Source: https://www.everycrsreport.com/changes/20180710_RL33028_e5f18d7ff9929ee6fa42e3fd62c9aef99d7e1f89__20190508_RL33028_ae4e046f3717b3769f24087883acf2dfc58a3e90.html
Timestamp: 2020-04-03 23:26:43
Document Index: 45483152

Matched Legal Cases: ['§201', '§401', '§201', '§401', '§201', '§401', '§201', '§401', '§201', '§401']

Changes in Social Security: The Trust Funds from July 10, 2018 to May 8, 2019 - EveryCRSReport.com
Changes from July 10, 2018 to May 8, 2019
July 10, 2018Updated May 8, 2019 (RL33028)
The Social Security program pays monthly cash benefits to retired or disabled workers and their family members and to the family members of deceased workers. Program income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund. Projections show that the OASI fund will remain solvent until 2034, whereas the DI fund will remain solvent until 20322052, meaning that each trust fund is projected to be able topayto pay benefits scheduled under current law in full and on time up to that point. Following the depletion of trust fund reserves (20322052 for DI and 2034 for OASI), continuing income to each fund is projected to cover 9691% of DI scheduled benefits and 77% of OASI scheduled benefits. The two trust funds are legally distinct and do not have authority to borrow from each other. However, Congress has authorized the shifting of funds between OASI and DI in the past to address shortfalls in a particular fund. Therefore, this CRS report discusses the operations of the OASI and DI trust funds on a combined basis, referring to them collectively as the Social Security trust funds. On a combined basis, the trust funds are projected to remain solvent until 20342035. Following depletion of combined trust fund reserves at that point, continuing income is projected to cover 7980% of scheduled benefits.
The Social Security program pays benefits to retired or disabled workers and their family members and to the family members of deceased workers.1 As of April 2018March 2019, there were 6263.3 million Social Security beneficiaries. Approximately 6970% of those beneficiaries were retired workers and 1413% were disabled workers. The remaining beneficiaries were the survivors of deceased insured workers or the spouses and children of retired or disabled workers.2
The Social Security trust funds are both designated accounts within the U.S. TreasuryTreasury and the accumulated holdings of special U.S. government obligations. Both represent the funds designated to pay current and future Social Security benefits.
The Social Security program is financed primarily by revenues from Federal Insurance Contributions Act (FICA) taxes and Self-Employment Contributions Act (SECA) taxes. FICA taxes are paid by both employers and employees, but it is employers who remit the taxes to the U.S. Treasury. Employers remit FICA taxes on a regular basis throughout the year (e.g., weekly, monthly, quarterly or annually), depending on the employer's level of total employment taxes (including FICA and federal personal income tax withholding). The FICA tax rate of 7.65% each for employers and employees has two components: 6.2% for Social Security and 1.45% for Medicare Hospital Insurance. The SECA tax rate is 15.3% for self-employed individuals, with 12.4% for Social Security and 2.9% for Medicare Hospital Insurance. The respective Social Security contribution rates are levied on covered wages and net self-employment income up to $128,400 in 2018132,900 in 2019.5 Self-employed individualsindividuals may deduct one-half of the SECA taxes for federal income tax purposes.6 SECA taxes are normally paid once a year as part of filing an annual individual income tax return. In 20172018, Social Security payroll taxes totaled $873.6885.1 billion and accounted for 87.788.2% of the program's total income.7
In addition to payroll taxes, the Social Security program receives income from other sources. First, certain Social Security beneficiaries must include a portion of their Social Security benefits in taxable income for the federal income tax, and the Social Security program receives a portion of those taxes.8 In 20172018, revenue from the taxation of benefits totaled $37.935.0 billion, accounting for 3.85% of the program's total income. Second, the program receives reimbursements from the General Fund of the Treasury for a variety of purposes.9 General Fund reimbursements totaled $0.12 billion, accounting for less than 0.1% of the program's total income.10 Finally, the Social Security program receives interest income from the U.S. Treasury on its investments in special U.S. government obligations. Interest income totaled $85.183.3 billion, accounting for 8.53% of the program's total income.11
Social Security program income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: (1) the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and (2) the Federal Disability Insurance (DI) Trust Fund.13 Under current law, the two trust funds are legally distinct and do not have authority to borrow from each other. This is important given projections showing that the asset reserves held by the OASI fund will be depleted in 2034, whereas the asset reserves held by the DI fund will be depleted in 20282052. Following the depletion of trust fund reserves (20322052 for DI and 2034 for OASI), continuing income is projected to cover 9691% of DI scheduled benefits and 77% of OASI scheduled benefits. In the past, Congress has authorized temporary interfund borrowing and payroll tax reallocations between OASI and DI to address funding imbalances. This CRS report discusses the operations of the OASI and DI trust funds on a combined basis, referring to them collectively as the Social Security trust funds. On a combined basis, the trust funds are projected to remain solvent until 20342035, at which point continuing income is projected to cover 7980% of program costs. (For a discussion of the status of the DI trust fund, see CRS Report R43318, The Social Security Disability Insurance (DI) Trust Fund: Background and Current Status.)
