----------------------------- Total OASDI........................... -2,236 -3,642 -4,570 ------------------------------------------------------------------------ Source: Congressional Budget Office. Changes in the 98th Congress The 98th Congress made extensive changes in OASDI Programs in the Social Security amendments of 1983 (Public Law 98-21), enacted to restore the financial status of the Social Security Trust Funds. Table 1-45 outlines the estimated outlay and revenue effects of the 1983 amendments under the intermediate assumptions of the 1983 Trustees' Report. At the time, it was estimated that in the period 1983 through 1989, the OASDI and HI Trust Funds would receive $166.2 billion and $33.6 billion, respectively, in additional financing. Table 1-46 shows the estimated long-range effects of the 1983 amendments, under 1983 assumptions. Public Law 98-460, the Disability Benefits Reform Act of 1984, made several substantial changes in the standards for review of disability beneficiaries, and in other provisions of the program as well. The following is a summary of the law. Medical improvement standard The law established a medical improvement standard under which the Secretary (now the Commissioner) may terminate disability benefits on the basis that the person is no longer disabled only if: 1. There is substantial evidence demonstrating that (a) there has been medical improvement in the individual's impairment or combination of impairments (other than medical improvement which is not related to the person's ability to work), (b) the individual is now able to engage in substantial gainful activity (SGA); 2. There is substantial evidence consisting of new medical evidence and a new assessment of residual functional capacity (RFC) that demonstrates that although there is no medical improvement, (a) the person has benefited from advances in medical or vocational therapy or technology related to ability to work, and (b) that she is now able to perform SGA; 3. There is substantial evidence that although there is no medical improvement (a) the person has benefited from vocational therapy and (b) the beneficiary can now perform SGA; 4. There is substantial evidence that, based on new or improved diagnostic techniques or evaluations, the person's impairment or combination of impairments is not as disabling as it was considered to be at the time of the prior determination, and that therefore the individual is able to perform SGA; 5. There is substantial evidence either in the file at the original determination or newly obtained showing that the prior determination was in error; 6. There is substantial evidence that the original decision was fraudulently obtained; or 7. If the individual is engaging in SGA (except where he is eligible under section 1619), fails without good cause to cooperate in the review or follow prescribed treatment or cannot be located. In making the determination, the Secretary (now the Commissioner) was required to consider the evidence in the file as well as any additional information concerning the applicant's current or prior condition secured by the Secretary (now the Commissioner) or provided by the applicant. Determinations under this provision had to be made on the basis of the weight of the evidence, and on a neutral basis with regard to the individual's condition, without any inference as to the presence or absence of disability based on the previous finding of disability. TABLE 1-45.--ESTIMATED CHANGES IN OASDI RECEIPTS AND BENEFIT PAYMENTS RESULTING FROM THE 1983 SOCIAL SECURITY AMENDMENTS (PUBLIC LAW 98-21), CALENDAR YEARS 1983-89 [In billions of dollars] ---------------------------------------------------------------------------------------------------------------- Calendar year-- Provision -------------------------------------------------------- Total, 1983 1984 1985 1986 1987 1988 1989 1983-89 ---------------------------------------------------------------------------------------------------------------- Increase tax rate on covered wages and salaries..................................... ...... 8.6 0.3 ...... ...... 14.5 16.0 39.4 Increase tax rate on covered self-employment earnings..................................... ...... 1.1 3.1 3.0 3.2 3.7 4.4 18.5 ================================================================= Cover all Federal elected officials and political appointees......................... ...... (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.1 Cover new Federal employees................... ...... 0.2 0.7 1.2 1.8 2.4 3.1 9.3 Cover all nonprofit employees................. ...... 1.3 1.5 1.8 2.1 2.6 3.0 12.4 ----------------------------------------------------------------- Total for new coverage.................. ...... 1.5 2.2 3.0 3.9 5.0 6.1 21.8 ================================================================= Prohibit State and local government terminations................................. ...... 0.1 2. 0.4 6. 8. 1.1 3.2 Accelerate collection of State and local taxes ...... 0.6 (\1\) (\1\) 0.1 0.1 0.1 1.0 Modify general fund financing basis for noncontributory military service credits..... 18.4 -0.4 -0.4 -0.3 -0.4 -0.4 -0.4 16.1 Provide reimbursements from general fund for unnegotiated checks.......................... 1.3 0.1 0.1 0.1 0.1 0.1 0.1 1.6 Delay benefit increases 6 months.............. 3.2 5.2 5.4 5.5 6.2 6.7 7.3 39.4 Continue benefits on remarriage............... ...... (\2\) (\2\) (\2\) (\2\) (\2\) (\2\) -0.1 Modify indexing of deferred survivors' benefits..................................... ...... ...... (\2\) (\2\) (\2\) (\2\) (\2\) (\2\) Raise disabled widow(er)s' benefits to 71.5 percent of PIA............................... ...... -0.2 -0.2 -0.2 -0.2 -0.3 -0.3 -1.4 Pay divorced spouses whether or not worker has retired...................................... ...... ...... (\2\) (\2\) (\2\) (\2\) (\2\) -0.1 Eliminate ``windfall'' benefits for individuals receiving pensions from noncovered employment........................ ...... ...... ...... (\3\) (\3\) (\3\) 0.1 0.1 Offset spouses' benefits by two-thirds of noncovered government pension (public pension offset)...................................... (\2\) (\2\) (\2\) (\2\) (\2\) (\2\) (\2\) (\2\) Expand use of death certificates to stop benefits..................................... (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) 0.1 Impose 5-year residency requirement for certain aliens............................... ...... ...... (\3\) (\3\) (\3\) (\3\) (\3\) 0.1 Tax one-half of benefits for high-income beneficiaries................................ ...... 2.6 3.2 3.9 4.7 5.6 6.7 26.6 All other changes............................. (\2\) (\2\) (\2\) (\2\) (\2\) (\2\) (\2\) -0.1 ----------------------------------------------------------------- Total for all changes................... 22.8 19.2 13.9 15.3 18.0 35.8 41.2 166.2 ---------------------------------------------------------------------------------------------------------------- \1\ New additional taxes of less than $50 million. \2\ Additional benefits of less than $50 million. \3\ Reduction in benefits of less than $50 million. Note.--Based on 1983 alternative II-B assumptions. Estimates shown for each provision include the effects of interaction with all preceding provisions. Totals do not always equal the sum of components due to rounding. Positive figures represent additional income or reduction in benefits. Negative figures represent reductions in income or increases in benefits. Source: Office of the Actuary, Social Security Administration. TABLE 1-46.--ESTIMATED LONG-RANGE OASDI COST EFFECTS OF THE SOCIAL SECURITY AMENDMENTS OF 1983 (PUBLIC LAW 98-21) ------------------------------------------------------------------------ Effect as percent of payroll Provision ----------------------------- OASI DI OASDI ------------------------------------------------------------------------ Present law prior to amendments: Average cost rate....................... 13.04 1.34 14.38 Average tax rate........................ 10.13 2.17 12.29 Actuarial balance....................... -2.92 +.83 -2.09 Changes included in titles I and III of the amendments: \1\ Cover new Federal employees............. +.26 +.02 +.28 Cover all nonprofit employees........... +.09 +.01 +.10 Prohibit State and local terminations... +.06 +.00 +.06 Delay benefit increases 6 months........ +.28 +.03 +.30 Eliminate ``windfall'' benefits......... +.04 +.00 +.04 Raise delayed retirement credits........ -0.10 ........ -0.10 Tax one-half of benefits................ +.56 +.05 +.61 Accelerate tax rate increase............ +.03 ........ +.03 Increase tax rate on self-employment.... +.17 +.02 +.19 Adjust self-employment income........... -0.02 -0.00 -0.03 Change DI rate allocation............... +.81 -0.81 ........ Continue benefits on remarriage......... -0.00 -0.00 -0.00 Pay divorced spouse of nonretired....... -0.01 -0.00 -0.01 Modify indexing of survivor's benefits.. -0.05 ........ -0.05 Raise disabled widow's benefits......... -0.01 ........ -0.01 Modify military credits financing....... +.01 +.00 +.01 Credit unnegotiated checks.............. +.00 +.00 +.00 Tax certain salary reduction plans...... +.03 +.00 +.03 Modify public pension offset............ -0.00 -0.00 -0.00 Suspend auxiliary benefits for certain aliens................................. +.00 +.00 +.00 Modify earnings limit for those aged 65 and over \2\........................... -0.01 ........ -0.01 All other provisions of titles I and III.. -0.00 -0.00 -0.00 Subtotal for the effect of the above provisions \3\........................... +2.07 -0.68 +1.38 Remaining deficit after the above provisions............................... -0.85 +.15 -0.71 Additional change relating to long-term financing (title II): \4\ Raise normal retirement age to 67..................... +.83 -0.12 +.71 Total effect of all of the provisions \5\..................... +2.89 -0.80 +2.09 After the amendments: Actuarial balance....................... -0.03 +.03 -0.00 Average income rate..................... 11.47 1.42 12.89 Average cost rate....................... 11.50 1.39 12.89 ------------------------------------------------------------------------ \1\ The values of each of the individual provisions listed from title I and title III represent the effect over present law and do not take into account interaction with other provisions with the exception of the provision relating to the earnings limit. \2\ Estimates from modifying the earnings limit take into account interaction with the provision raising delayed retirement credits. \3\ The values in the subtotal for all provisions included in title I and title III take into account the estimated interactions among these provisions. \4\ The values for each of the provisions of title II take into account interaction with the provisions included in title I and title III. \5\ The values for the total effect of the amendments take into account interactions among all of the provisions. Note.