Although Social Security is a pay-as-you-go system, meaning that current revenues are used to pay current costs, changes made to the Social Security program in 1983 began a sustained period of annual cash flow surpluses through 2009.19 Since 2010, however, Social Security has had annual cash flow deficits (program costs have exceeded tax revenues). The 20182019 Annual Report of the Social Security Board of Trustees projects that, under their intermediate assumptions, annual cash flow deficits will continue throughout the 75-year projection period (2018-20922019-2093).20
At the end of 20172018, the Social Security trust funds had accumulated holdings (asset reserves) of more than $2.9 trillion. The 20182019 Annual Report projects that the trust funds will have asset reserves (a positive balance) until 20342035, meaning that Social Security benefits scheduled under current law can be paid in full and on time until then. This is the same year projected in last year's report.
In addition, the 20182019 Annual Report shows the 75-year actuarial deficit for the Social Security trust funds. The actuarial deficit is the difference between the present discounted value of scheduled benefits and the present discounted value of future taxes plus asset reserves held by the trust funds. It can be viewed as the amount by which the payroll tax rate would have to be increased to support the level of benefits scheduled under current law throughout the 75-year projection period (or, roughly the amount by which the payroll tax rate would have to be increased for the trust funds to remain fully solvent throughout the 75-year period). The 20182019 Annual Report projects that the 75-year actuarial deficit for the trust funds is equal to 2.8478% of taxable payroll.21 With respect to the change in the projected 75-year actuarial deficit, the trustees state,
A 0.0605 percentage point increase in the OASDI actuarial deficit would have been expected if nothing had changed other than the one-year shift in the valuation period from 20172018 through 2091 to 20182092 to 2019 through 20922093. The effects of updated demographic, economic, and programmatic data, and improved methodologies, collectively reduced the actuarial deficit by 0.0411 percent of taxable payroll, offsetting most of the effect of changing the valuation period.22
As noted above, on a combined basis, the Social Security trust funds are projected to have asset reserves sufficient to pay full scheduled benefits until 20342035. Considered separately, the OASI Trust Fund is projected to have sufficient asset reserves until 2034 (last year's report also projected 20352034 as the depletion year) and the DI Trust Fund is projected to have sufficient asset reserves until 2032 (four2052 (20 years later than projected in last year's report). The trustees note,
In last year's report, the projected reserve depletion years were 2028 for DI and 2035 for OASIyear was the same for OASI and 20 years earlier (2032) for DI. The change in the reserve depletion date for DI is largely due to continuing favorable experience for DI applications and benefit awards. In addition, average benefit levels for disabled-worker beneficiaries were lower than expected in 2017, and are expected to be lower in the future. Disability applications have been declining steadily since 2010, and the total number of disabled-worker beneficiaries in the current payment status has been falling since 2014. The Trustees assume that the recent favorable experience with DI applications and awards is temporary, and that by 2027 DI incidence rates will return to levels projected in last year's report. Accordingly, the projected 75-year actuarial deficit (0.21 percent of taxable payroll) for DI is little changed from last year (0.24 percent)Relative to last year's Trustees Report, disability incidence rates are lower in 2018. They are also assumed to rise more gradually from current levels to reach ultimate levels at the end of 10 years that are slightly lower. Accordingly, the projected Trust Fund depletion date is 20 years later and the 75-year actuarial deficit (0.12 percent of taxable payroll) is 0.09 percentage points lower than was projected last year.23
Table 1 shows the annual cash flow operations of the Social Security trust funds (noninterest income, cost, and cash flow surplus/deficit) for the historical period 1957 to 20172018.24 From 1957 to 1983, the last time Congress enacted major amendments to the program, the Social Security trust funds operated with cash flow deficits (cost exceeded noninterest income) in 1920 of the 2728 years. Since 1984, the trust funds have operated with cash flow deficits in eightnine of the past 3435 years (2010 to 20172018).