--The above estimates are based on preliminary 1983 Trustees' Report Alternative II-B assumptions. Individual estimates may not add to totals due to rounding and/or interaction among proposals. Source: Svahn & Ross (1983). Effective date Applied only with respect to the following categories: 1. Determinations by the Secretary made after the date of enactment (and Commissioner after March 31, 1995); 2. Cases pending at any level of the administrative process on the date of enactment; 3. Cases of individual litigants pending in Federal court on the date the conference report was filed; 4. Cases of named plaintiffs in pending class action suits; 5. Cases of unnamed plaintiffs in class action suits certified prior to that date; and 6. Cases where a request for judicial review was made on a decision of the Secretary made during the 60 days preceding enactment. Cases in categories (3), (4), (5), and (6) had to be remanded to the Secretary or Commissioner, as appropriate, for review under this standard. Individuals in (5) were to be sent a notice via certified mail informing them that they had 120 days after the date of receipt of the notice to request a review under the medical improvement standard. No class action could be certified after the date the conference report was filed, which raised the issue of medical improvement with respect to an individual whose benefits were terminated prior to that date. Persons whose cases were remanded to the Secretary or Commissioner were to receive benefits pending the Secretary's or Commissioner's decision and appeal of that decision if they so elected. If found eligible, any person whose case was remanded under this provision was to receive benefits retroactive to the date they were last found ineligible. Evaluation of pain The Secretary of HHS was required, in conjunction with the National Academy of Sciences, to conduct a study addressing two issues: using subjective evidence of pain in determining whether a person is under a disability; and the state of the art of preventing, reducing, or coping with pain. This study was completed and a report was submitted to the House Committee on Ways and Means and the Senate Committee on Finance by the Social Security Administration in 1986. While making many recommendations, it basically supported the existing treatment of allegations of pain in disability determinations. The provision also established a statutory standard for considering pain, which was in effect until December 31, 1986. Multiple impairments In determining whether a person's impairment or impairments are of a sufficient medical severity to be the basis of a finding of eligibility for benefits, the Secretary (now Commissioner) was required to consider the combined effect of all of the person's impairments, whether or not any one impairment alone would be severe enough to qualify the person for benefits. The provision became effective for all determinations made on or after 30 days after enactment. Moratorium on mental impairment reviews A moratorium was imposed on reviews of all cases of mental impairment disability until the mental impairment criteria in the Listing of Impairments were revised to realistically evaluate the person's ability to engage in SGA in a competitive workplace environment. The moratorium applied to all cases on which an administrative or judicial appeal was pending on or after June 7, 1983. All persons claiming benefits based on mental impairment disability who received an unfavorable initial or continuing disability decision after March 1, 1981 were permitted to reapply for benefits within 12 months of enactment. The revised criteria were published in 1985. Pretermination notice The Secretary (now the Commissioner) was required to initiate demonstration projects on providing face-to-face interviews for (1) pretermination continuing disability cases; and (2) all initial denial cases, in lieu of face-to-face evidentiary hearings at reconsideration, to be done in at least five States with a report due to the House Committee on Ways and Means and the Senate Committee on Finance on April 1, 1986. The Secretary (now the Commissioner) was also required to notify individuals, upon initiating a periodic eligibility review, that termination of benefits could be the result of the review, and that medical evidence may be provided. Although these studies have been completed, the report has not yet been submitted to Congress. Continuation of benefits during appeal This provision provided for continuation of disability and Medicare benefits during appeal for all continuing disability review cases through the decision of the ALJ, at the election of the individual. Where the ALJ's decision is adverse to the individual, the disability benefits were to be repaid. The provision was made permanent for SSI disability recipients, and applied to DI beneficiaries through December 1987. (The Omnibus Budget Reconciliation Act of 1987 extended the provision for DI beneficiaries through December 1988; the 1988 tax technical corrections bill extended the provisions through December 1989; and the Omnibus Budget Reconciliation Act of 1989 extended them through December 1990.) Qualifications of medical professionals This provision required the Secretary (now Commissioner) to make every reasonable effort, in cases based on mental impairments, to ensure that a qualified psychiatrist or psychologist completes the medical portion of the case review and of the residual functional capacity assessment before any determination is made that an individual is not disabled. The Secretary (now Commissioner) was given the authority to contract directly for such services if the DDS is unable to do so. Standards for consultative examinations/medical evidence The Secretary was required to promulgate regulations regarding consultative examinations, including when they should be obtained, the type of referral to be made, and the procedures for monitoring the referral process. Further, the Secretary (now the Commissioner) was required to make every effort to obtain necessary medical evidence from the treating physician before evaluating medical evidence from any other source, and to consider all evidence in the case record and development of complete medical history over at least the preceding 12-month period. Administrative procedure and uniform standards As required, regulations were published setting forth uniform standards for DI and SSI disability determinations under section 553 of the Administrative Procedure Act, to be binding at all levels of adjudication. Nonacquiescence While the conference agreement dropped both the House and Senate provisions relating to the Secretary's acquiescence with Court rulings, the intent was not to endorse the practice of ``nonacquiescence.'' The conferees noted that questions had been raised about the constitutional basis of the practice, that many of the conferees had strong concerns about the practice, and that a policy of nonacquiescence should be followed only where steps have been taken or are intended to be taken to receive a review of the disputed issue in the Supreme Court. The conferees also urged the Secretary to seek a resolution of the nonacquiescence issue in the Supreme Court. In January 1990, SSA issued regulations relating to its adherence with circuit court decisions which are in conflict with SSA's policies. Their key provisions are that: (a) SSA will apply a circuit court decision that conflicts with SSA policy, within the circuit and at all levels of administrative adjudication, unless the government decides to appeal the decision; and (b) SSA will publish in the Federal Register an Acquiescence Ruling explaining how adjudicators should apply the circuit court decision. SSA will also publish all other Social Security Rulings in the Federal Register. Payment of costs of rehabilitation services The provision permitted reimbursement to State agencies for costs of VR services provided to individuals receiving DI benefits under section 225(b) of the Social Security Act who medically recover while in VR, whether or not the person worked at SGA for 9 months, and whether or not the person failed to cooperate in the program. Direction for Quadrennial Social Security Advisory Council The provision required the next quadrennial advisory council to study the medical and vocational aspects of disability using ad hoc panels of experts where appropriate. The study was to include an analysis of alternative approaches to work evaluation for SSI recipients, the effectiveness of VR programs, and other disability program policies, standards, and procedures. The Council issued its report in March 1988. Staff attorneys The Secretary was to report, within 120 days of enactment, to the House Committee on Ways and Means and the Senate Committee on Finance, on the actions taken by the Secretary to establish positions which enable staff attorneys to gain the qualifying experience and quality of experience necessary to compete for ALJ positions. Statement of managers stated that it was assumed, given U.S. Office of Personnel Management (OPM) actions at the time, that statutory requirements for establishing specific positions were not required, and the Secretary was urged to take all reasonable steps to see that the OPM actions resulted in SSA staff attorneys becoming qualified for GS-15 ALJ positions. SSI benefits for persons working despite impairment This provision extended sections 1619 (a) and (b) through June 30, 1987, and required the Secretaries of HHS and Education to establish training programs for staff personnel in SSA district offices and State VR agencies, and disseminate information to SSI applicants, recipients, and potentially- interested public and private organizations. Sections 1619 (a) and (b) were made permanent in 1986. Frequency of continuing eligibility reviews The Secretary was required to promulgate regulations establishing standards for determining the frequency of continuing eligibility reviews. Final regulations were to be issued within 6 months and during that period no individual could be subjected to more than one periodic review. Representative payees for Social Security and SSI beneficiaries The Secretary (now Commissioner) was required to (1) evaluate qualifications of prospective payees prior to or within 45 days following certification, (2) establish a system of annual accountability monitoring where payments are made to someone other than a parent or spouse living in the same