Source: Table prepared by the Congressional Research Service (CRS) from data provided in the 20182019 Annual Report, Table VI.A3, pp. 160-161159-160, at https://www.ssa.gov/OACT/TR/2018/tr20182019/tr2019.pdf.
Table 2 shows projected cash flow operations of the Social Security trust funds (noninterest income, cost, and cash flow deficits) for the 2018 to 20332019 to 2034 period, as projected by the trustees in the 20182019 Annual Report (under the intermediate assumptions).
918979.0
(84.881.0)
9791,028.2
(82.385.5)
(98.599.8)
(113.8115.2)
1,275328.7
(131.8134.6)
1,203255.0
1,356411.5
(153156.5)
(176.3182.4)
(201.7199.1)
(216228.6)
(247.3261.7)
1,536593.6
1,817887.9
(281294.3)
(316.6327.3)
(352.4360.5)
(388393.7)
(425426.0)
(460456.7)
Source: Table prepared by CRS from data provided in Table VI.G8 (intermediate assumptions), Supplemental Single-Year Tables Consistent with the 20182019 Annual Report, at https://www.ssa.gov/oact/tr/20182019/lr6g8.html.
a. Projections for years after 20332034 are not shown because the asset reserves held by the Social Security trust funds are projected to be depleted in 20342035 under the intermediate assumptions.
One way to measure the cash flow operations of the trust funds is to take the ratio of noninterest income to cost for each year. A ratio greater than 100% indicates positive cash flow (a cash flow surplus); a ratio less than 100% indicates negative cash flow (a cash flow deficit). Figure 1 shows the ratio of current noninterest income to current cost for the Social Security trust funds each year over the historical period 1957 to 20172018 and over the 2018 to 20332019 to 2034 period, as projected by the trustees in the 20182019 Annual Report (under the intermediate assumptions).25
As shown in the figure, in 2009, noninterest income of $689.2 billion divided by a cost of $685.8 billion results in a ratio just over 100% (100.5%), indicating a cash flow surplus for the Social Security trust funds that year. By comparison, in 20172018, noninterest income of $911.5920.1 billion divided by a cost of $952.51,000.2 billion results in a ratio of 95.6%, indicating a cash flow deficit. In the 2018 Annual Report, the Social Security trustees project that the ratio of current noninterest income to current cost will remain below 100% for the 75-year projection period (2018-2092), with the gap between noninterest income and cost increasing over time (under the intermediate assumptions).
92.0%, indicating a cash flow deficit.
Source: Figure prepared by CRS from data provided in the 20182019 Annual Report, Table VI.A3, pp. 160-161159-160, at https://www.ssa.gov/oact/tr/20182019/lr6g8.html; and Table VI.G8 (intermediate assumptions), Supplemental Single-Year Tables Consistent with the 20182019 Annual Report, at https://www.ssa.gov/oact/tr/20182019/lr6g8.html.