household with the beneficiary, and (3) report to Congress on implementation, and annually on the number of cases of misused funds and disposition of such cases. Changes in the 99th Congress Several legislative changes were made in the Social Security Program in the 99th Congress. The Consolidated Omnibus Reconciliation Act of 1985 (Public Law 99-272) included a variety of minor and technical legislative changes in Social Security. Additionally, Public Law 99-272 contained provisions to: (a) exempt wages paid to retired Federal judges performing active duty, for purposes of FICA taxation and the Social Security earnings limit; and (b) to protect certain Social Security beneficiaries who receive overpayments through the electronic direct deposit system. The Emergency Deficit Reduction and Balanced Budget Act of 1985 (Public Law 99-177) contained a provision to remove the receipts and disbursements of the Social Security Trust Funds from the unified budget effective in fiscal year 1986, and to restrict consideration of legislative changes in Social Security as part of the congressional budget process. It also contained measures intended to bring the Federal budget into balance by fiscal year 1991, and under those measures, Social Security income and outgo were to be used in calculating the Federal deficit. However, the benefits were made exempt from any automatic cuts required to reduce the deficit. Moreover, the act contained provisions making it difficult for Social Security changes to be brought up in the congressional budget process by permitting floor objections, or ``points of order,'' against such measures. The Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509) included two significant Social Security provisions. The first eliminated the requirement that the annual rise in the Consumer Price Index must exceed 3 percent in order for a cost-of-living adjustment to be paid to Social Security beneficiaries. The new law required that a cost-of-living adjustment be paid in any year in which there was a measurable increase in consumer inflation. Second, Public Law 99-509 removed from the States the responsibility for collecting and depositing with the Federal Government Social Security contributions on behalf of their political subdivisions. All State and local entities now deposit their Social Security contributions directly to the Federal Government on a time schedule that parallels the treatment of private employers. Changes in the 100th Congress Public Law 100-203, the Budget Reconciliation Act of 1987, made a number of changes in coverage. Armed Services reservists FICA taxes were extended to ``inactive duty training'' (generally weekend training drill sessions). Agricultural workers Wages paid to an employee who received less than $150 in annual cash remuneration from an agricultural employer were subject to FICA if the employer paid more than $2,500 in the year to all employees, unless the employee: (1) is a hand- harvest laborer and is paid on a piece-rate basis in an operation which has been customarily recognized as having been paid on a piece-rate basis in the region of employment; (2) commutes daily from his or her permanent residence; and (3) has been employed in agriculture less than 13 weeks during the preceding calendar year. Individuals age 18-21 FICA taxes were extended to services performed by individuals between the ages of 18 and 21 who are employed in their parent's trade or business. Spouses FICA taxes were extended to services performed by an individual in the employ of his or her spouse's trade or business. Tips The employer's share of FICA taxes was extended to include all cash tips (up to the Social Security wage base). Phaseout of reduction in windfall benefits The phaseout of the reduction of benefits for workers with noncovered pensions was changed from 25 through 30 years of Social Security coverage to 20 through 30 years. Treatment of group-term life insurance wages under FICA Employer-provided group-term life insurance was included in wages for FICA tax purposes if such insurance were includable for gross income tax purposes, effective January 1, 1988. Correction in government pension offset Federal employees who switched from the Civil Service Retirement System (CSRS) to the Federal Employees' Retirement System (FERS) on or after January 1, 1988 were exempted from the government pension offset only if they had 5 or more years of Federal employment covered by Social Security after December 31, 1987. Public Law 100-203 also made changes to the DI Program: Continuation of benefits during appeal The existing provision for continued payment of disability benefits during the administrative appeal process was extended through 1988. Lengthening of the extended period of eligibility for disability benefits The extended period of eligibility during which a disability beneficiary who returns to work may become automatically reentitled to benefits, was lengthened from the current 15 months to 36 months. Medicare eligibility is not continued beyond the period provided under current law. Payment of attorneys' fees The administrative policy which permits ALJs to authorize attorneys' fees of up to $3,000 without approval by an SSA regional office was reinstated. Public Law 100-647, the Technical and Miscellaneous Revenue Act of 1988, further modified the DI Program: Continuation of benefits during appeal The existing provision for continued payment of benefits was again extended, through 1989. Interim benefits in cases of delayed final decisions Interim benefits will be paid to individuals who have received a favorable decision from an administrative law judge but whose cases are under review by the Appeals Council and the Council has not rendered a decision within 110 days. These interim payments are not subject to recovery as overpayments if the final determination is unfavorable. Changes in the 101st Congress Public Law 101-239, the Omnibus Budget Reconciliation Act of 1989, made various changes to OASDI: Continuation of benefits during appeal The existing provision for continued payment of disability benefits during administrative appeal was extended through 1990. Extension of Disability Insurance Program demonstration authority The authority of the Secretary (now the Commissioner) to waive compliance with the benefit requirements of titles II and XVIII for the purpose of conducting work incentive demonstration projects was extended for 3 years, through June 9, 1993. Representation of applicants Effective June 1, 1991, the Secretary (now the Commissioner) would be required to maintain an electronically retrievable list of applicants' legal representatives. Public Law 101-508, the Omnibus Budget Reconciliation Act of 1990, made additional OASDI changes: Continuation of disability benefits during appeal The provision permitting disability insurance beneficiaries to elect to have their benefits continued during administrative appeal was made permanent. Payment of benefits to a child adopted after a parent's entitlement to retirement or disability benefits or adopted by a surviving spouse A child adopted after a worker became entitled to retirement or disability benefits was made eligible for child's insurance benefits regardless of whether she was living with and dependent on the worker prior to the worker's entitlement. A child adopted by the surviving spouse of a deceased worker was made eligible for benefits regardless of whether he had been receiving support from anyone other than the worker and the worker's spouse, as long as the child either lived with the worker or received one-half support from the worker in the year preceding the worker's death. Repeal of carryover reduction in retirement or disability insurance benefits due to receipt of widow(er)'s benefits before age 62 The carryover reduction applied to retirement or disability benefits received by widow(er)s who collected widow(er)'s benefits before age 62 was eliminated. Improvements in Social Security Administration services and beneficiary protections A number of improvements were made in SSA procedures regarding correction of earnings records; standards applicable in determinations of fault, good faith and good cause; same-day interviews on time-sensitive matters; notices sent to blind Social Security beneficiaries; legal representatives of applicants; and the avenues of recourse open to potential applicants who lose benefits because SSA provides them with inaccurate or incomplete information. In addition, SSA was required to issue a report on options for increasing its use of foreign language notices. Conforming changes were also made in the SSI Program as applicable. Earnings and benefit statements SSA was required, upon request, to provide individuals with a statement of their earnings and contributions and an estimate of their future benefits. Beginning in 1995, these statements will be provided to all individuals who attain age 60. Beginning in October 1999, these statements will be provided annually to all workers over age 24 covered under Social Security. Inclusion of certain deferred compensation in the calculation of average wages under the Social Security Act Contributions to deferred compensation plans, including amounts deferred in 401(k) plans, were included in the determination of average wages for Social Security purposes. Treatment of refunds by employers under the Medicare Catastrophic Coverage Act of 1988 for FICA and other purposes Refunds provided to individuals by employers under the maintenance-of-effort provision of the Medicare Catastrophic Coverage Act of 1988 were excluded from wages for FICA, FUTA, and railroad retirement and railroad unemployment insurance tax purposes. In addition, the Secretary of the Treasury was given authority to prescribe the manner in which the refunds were to be reported. Extension of Social Security coverage exemption for members of certain religious faiths The exemption from Social Security coverage for workers who are members of certain religious groups was extended to: (a) qualifying employees of partnerships in which each partner holds a religious exemption from Social Security coverage, and (b) qualifying employees of churches and church-controlled nonprofit organizations who would otherwise be covered as self- employed for purposes of Social Security taxation. Prohibition against termination of coverage of U.S. citizens and residents employed abroad by a foreign affiliate of an American employer American employers were prohibited from terminating the Social Security coverage of U.S. citizens and residents employed abroad in their foreign affiliates. Extension of Disability Insurance Program demonstration project authority The authority