The unified budget framework is important because it includes all federal receipts and outlays, providing a more comprehensive picture of the size of the federal government, as well as the impact of and the federal budget's impact on the economy. In the unified budget, the Social Security program is a large source of both federal receipts (35.2% in FY2017FY2018) and federal outlays (25.1% in FY2017FY2018).30 For purposes of the unified budget, the annual Social Security cash flow surplus or deficit is counted in determining the overall federal budget surplus or deficit.31
The accumulated holdings of the Social Security trust funds represent the sum of annual surplus Social Security revenues (for all past years) that were invested in U.S. government obligations, plus the interest earned on those obligations. As a result of surplus Social Security revenues from 1984 to 2009 and the interest income credited to the Social Security trust funds, the accumulated holdings of the Social Security trust funds totaled about $2.9 trillion at the end of calendar year 20172018.33 It is the accumulated holdings of the Social Security trust funds (or the trust fund balance) that many people refer to when discussing the Social Security trust funds. Table 3 shows the accumulated holdings of the Social Security trust funds for the historical period 1957 to 20172018. Table 4 shows the projected accumulated holdings of the Social Security trust funds for the 2018 to 20332019 to 2034 period, as projected by the Social Security trustees in the 20182019 Annual Report (under the intermediate assumptions). The Social Security trustees project that in 20182020 the program's total cost will exceed its total income. Under intermediate assumptions, this relationship is projected to continue until the trust funds are depleted in 2034.
The Social Security trustees project that, on average over the next 75 years (2018 to 20922019 to 2093), program costs will exceed income by an amount equal to 2.8478% of taxable payroll (on average, costs are projected to exceed income by at least 20%).34 The gap between income and costs, however, is projected to increase over the 75-year period. For example, in 20342035, the cost of the program is projected to exceed income by an amount equal to 3.8715% of taxable payroll (costs are projected to exceed income by about 2319%). By 20912093, the cost of the program is projected to exceed income by an amount equal to 4.3211% of taxable payroll (costs are projected to exceed income by about 2524%).35
revenues were increased by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.7870 percentage points (from 12.40% to 15.1810%; a relative increase of 2221.8%);36
benefits scheduled under current law were reduced by an amount equivalent to an immediate and permanent reduction of (1) about 17% if applied to all current and future beneficiaries, or (2) about 2120% if applied only to those who become eligible for benefits in 20182019 or later; or
Source: Table prepared by CRS from data provided in the 20182019 Annual Report, Table VI.A3, pp. 160-161159-160, at https://www.ssa.gov/OACT/TR/2018/tr20182019/tr2019.pdf. Accumulated holdings are end-of-year totals.
2,189147.5
2,496478.0
As the trustees point out, over the program's history, Social Security has collected approximately $2021.9 trillion and paid out $1819.0 trillion, leaving asset reserves of $2.9 trillion at the end of 20172018.41 The accumulated trust fund holdings of $2.9 trillion represent the amount of money that the General Fund of the Treasury owes to the Social Security trust funds. The General Fund could be said to have fully paid back the Social Security trust funds if the trust fund balance were to reach zero (i.e., if all of the trust funds' asset reserves were depleted).
The trustees project that the asset reserves held by the Social Security trust funds will be depleted in 20342035. At that point, the program will continue to operate with incoming receipts to the trust funds. Incoming receipts are projected to be sufficient to pay about three-fourths80% of scheduled benefits through the end of the projection period in 20922093 (under the intermediate assumptions of the 20182019 Annual Report).42 Title II of the Social Security Act, which governs the program, does not specify what would happen to the payment of benefits in the event that the trust funds' asset reserves are depleted and incoming receipts to the trust funds are not sufficient to pay scheduled benefits in full and on time. Two possible scenarios are (1) the payment of full monthly benefits on a delayed basis or (2) the payment of partial monthly benefits on time.
The following table shows the key dates projected for the Social Security trust funds by the Social Security Board of Trustees (based on their intermediate set of assumptions) in each of their annual reports from 1983 to 20182019.
Source: CRS, based on data from the 1983 to 20182019 Social Security trustees reports and information provided by SSA.
The original report was written by former CRS analyst [author name scrubbed]Christine Scott.
SSA, Monthly Statistical Snapshot, April 2018, May 2018March 2019, April 2019, Table 2. The latest edition of the Monthly Statistical Snapshot is available at http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/index.html.
Social Security Act, Title II, §201(d) [(42 U.S.C. §401(d)][d]). For more information, see SSA, Office of the Chief Actuary, Actuarial Note Number 142, Social Security Trust Fund Investment Policies and Practices, by Jeffrey L. Kunkel, January 1999, at http://www.ssa.gov/OACT/NOTES/n1990s.html.