of the Secretary of HHS [now the Commissioner] to conduct work incentive demonstration projects was extended through June 9, 1996. Inclusion of employer cost of group-term life insurance in compensation under the Railroad Retirement Tax Act Employer-paid premiums for group-term life insurance coverage in excess of $50,000 were made subject to the railroad retirement payroll tax, bringing the treatment of such premiums into conformity with their treatment under the Social Security Act. Inclusion of deferred compensation arrangements, including 401(k) plans, in compensation under the Railroad Retirement Tax Act Contributions to 401(k) deferred compensation plans were made subject to the railroad retirement payroll tax, bringing the treatment of such contributions into conformity with their treatment under the Social Security Act. Codification of the Rowan decision with respect to railroad retirement Except for meals and lodging provided for the convenience of the employer, it was stipulated that nothing in Internal Revenue Service (IRS) regulations defining wages for purposes of the income tax is to be construed as requiring a similar definition for purposes of the railroad retirement payroll tax, thus conforming the Railroad Retirement Tax Act to the Social Security Act. Extension of general fund transfers to Railroad Retirement Tier II Trust Fund The transfer of proceeds from the income taxation of railroad retirement Tier II benefits from the general fund of the Treasury to the Railroad Retirement Trust Fund was extended to October 1, 1992. Social Security coverage of State and local employees not covered by a public retirement system Employees of State and local governments (excluding students who are employed by public schools, colleges, or universities) who are not covered by a public retirement system were covered by Social Security and Medicare (i.e., Old-Age, Survivors, and Disability Insurance (OASDI) and Hospital Insurance (HI); effective after July 1, 1991. Budgetary treatment of Social Security Trust Funds The Social Security Trust Funds (OASDI Trust Funds) were removed from the calculation of the deficit under the Gramm- Rudman-Hollings law beginning with fiscal year 1991, thereby taking Social Security ``off budget.'' The trust funds were protected against legislation which would reduce trust fund balances, in both the House and Senate, by the establishment of floor objections, or ``points of order,'' against such legislation. Improvement of the definition of disability applied to disabled widow(er)s The stricter definition of disability that was previously applied only to widow(er)s was repealed, and they were made subject to the same definition of disability as already applied to disabled workers. Improvements in the OASDI and Supplemental Security Income (SSI) representative payee system The representative payee system was improved by: (a) requiring the Secretary of Health and Human Services (now the Commissioner) to conduct a more extensive investigation of the representative payee applicant; (b) providing stricter standards in determining the fitness of the representative payee applicant to manage benefit payments on behalf of the beneficiary; and (c) directing the Social Security Administration to make recommendations regarding the application of stricter accounting procedures to certain high- risk representative payees. In addition, certain community-based nonprofit social service agencies providing representative payee services of last resort were allowed to collect a fee from an individual's Social Security or SSI benefit for expenses incurred in providing such services. Streamlining of the attorney fee payment process The process by which SSA reviews and approves any fee charged by an attorney representing an applicant before the agency was reformed. The existing fee petition process was generally replaced by a streamlined procedure under which fees are paid up to a limit of 25 percent of past-due benefits not to exceed $4,000, unless the attorney, applicant, or administrative law judge objects. The fee petition was retained in cases for which the fee requested exceeds the limits, or if the determination made on the claim is not favorable. Restoration of telephone access to the local offices of SSA SSA was required to reestablish telephone access to its local offices at the level generally available on September 30, 1989, the day before it established a national 800 number and cut off access to local offices serving 40 percent of the population. Creation of a rolling 5-year trial work period for all disabled beneficiaries Effective January 1, 1992, the trial work period was liberalized so that a disabled beneficiary would exhaust this period only after completing 9 trial work months in any rolling 60-month period. In addition, beneficiaries would receive a new trial work period for each period of eligibility. Continuation of benefits on account of participation in a non-State vocational rehabilitation program Beneficiaries who medically recover while participating in an approved non-State vocational rehabilitation program were granted the same benefit continuation rights as those who medically recover while participating in a State-sponsored program. Elimination of advance tax transfer The Social Security Trust Funds were credited with tax receipts as they were collected throughout the month, rather than in advance (at the first of the month), as under previous law. However, the advance tax-transfer mechanism (enacted to help meet the Social Security funding emergency that existed prior to the 1983 amendments) was retained as a contingency to be used if the trust funds drop to such a low level that it is needed in order to pay current benefits. Repeal of retroactive benefits for certain categories of individuals Retroactive benefits were eliminated for two categories of individuals eligible for reduced benefits: (a) those with dependents entitled to unreduced benefits, and (b) those with preretirement earnings over the amount allowed under the retirement limit who had used the retroactive benefits to charge off their excess earnings. Consolidation of old computation methods A number of little-used, pre-1968 benefit computation formulas were eliminated. Suspension of dependents' benefits when a disabled worker is in an extended period of eligibility Current SSA practice regarding the nonpayment of benefits to a disabled worker's dependents when that worker is in an extended period of eligibility and is not receiving monthly Social Security benefits was codified. Payment of benefits to a deemed spouse and a legal spouse Eligibility requirements for payment of benefits to a ``deemed spouse''--a spouse whose marriage is found to be invalid--were changed so that the entitlement of the worker's legal spouse would no longer terminate payment of benefits to a deemed spouse. Creation of a vocational rehabilitation demonstration project SSA was required to carry out a demonstration project testing the advantages and disadvantages of permitting disabled Social Security beneficiaries to select a qualified vocational rehabilitation provider, either public or private, from which to receive services aimed at enabling them to obtain work and leave the disability rolls. Use of Social Security number by certain legalized aliens Certain aliens who were granted amnesty under the provisions of the Immigration Reform and Control Act of 1986 were exempted from criminal penalties for fraudulent use of a Social Security card. The exemption did not apply to those individuals who sold Social Security cards, possessed cards with intent to sell, or counterfeited or possessed counterfeited cards with the intent to sell. Reduction in amount of wages needed to earn a year of coverage toward the special minimum benefit Effective in 1991, the amount of earnings needed to earn a year of coverage toward the special minimum benefit (designed to assist long-term, low-wage workers) was reduced from 25 percent of the ``old law'' contribution and benefit base ($10,725 in 1993), to 15 percent of the base ($6,435 in 1993). Charging of earnings of corporate directors A provision of previous law that treated a corporate director's earnings as taxable when the services to which they are attributable were performed was repealed. A director's earnings continue to be treated as received when the services are performed for purposes of the Social Security earnings limit. Collection of employee Social Security tax on group-term life insurance In cases where an employer continues to provide taxable group-term life insurance to an individual who has left his employment, the former employee was required to pay the employee portion of the Social Security tax directly. Waiver of the 2-year waiting period for certain divorced spouses The 2-year waiting period for independent entitlement to divorced spouse benefits was waived in cases where the worker was entitled to benefits prior to the divorce. Preeffectuation review of favorable decisions by the Social Security Administration The percentage of favorable decisions made by State disability determination services that must be reviewed by SSA was reduced from 65 percent of all such decisions to 50 percent of allowances and as many continuances as are required to maintain a high level of accuracy in such decisions. The reviews are to be targeted on those cases most likely to contain errors. Recovery of overpayments from former Social Security beneficiaries through tax refund offset SSA was permitted to recover overpayments from former beneficiaries through arrangements with the Internal Revenue Service (IRS) to offset the former beneficiary's tax refund. Changes in the 102d Congress No amendments to title II of the Social Security Act were made during the 102d Congress. Changes in the 103d Congress The Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66) made the following tax changes relating to Social Security and Medicare: Increased taxation of benefits Made up to 85 percent of Social Security benefits subject to the income tax for recipients whose income plus one-half of their benefits exceed $34,000 (single) and $44,000 (couple). Eliminated maximum taxable earnings base for HI Subjected all earnings to the HI tax, effective in 1994. The Social Security Administrative Reform Act of 1994 (Public Law 103-296) made significant administrative and program changes: Independent agency Established the Social Security Administration as an independent agency, effective March 31, 1995. Substance abusers Restricted DI and SSI benefits payable to drug addicts and alcoholics by creating sanctions for failing to get treatment, limiting their enrollment to 3 years, and requiring