SSA, Office of the Chief Actuary, Financial Data ForFor A Selected Time Period, at https://www.ssa.gov/OACT/ProgData/allOps.html.
Social Security Act, Title II, §201 [(42 U.S.C. §401]).
Social Security Act, Title II, §201(b) [(42 U.S.C. §401(b)][b]). See SSA, Office of the Chief Actuary, Social Security Tax Rates, at https://www.ssa.gov/OACT/ProgData/oasdiRates.html.
The Social Security Board of Trustees is composed of three officers of the President's Cabinet (the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services); the Commissioner of Social Security; and two public representatives who are appointed by the President and subject to confirmation by the Senate. (The two public trustee positions are currently vacant.) The Board of Trustees issues an annual report to Congress on the financial status of the Social Security trust funds. The trustees make three sets of projections based on low-cost, intermediate, and high-cost assumptions reflecting the uncertainty surrounding projections for a 75-year period. The trust fund projections cited in this CRS report are based on the intermediate (or "best estimate") assumptions of the 20182019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Washington, DC, June 05, 2018April 22, 2019, at https://www.ssa.gov/OACT/TR/2018/tr2018.pdf. (Herein after cited as "20182019/tr2019.pdf. (Hereinafter cited as "2019 Annual Report.")
Taxable payroll refers to total earnings in the economy that are subject to Social Security payroll taxes (with some adjustments). The Congressional Budget Office (CBO) projects that the trust funds will have asset reserves until 2031, and that the program's 75-year actuarial shortfall would be equal to 4.4% of taxable payroll. See CBO, The 2018 Long-Term Budget Outlook, June 26, 2018, pp. 17, at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports2018-06/53919-2018ltbo.pdf
Social Security and Medicare Boards of Trustees, Status of the Social Security and Medicare Programs: A Summary of the 20182019 Annual Reports, June 05, 2018April 22, 2019, at https://www.ssa.gov/OACT/TRSUM/tr18summary.pdf. (Herein aftertr19summary.pdf. (Hereinafter cited as "Summary of the 20182019 Annual Report.")
20182019 Annual Report, Table VI.A3, pp. 160-161159-160, at https://www.ssa.gov/OACT/TR/2018/tr20182019/tr2019.pdf; and Table VI.G8 (intermediate assumptions), Supplemental Single-Year Tables Consistent with the 20182019 Annual Report, at https://www.ssa.gov/oact/tr/20182019/lr6g8.html.
Social Security Act, Title II, §201(d) [(42 U.S.C. §401(d)][d]).
Social Security Act, Title II, §201(f) [(42 U.S.C. §401(f)][f]). The funds are then used to purchase additional U.S. government securities credited to the Social Security trust funds.
The 75-year "open group unfunded obligation" for Social Security is $13.29 trillion (in present value terms).
The Social Security trustees explain that the projected increase in the payroll tax rate needed for the trust funds to remain solvent throughout the 75-year projection period (2.7870 percentage points) differs from the projected 75-year actuarial deficit (2.8478% of taxable payroll) for two reasons. The trustees state on page five of the 20172019 Annual Report: "First, the necessary tax rate increase is the rateincrease required to maintain solvency throughout the period that does not result in anywith a zero trust fund reserve at the end of the period, whereas the actuarial deficit also incorporates an ending trust fund reserve equal to 1 year's costone year's cost at the end of the projection period. Second, the necessary tax rate increase reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate increase assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax."
Social Security has been operating with annual cash flow deficits since 2010, and the trustees project that cash flow deficits will continue each year throughout the 75-year projection period (2018-2092). (20182019-2093). (2019 Annual Report; intermediate assumptions.)
Summary of the 20172019 Annual Report.
Projections show that incoming receipts would be sufficient to pay 7980% of scheduled benefits in 20342035 and 74% of scheduled benefits in 20922093. On a separate basis, the OASI Trust Fund is projected to be unable to pay scheduled benefits starting in 2034; the DI Trust Fund is projected to be unable to pay scheduled benefits starting in 2032. (20182052. (2019 Annual Report, p. 1222.)