that those receiving DI benefits have a representative payee (formerly required only of SSI recipients). The Social Security Domestic Reform Act of 1994 (Public Law 103-387): Domestic workers Raised the threshold for Social Security coverage of household employees from remuneration of $50 in wages a quarter to $1,000 a year. Disability Insurance Trust Fund financing Reallocated a percentage of taxes from the OASI fund to the DI fund (see table 1-31). Barred benefit payments to the criminally insane Extended the prohibition against benefit payments to prisoners to those in public institutions who committed serious crimes but are found not guilty by reason of insanity, or incompetent to stand trial. Changes in the 104th Congress Summary of major provisions of the ``Senior Citizens' Right To Work Act of 1996'' (Incorporated into Public Law 104-121, the Contract With America Advancement Act of 1996): Increase in the Social Security earnings limit Gradually raised the earnings limit for those between age 65 and 70 to $30,000 by the year 2002, phased in over 7 years as follows: ------------------------------------------------------------------------ Year Old law New law ------------------------------------------------------------------------ 1996.......................................... $11,520 $12,500 1997.......................................... $11,880 $13,500 1998.......................................... $12,240 $14,500 1999.......................................... $12,720 $15,500 2000.......................................... $13,200 $17,000 2001.......................................... $13,800 $25,000 2002.......................................... $14,400 $30,000 ------------------------------------------------------------------------ Senior citizens between full retirement age (currently age 65) and 70 who earn over the given earnings limit continue to lose $1 in benefits for every $3 earned over the limit. After 2002, the annual exempt amounts are indexed to growth in average wages. The substantial gainful activity (SGA) amount applicable to individuals under 65 who are eligible for disability benefits on the basis of blindness is no longer linked to the earnings limit amount for those now age 65 to 69. As under current law, this SGA amount continues to be wage- indexed in the future, and is projected to rise to $14,400 by 2002. Establishment of a continuing disability review (CDRs) authorization An authorization to provide additional administrative funding to enable the Social Security Administration to increase CDRs is created. Amounts spent for CDRs above the already assumed base funding levels are not subject to the discretionary spending caps through fiscal year 2002. SSA must report annually on CDR expenditures and savings to the Social Security, Supplemental Security Income, Medicaid and Medicare Programs. Entitlement of stepchildren to child's benefits based on actual dependency on stepparent support Benefits are payable to a stepchild only if it is established that the stepchild is dependent upon the stepparent for at least one-half of his or her financial support. In addition, benefits to the stepchild are terminated if the stepchild's natural parent and stepparent are divorced. The dependency requirement is effective for stepchildren who become entitled or reentitled to benefits 3 months after the month of enactment. In cases of a subsequent divorce, benefits to stepchildren terminate 1 month after the divorce becomes final. Stepparents are required to notify SSA of the divorce. In addition, SSA is required to notify annually those potentially affected by this provision. Denial of benefits based on disability to drug addicts and alcoholics An individual is not considered disabled for purposes of entitlement to cash Social Security and Supplemental Security Income disability benefits if drug addiction or alcoholism is the contributing factor material to his or her disability. Individuals with drug addiction or alcoholism who have another severe disabling condition (such as AIDS, cancer, cirrhosis) can qualify for benefits based on that disabling condition. If a person qualifying for benefits based on another disability is also determined to be an alcoholic or drug addict incapable of managing his or her benefits, a representative payee will be appointed to receive and manage the individual's checks. Recipients who are unable to manage their own benefits as a result of alcoholism or drug addiction will be referred to the appropriate State agency for substance abuse treatment services. For each of two years beginning with fiscal year 1997, $50 million is authorized to fund additional drug (including alcohol) treatment programs and services. Individuals entitled to benefits before the month of enactment continue to be eligible for benefits until January 1, 1997. Benefit and contribution statement pilot Requires the Commissioner of Social Security to conduct a 2-year pilot study, beginning in 1996, of the efficacy of providing individual benefit and contribution information to recipients of Old-Age and Survivor Insurance benefits. Protection of Social Security and Medicare Trust Funds Codifies Congress' understanding of present law that the Secretary of the Treasury and other Federal officials are not authorized to use Social Security and Medicare funds for debt management purposes. APPENDIX Relationship of Taxes to Benefits For Social Security Retirees: Illustrations of the Amount of Time it Takes to Recover the Value of Taxes Paid, Plus Interest The issue of the relative value of Social Security benefits, compared to the value of the payroll taxes paid to acquire those benefits, is often brought up in discussions of the nature of the program. This comparison is complex and involves many judgments, and is not easily answered with general aggregate numbers. In addition to all the technical factors that must be addressed, the nature of the Social Security law complicates such computations. Not only do analysts disagree on the proper techniques to use in making calculations, there are often fundamental disagreements involving subjective factors: what work patterns to use; what part of the Social Security tax to count; whether or not to include the employer's share of the tax; and what rate of interest to use. This analysis seeks to avoid judgmental conclusions by providing a range of illustrations that vary these subjective factors. It does not evaluate the ``moneysworth'' of Social Security, nor does it provide an ``actuarial analysis'' of how whole age cohorts fare. Rather, it simply presents illustrations of the amount of time it takes, and is projected to take, to recover the value of taxes paid plus interest (see table 1-50). The illustrations represent a range of possible payback times, depending on variations in the assumptions used. In this way, no judgments need be made--the use of the illustrations is the reader's choice. Many things complicate any determination of the relationship of benefits to taxes for future retirees. For example, although Social Security tax rates and benefit formulas are set by law, they are not immutable. Since Congress has modified taxes and benefits many times since the beginning of the program, it is clearly inconsistent with the program's history to calculate taxes and benefits into the future on the assumption that these key elements will not change. There is little doubt they eventually will be altered, as it is projected that demographic phenomena will cause the program's projected outgo to outstrip its resources significantly in 33 years. Higher taxes or benefit cuts would be necessary, at that point or before, if the self-supporting character of the program is to be continued. These changes obviously would affect the relationship of taxes to benefits. However, the nature of future changes is unknown, whereas current law is a given. Therefore, in order to assess the relationship of future taxes and benefits, this analysis uses calculations that are useful in presenting possible outcomes of policies currently incorporated in the law. Calculations of the relationship of benefits to taxes for future retirees involve many key factors. The rate of Social Security taxation is set by law. The portion of the tax that provides cash benefits (Old-Age, Survivors and Disability Insurance, or OASDI) to employees is 6.2 percent. However, the Old-Age and Survivors Insurance portion of the tax, from which retirement benefits are paid, currently 5.26 percent, is scheduled to rise to 5.35 percent in 1997 and drop to 5.3 percent in 2000 and remain level thereafter. The tax rate applies to earnings up to a maximum amount. The ``maximum taxable earnings'' is $62,700 in 1996, but will rise in the future, as prescribed by law, at the same rate as average wages in the economy. Therefore, the amount of Social Security taxes an employee will pay under current law is a direct function of his or her earnings. If one knows the amounts of an individual employee's earnings, and what the maximum taxable earnings are each year, the amount of tax paid is easily calculated. Future initial benefit amounts are also in part a function of one's earnings. They are computed at first eligibility (age 62 for retirement) by a method that indexes both earnings over the worker's career and the benefit formula to changes in average wages in the economy. After age 62, benefits rise in tandem with the cost of living. As these factors are unknown, future benefit amounts cannot be predicted with certainty. Further complicating the issue is the nature of the program. As a ``social insurance'' program, Social Security has both social and insurance goals. The social-goal features provide a design that deliberately gives a better return on taxes to some workers than to others. For example, the basic formula for calculating Social Security benefits is tilted to replace a higher proportion of earnings for low-paid workers. Also, a complex array of dependents' benefits is available at no additional cost for workers with families. As with insurance, the exact relationship of Social Security benefits received to total taxes paid cannot be predicted for each and every worker. For example, workers who die before or shortly after retirement and leave no survivors may collect only a few dollars in benefits or perhaps none at all. Other workers may collect Social Security benefits for many years after retirement and receive benefits substantially greater than the value of their Social Security taxes. Workers who become disabled or die at an early age might have paid relatively little in Social Security taxes, but they or their families may receive benefits for many years, recovering the value of the worker's taxes many times. Also, there really is no ``typical'' Social Security beneficiary with a ``typical'' work history. An ``average'' benefit can be the result of many different work histories and thus be based on different amounts of taxes paid. For example, because the benefit formula does not require that all earnings be used in the benefit computation, workers with gaps in their earnings history may receive the same benefits as other workers, but pay less in total taxes. Nevertheless, models can produce projections of future benefits, based on assumptions about wage and price growth, for workers with designated work histories and characteristics. This analysis makes such projections using several common assumptions about illustrative workers. It assumes that each worker retires at age 65 in January of the designated year after having worked full time in employment covered by Social Security beginning at age 21. Similarly, all the illustrations reflect three lifetime earnings patterns--workers who always earned either (1) the Federal minimum wage; (2) a wage equal to Social Security's ``average wage series''; and (3) a wage equal to the maximum amount creditable under Social Security. These work histories and characteristics are necessarily arbitrary. Many variations could be constructed that would alter the payback times. However, by comparing similar examples of workers in what may be considered illustrative situations one may make a number of observations without having to resolve all the judgmental questions concerning what constitutes a typical worker or having to provide a voluminous array of illustrations. The model uses the alternative II assumptions of the 1996 Social Security Trustees' report to forecast wage and price growth. Under these assumptions, wages grow for most of the projected period by 5.0 percent a year, prices by 4.0 percent. Although using common assumptions and focusing on certain examples allows comparisons across generations, there are other factors that can be varied depending on one's view of the Social Security system. Among these is whether to count the employer's share of the payroll tax. There is some disagreement concerning who really bears the burden of the Social Security tax paid by employers. Some say that employees pay for it in the form of foregone wages. Others maintain that employers are actually paying for income maintenance protection that they would have to pay for anyway in one form or another in the absence of the Social Security Program, and that they absorb part of it and pass the rest along to the general public in the form of higher prices. This analysis does not attempt to resolve this debate, but rather presents examples using both assumptions. Another variable subject to the reader's choice is the proportion of the Social Security tax to apply to retirement benefits. The payroll tax consists of three elements--Old-Age and Survivors Insurance (OASI), Disability Insurance (DI), and Hospital Insurance (HI). Because the DI and HI Programs have earmarked taxes, their own trust funds, and designated tax rates specified in the law, they are clearly and easily excludable from computations of taxes that pay for retirement benefits. OASI taxes pay for survivor as well as retirement benefits, and it would be inconsistent to include taxes that pay for survivor benefits on the tax side, but not include the value of survivor benefits on the benefit side, in computing payback times. However, there is no separate allocation of taxes in the law for survivor or old-age benefits. It is possible to derive hypothetical year-by-year tax allocations for old-age benefits by assuming that such taxes would be in the same proportion to OASI tax rates as old-age benefits are to OASI benefits for each year. The Social Security Administration's actuaries have year-by-year projections of these benefits and this analysis uses them to compute taxes attributable solely to old-age benefits. A problem with this approach is that the survivor portion of the tax cannot so easily be assigned to a benefit. While the DI and HI taxes protect against risks that really do not involve an element of choice--all workers possibly can become too disabled to work or suffer illness in old age--there is an element of choice in whether a worker has dependents. Nevertheless, the worker still must pay the full OASI tax. An unmarried childless worker can maintain that it is inaccurate to say that only the old-age portion of the OASI tax should be used to compute the payback times of his or her retirement benefit when she is forced to pay a tax (the survivor portion of the OASI tax) for which he can derive no benefit. Also, it can be asserted that this approach understates the value of the accumulated taxes because it does not take account of the subsidy provided by workers who die before reaching retirement. However, such a subsidy is theoretical, whereas the illustrations refer to individuals who in fact have survived to retirement age and use the tax they actually would have paid. Also, because Social Security taxes are adjusted periodically to take account of current and projected program experience, it can reasonably be assumed that any subsidy effect is reflected in the rate of the OASI tax. Again, this analysis does not resolve this argument of whether or not to count the survivor portion of the OASI tax. It simply shows both ways of computing the relationship of benefits to taxes. Also, any calculation of such a relationship is heavily dependent upon the interest rate assumptions used. The value of taxes over time is equivalent to their worth if invested. However, the amount of interest is not easily determinable. Were the value of taxes paid invested wisely (or luckily), its total real worth theoretically could be many times its nominal value. On the other hand, it is possible that the principal could be virtually wiped out by poor investment choices. To obtain a middle ground, consisting of a reasonable and safe investment history, one could assume that the Social Security contributions were always placed in U.S. Government obligations. Excess Social Security taxes have always been invested in U.S. Government securities, so, to provide illustrations, this paper uses the effective interest rates earned by the Social Security trust funds over the years and those projected for the future. Under the alternative II assumptions, average annual interest rates are projected ultimately to be 6.3 percent, a ``real'' interest rate of 2.3 percent (i.e., 2.3 percent above inflation). The interest is assumed to be tax free. The cumulative value of taxes plus interest at the 3 different earnings levels for workers retiring in 1996 are shown in tables 1-47, 1-48, and 1-49. Illustrative Payback Times Table 1-50 shows past and projected payback times for workers retiring in various years from 1940 to 2025. In these illustrations, benefits are for the worker alone. However, the value of the benefit could be higher if the worker had dependents who were eligible for benefits. For example, if these workers had spouses who also were the full retirement age and were not entitled to a Social Security benefit on their own account, then the value of the monthly benefit would increase by 50 percent. This would shorten the payback times considerably. TABLE 1-47.--SOCIAL SECURITY TAXES PAID BY A WAGE EARNER WHO HAS ALWAYS EARNED THE MINIMUM WAGE, 1952-95 ---------------------------------------------------------------------------------------------------------------- Tax rates Taxes paid Effective Calendar year Earnings ---------------------------------------------------- interest OASI Old-Age \1\ OASI Old-Age rate \2\ ---------------------------------------------------------------------------------------------------------------- 1952.............................. $1,560 1.500 1.052 $23.40 $16.41 2.240 1953.............................. 1,560 1.500 1.085 23.40 16.93 2.310 1954.............................. 1,560 2.000 1.470 31.20 22.94 2.296 1955.............................. 1,560 2.000 1.509 31.20 23.54 2.198 1956.............................. 1,993 2.000 1.526 39.86 30.42 2.401 1957.............................. 2,080 2.000 1.548 41.60 32.21 2.492 1958.............................. 2,080 2.000 1.555 41.60 32.34 2.516 1959.............................. 2,080 2.250 1.739 46.80 36.17 2.578 1960.............................. 2,080 2.750 2.111 57.20 43.91 2.598 1961.............................. 2,184 2.750 2.094 60.06 45.73 2.755 1962.............................. 2,392 2.875 2.187 68.77 52.32 2.825 1963.............................. 2,461 3.375 2.563 83.06 63.07 2.923 1964.............................. 2,600 3.375 2.553 87.75 66.37 3.084 1965.............................. 2,600 3.375 2.529 87.75 65.76 3.184 1966.............................. 2,600 3.500 2.568 91.00 66.78 3.483 1967.............................. 2,886 3.550 2.604 102.45 75.14 3.753 1968.............................. 3,293 3.325 2.415 109.49 79.52 3.950 1969.............................. 3,328 3.725 2.710 123.97 90.20 4.437 1970.............................. 3,328 3.650 2.661 121.47 88.55 5.074 1971.............................. 3,328 4.050 2.961 134.78 98.54 5.286 1972.............................. 3,328 4.050 2.973 134.78 98.94 5.406 1973.............................. 3,328 4.300 3.101 143.10 103.19 5.754 1974.............................. 3,883 4.375 3.168 169.88 123.03 6.218 1975.............................. 4,368 4.375 3.184 191.10 139.06 6.593 1976.............................. 4,784 4.375 3.201 209.30 153.12 6.731 1977.............................. 4,784 4.375 3.213 209.30 153.70 6.958 1978.............................. 5,512 4.275 3.153 235.64 173.80 7.199 1979.............................. 6,032 4.330 3.206 261.19 193.36 7.524 1980.............................. 6,448 4.520 3.355 291.45 216.33 8.568 1981.............................. 6,968 4.700 3.514 327.50 244.87 9.947 1982.............................. 6,968 4.575 3.460 318.79 241.07 11.178 1983.............................. 6,968 4.775 3.645 332.72 253.96 10.768 1984.............................. 6,968 \3\ 4.926 \3\ 3.776 343.24 263.12 11.601 1985.............................. 6,968 5.200 3.993 362.34 278.25 11.213 1986.............................. 6,968 5.200 3.997 362.34 278.52 11.091 1987.............................. 6,968 5.200 4.002 362.34 278.83 10.063 1988.............................. 6,968 5.530 4.257 385.33 296.64 9.773 1989.............................. 6,968 5.530 4.264 385.33 297.08 9.555 1990.............................. 7,670 5.600 4.320 429.52 331.37 9.305 1991.............................. 8,606 5.600 4.321 481.94 371.91 9.082 1992.............................. 8,840 5.600 4.320 495.04 381.92 8.737 1993.............................. 8,840 5.600 4.315 495.04 381.47 8.318 1994.............................. 8,840 5.260 4.047 464.98 357.79 8.000 1995.............................. 8,840 5.260 4.048 464.98 357.83 7.958 ----------------------------------------------------------------------------- Total taxes paid 1952-95: Accumulated without interest.. ........... ........... ........... 9,264.00 7,016.01 Accumulated with interest..... ........... ........... ........... 36,737.56 27,502.36 ---------------------------------------------------------------------------------------------------------------- \1\ Old-Age tax rates were derived by applying the ratio of Old-Age benefits/total OASI benefits to the OASI tax rates. \2\ Interest rates for 1952-94 are from the Office of the Actuary of SSA. The rate for 1995 is an estimate. \3\ In 1984, employees received a tax credit of 0.3 percent against OASDI taxes. The OASI and Old-Age tax rates reflect a proportional allocation of the tax credit. Note.--Initial benefit amount upon retirement in January 1996 at age 65: $574.00 worker only; $861.00 worker and spouse (both age 65). Source: Kollmann (1996a). TABLE 1-48.--SOCIAL SECURITY TAXES PAID BY A WAGE EARNER WITH AVERAGE EARNINGS, 1952-95 \1\ ---------------------------------------------------------------------------------------------------------------- Tax rates (in percent) Taxes paid Effective ---------------------------------------------------- interest Calendar year Earnings rate \3\ OASI Old-Age \2\ OASI Old-Age (in percent) ---------------------------------------------------------------------------------------------------------------- 1952.............................. $2,973.32 1.500 1.052 $44.60 $31.28 2.240 1953.............................. 3,139.44 1.500 1.085 47.09 34.07 2.310 1954.............................. 3,155.64 2.000 1.470 63.11 46.40 2.296 1955.............................. 3,301.44 2.000 1.509 66.03 49.81 2.198 1956.............................. 3,532.36 2.000 1.526 70.65 53.91 2.401 1957.............................. 3,641.72 2.000 1.548 72.83 56.39 2.492 1958.............................. 3,673.80 2.000 1.555 73.48 57.13 2.516 1959.............................. 3,855.80 2.250 1.739 86.76 67.05 2.578 1960.............................. 4,007.12 2.750 2.111 110.20 84.59 2.598 1961.............................. 4,086.76 2.750 2.094 112.39 85.57 2.755 1962.............................. 4,291.40 2.875 2.187 123.38 93.87 2.825 1963.............................. 4,396.64 3.375 2.563 148.39 112.67 2.923 1964.............................. 4,576.32 3.375 2.553 154.45 116.83 3.084 1965.............................. 4,658.72 3.375 2.529 157.23 117.82 3.184 1966.............................. 4,938.36 3.500 2.568 172.84 126.84 3.483 1967.............................. 5,213.44 3.550 2.604 185.08 135.74 3.753 1968.............................. 5,571.76 3.325 2.415 185.26 134.55 3.950 1969.............................. 5,893.76 3.725 2.710 219.54 159.75 4.437 1970.............................. 6,186.24 3.650 2.661 225.80 164.61 5.074 1971.............................. 6,497.08 4.050 2.961 263.13 192.37 5.286 1972.............................. 7,133.80 4.050 2.973 288.92 212.09 5.406 1973.............................. 7,580.16 4.300 3.101 325.95 235.04 5.754 1974.............................. 8,030.76 4.375 3.168 351.35 254.45 6.218 1975.............................. 8,630.92 4.375 3.184 377.60 274.77 6.593 1976.............................. 9,226.48 4.375 3.201 403.66 295.30 6.731 1977.............................. 9,779.44 4.375 3.213 427.85 314.19 6.958 1978.............................. 10,556.03 4.275 3.153 451.27 332.84 7.199 1979.............................. 11,479.46 4.330 3.206 497.06 367.99 7.524 1980.............................. 12,513.46 4.520 3.355 565.61 419.83 8.568 1981.............................. 13,773.10 4.700 3.514 647.34 484.01 9.947 1982.............................. 14,531.34 4.575 3.460 664.81 502.73 11.178 1983.............................. 15,239.24 4.775 3.645 727.67 555.42 10.768 1984.............................. 16,135.07 \4\ 4.926 \4\ 3.776 794.86 609.29 11.601 1985.............................. 16,822.51 5.200 3.993 874.77 671.77 11.213 1986.............................. 17,321.82 5.200 3.997 900.73 692.38 11.091 1987.............................. 18,426.51 5.200 4.002 958.18 737.35 10.063 1988.............................. 19,334.04 5.530 4.257 1,069.17 823.09 9.773 1989.............................. 20,099.55 5.530 4.264 1,111.51 856.95 9.555 1990.............................. 21,027.98 5.600 4.320 1,177.57 908.48 9.305 1991.............................. 21,811.60 5.600 4.321 1,221.45 942.58 9.082 1992.............................. 22,935.42 5.600 4.320 1,284.38 990.89 8.737 1993.............................. 23,132.67 5.600 4.315 1,295.43 998.23 8.318 1994.............................. 23,753.53 5.260 4.047 1,249.74 961.39 8.000 1995.............................. 24,669.85 5.260 4.048 1,297.63 998.64 7.958 ----------------------------------------------------------------------------- Total taxes paid 1952-95: Accumulated without interest.. ........... ........... ........... 21,546.43 16,361.16 Accumulated with interest..... ........... ........... ........... 76,718.45 57,541.76 ---------------------------------------------------------------------------------------------------------------- \1\ This table uses the average wage series for indexing earnings, for the period 1952 through 1994, developed by SSA in computing benefit amounts. The average wage for 1995 is based on Alternative II assumptions in the 1996 report of the Social Security Board of Trustees. \2\ Old-Age tax rates were derived by applying the ratio of Old-Age benefits/total OASI benefits to the OASI tax rates. \3\ Interest rates for 1952-94 are from the Office of the Actuary of SSA. The rate for 1995 is an estimate. \4\ In 1984, employees received a tax credit of 0.3 percent against OASDI taxes. The OASI and Old-Age tax rates reflect a proportional allocation of the tax credit. Note.--Initial benefit amount upon retirement in January 1996 at age 65: $886.00 worker only; $1,329.00 worker and spouse (both age 65). Source: Kollmann (1996a). TABLE 1-49.--SOCIAL SECURITY TAXES PAID BY A WAGE EARNER WITH MAXIMUM TAXABLE EARNINGS, 1952-95 ---------------------------------------------------------------------------------------------------------------- Tax rates (in percent) Taxes paid Effective ---------------------------------------------------- interest Calendar year Earnings rate \2\ OASI Old-Age \1\ OASI Old-Age (in percent) ---------------------------------------------------------------------------------------------------------------- 1952.............................. $3,600 1.500 1.052 $54.00 $37.88 2.240 1953.............................. 3,600 1.500 1.085 54.00 39.07 2.310 1954.............................. 3,600 2.000 1.470 72.00 52.93 2.296 1955.............................. 4,200 2.000 1.509 84.00 63.37 2.198 1956.............................. 4,200 2.000 1.526 84.00 64.10 2.401 1957.............................. 4,200 2.000 1.548 84.00 65.03 2.492 1958.............................. 4,200 2.000 1.555 84.00 65.31 2.516 1959.............................. 4,800 2.250 1.739 108.00 83.47 2.578 1960.............................. 4,800 2.750 2.111 132.00 101.33 2.598 1961.............................. 4,800 2.750 2.094 132.00 100.51 2.755 1962.............................. 4,800 2.875 2.187 138.00 105.00 2.825 1963.............................. 4,800 3.375 2.563 162.00 123.01 2.923 1964.............................. 4,800 3.375 2.553 162.00 122.54 3.084 1965.............................. 4,800 3.375 2.529 162.00 121.40 3.184 1966.............................. 6,600 3.500 2.568 231.00 169.52 3.483 1967.............................. 6,600 3.550 2.604 234.30 171.84 3.753 1968.............................. 7,800 3.325 2.415 259.35 188.35 3.950 1969.............................. 7,800 3.725 2.710 290.55 211.42 4.437 1970.............................. 7,800 3.650 2.661 284.70 207.55 5.074 1971.............................. 7,800 4.050 2.961 315.90 230.95 5.286 1972.............................. 9,000 4.050 2.973 364.50 267.57 5.406 1973.............................. 10,800 4.300 3.101 464.40 334.87 5.754 1974.............................. 13,200 4.375 3.168 577.50 418.24 6.218 1975.............................. 14,100 4.375 3.184 616.88 448.87 6.593 1976.............................. 15,300 4.375 3.201 669.38 489.69 6.731 1977.............................. 16,500 4.375 3.213 721.88 530.11 6.958 1978.............................. 17,700 4.275 3.153 756.67 558.09 7.199 1979.............................. 22,900 4.330 3.206 991.57 734.09 7.524 1980.............................. 25,900 4.520 3.355 1,170.68 868.96 8.568 1981.............................. 29,700 4.700 3.514 1,395.90 1,043.70 9.947 1982.............................. 32,400 4.575 3.460 1,482.30 1,120.92 11.178 1983.............................. 35,700 4.775 3.645 1,704.68 1,301.16 10.768 1984.............................. \3\ 37,800 \3\ 4.926 \3\ 3.776 1,862.03 1,427.40 11.601 1985.............................. 39,600 5.200 3.993 2,059.20 1,581.35 11.213 1986.............................. 42,000 5.200 3.997 2,184.00 1,678.81 11.091 1987.............................. 43,800 5.200 4.002 2,277.60 1,752.70 10.063 1988.............................. 45,000 5.530 4.257 2,488.50 1,915.74 9.773 1989.............................. 48,000 5.530 4.264 2,654.40 2,046.50 9.555 1990.............................. 51,300 5.600 4.320 2,872.80 2,216.34 9.305 1991.............................. 53,400 5.600 4.321 2,990.40 2,307.66 9.082 1992.............................. 55,500 5.600 4.320 3,108.00 2,397.79 8.737 1993.............................. 57,600 5.600 4.315 3,225.60 2,487.13 8.318 1994.............................. 60,600 5.260 4.047 3,187.56 2,452.70 8.000 1995.............................. 61,200 5.260 4.048 3,219.16 2,477.25 7.958 ----------------------------------------------------------------------------- Total taxes paid 1952-95: Accumulated without interest.. ........... ........... ........... 46,173.45 35,180.65 Accumulated with interest..... ........... ........... ........... 136,841.77 103,035.15 ---------------------------------------------------------------------------------------------------------------- \1\ Old-Age tax rates were derived by applying the ratio of Old-Age benefits/total OASI benefits to the OASI tax rates. \2\ Interest rates for 1952-94 are from the Office of the Actuary of SSA. The rate for 1995 is an estimate. \3\ In 1984, employees received a tax credit of 0.3 percent against OASDI taxes. The OASI and Old-Age tax rates reflect a proportional allocation of the tax credit. Note.--Initial benefit amount upon retirement in January 1996 at age 65: $1,249.00 worker only; $1,873.00 worker and spouse (both age 65). Source: Kollmann (1996a). TABLE 1-50.--NUMBER OF YEARS TO RECOVER TAXES PLUS INTEREST FOR WORKERS RETIRING AT AGE 65, \1\ SELECTED YEARS 1940-2025 ------------------------------------------------------------------------ Minimum Maximum Average Year of retirement earner earner earner ------------------------------------------------------------------------ Illustration 1: Years to recover employee's OASI taxes 1940................................... (\2\) 0.1 0.2 1960................................... 0.5 0.8 1.0 1980................................... 1.5 2.0 2.1 1996................................... 6.2 8.8 11.6 2005................................... 8.8 12.4 16.6 2015................................... 9.6 13.8 20.0 2025................................... 8.8 13.4 22.0 Illustration 2: Years to recover combined employee-employer OASI taxes 1940................................... (\2\) 0.2 0.4 1960................................... 1.0 1.6 2.0 1980................................... 3.0 3.9 4.4 1996................................... 14.1 20.8 28.8 2005................................... 19.8 29.9 43.7 2015................................... 21.9 34.1 57.7 2025................................... 19.8 32.8 68.1 Illustration 3: Years to recover retirement portion of employee's OASI taxes 1940................................... (\2\) 0.1 0.2 1960................................... 0.4 0.6 0.7 1980................................... 1.1 1.4 1.6 1996................................... 4.5 6.3 8.3 2005................................... 6.4 9.0 11.9 2015................................... 7.1 10.1 14.4 2025................................... 6.7 10.1 16.2 Illustration 4: Years to recover retirement portion of combined employee-employer OASI taxes 1940................................... (\2\) 0.2 0.4 1960................................... 0.7 1.1 1.4 1980................................... 2.2 2.8 3.1 1996................................... 9.9 14.3 19.5 2005................................... 13.9 20.4 28.4 2015................................... 15.4 23.2 35.8 2025................................... 14.6 23.3 42.0 ------------------------------------------------------------------------ \1\ Under the alternative II assumptions and taking into account benefit increases and continued accrual of interest after retirement but not the taxation of benefits. The retiree is assumed to attain age 65 and retire in January of the designated year. \2\ Less than 0.1 years. Source: Kollmann (1996b). While these illustrations do not purport to address the ``moneysworth'' questions, i.e., will Social Security be a ``good deal'' or a ``bad deal,'' they do show the relative relationship of payback times of past, current, and future beneficiaries. It is readily apparent that past retirees recovered the value of their taxes very quickly. Payback times have lengthened for workers retiring today, but they are still significantly shorter than those projected for future retirees. This is ameliorated somewhat by the projection that future retirees are expected to live longer, and thus collect benefits longer. Table 1-51 shows the life expectancies for people turning age 65 in the illustrated years. Defenders of Social Security tend to discount the phenomenon of lengthening payback times, arguing that the program serves social ends that transcend calculations of which individuals, or generations, obtain some sort of balance-sheet profit or loss. They point out that pay-as-you-go retirement systems such as Social Security by their nature often provide large returns on the contributions of the initial generations. In the early years of such programs, the ratio of workers to recipients is very high, allowing tax or contribution rates to be low. As the program matures, rates rise to reflect the increase in the number of beneficiaries. This is not unique to Social Security. Establishing benefit levels for early recipients in excess of what contributions would dictate is also found in private pension systems. TABLE 1-51.--LIFE EXPECTANCY AT AGE 65, SELECTED YEARS 1940-2025 ------------------------------------------------------------------------ Life expectancy (in years) Year ------------------------- Male Female ------------------------------------------------------------------------ 1940.......................................... 11.9 13.4 1960.......................................... 12.9 15.9 1980.......................................... 14.0 18.4 1996.......................................... 15.4 19.2 2005.......................................... 15.9 19.5 2015.......................................... 16.3 19.9 2025.......................................... 16.7 20.3 ------------------------------------------------------------------------ Note.--The life expectancy for any year is the average number of years of life remaining for a person if that person were to experience the death rates by age observed in or assumed for the selected year. Actual average lifetimes will probably be a little longer than the projected expectancies because of lower mortality rates assumed in future years. Source: Board of Trustees (1996). Furthermore, proponents of Social Security note that providing ``adequate'' benefits to initial Social Security recipients that were essentially ``unearned'' in relation to their contributions to the system was deliberate social policy. Providing a minimum level of protection to the first workers to participate in the system was considered more important, in a period of economic depression, than concerns about excessive rates of return on taxes paid. Besides, the social benefits of giving a measure of economic independence for the elderly, and later for orphaned children, surviving spouses, and the disabled, are believed by many to be immense. For example, younger workers are in large part relieved from the financial burden of supporting their parents, and the elderly are afforded an opportunity to live independently and with dignity. Critics of Social Security point to these social welfare features as a basic flaw in the program. They argue that by combining the goals of social adequacy, which is welfare- related, with individual equity, which loosely ties benefits to taxes paid, the program has become a mishmash that accomplishes neither goal well and creates inequities. One inequity they cite is that future beneficiaries will on the whole receive retirement benefits inferior to those that the equivalence of their taxes could purchase in the private sector. Furthermore, they say when interest is included, some categories of workers will not recoup what they and their employer paid in taxes. Often buttressing these arguments are calculations that show what individuals could receive if their Social Security taxes were invested privately. This latter argument is dependent on the interest rate assumed on such investment. The ``proper'' interest rate is problematic. Those who project high investment returns often refer to the historical performance of the stock market, showing that a portfolio of broad-based stocks would have earned on average substantial rates of return over the years, and that this performance can be expected to continue in the future. Also, high real interest rates may not seem so unlikely given the relationship of nominal interest rates and inflation over the past decade. Critics of such analysis point out that such investments have an element of risk that they believe should be unacceptable in providing a national system of retirement income, and that if a safe-as-possible mix of investment vehicles were used instead, projected rates of return would be smaller. They also contend that recent high real interest rates are a historical anomaly that will not be sustained in the future. The key point for the reader is to be aware of the influence exerted by the projected rate of return in these sorts of calculations, and the large degree to which the argument about the value of Social Security hinges around it. REFERENCES Ballantyne, H.C. (1984). Present policies and methods regarding the long-term adjustment of benefits. Social Security Bulletin, 47(10), pp. 9-12. Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund. (1996, June 5). The 1996 annual report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (House Document 104-228). Washington, DC: U.S. Government Printing Office. Board of Trustees, Federal Hospital Insurance Trust Fund. (1996, June 1). The 1996 annual report of the Board of Trustees of the Federal Hospital Insurance Trust Fund (House Document 104-227). Washington, DC: U.S. Government Printing Office. Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund. (1991, May 22). 1991 annual report of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund (House Document 102-88). Washington, DC: U.S. Government Printing Office. Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund. (1988, May 9). The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (House Document 100-192). Washington, DC: U.S. Government Printing Office. Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund. (1984, April 5). 1984 annual report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (House Document 98-200). Washington, DC: U.S. Government Printing Office. Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund. (1983, June 27). 1983 annual report Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund (House Document 98- 74). Washington, DC: U.S. Government Printing Office. Committee on Economic Security. (1935). Report to the President. Washington, DC: U.S. Government Printing Office. Congressional Budget Office. (1996, May). The economic and budget outlook: Fiscal years 1997-2006. Washington, DC: Author. Kollman, G. (1996a). How long does it take new retirees to recover the value of their Social Security taxes? (94-5 EPW). Washington, DC: Congressional Research Service. Kollman, G. (1996b). Social Security: The relationship of taxes and benefits for past, present, and future retirees (95-149 EPW). Washington, DC: Congressional Research Service. Social Security Administration. (1995). Annual Statistical Supplement to the Social Security Bulletin, 1995. Washington, DC: Author. Social Security Administration. (1986). Report of the Commission on the Evaluation of Pain (SSA Pub. 64-031- 3197). Washington, DC: Author. Svahn, J.A., & Ross, M. (1983). Social Security amendments of 1983: Legislative history. Social Security Bulletin, 46(7), pp. 3-48.