REPORT OF THE NATIONAL COMMISSION ON SOCIAL SECURITY REFORM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-00003R000200100001-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 286
• Document Creation Date: December 21, 2016
• Document Release Date: October 2, 2008
• Sequence Number: 1
• Publication Date: January 1, 1983
• Content Type: REPORT

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REPORT OF THE
NATIONAL COMMISSION
ON
SOCIAL SECURITY
REFORM
JANUARY 1983
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MEMBERS OF THE NATIONAL COMMISSION ON SOCIAL SECURITY REFORM
Appointed by the President
Alan Greenspan, Chairman -- Chairman and President, Townsend-Greenspan and
Company, New York, NY.
Robert A. Beck -- Chairman of the Board and Chief Executive Officer,
Prudential Insurance Company of America, Newark, NJ.
Mary Falvey Fuller -- Management Consultant, San Francisco, CA (Member of
1979 Advisory Council on Social Security).
Alexander B. Trowbridge -- President, National Association of Manufacturers,
Washington, DC.
Joe D. Waggonner, Jr. -- Consultant, Bossier Bank and Trust Company, Bossier
City, LA (Member of Congress from Louisiana in 87th to 95th
Congresses).
Appointed by the Majority Leader of the Senate,
in consultation with Minority Leader
William Armstrong -- Senator from Colorado and Chairman of Subcommittee on
Social Security, Committee on Finance.
Robert Dole -- Senator from Kansas and Chairman of Committee on Finance.
John Heinz -- Senator from Pennsylvania and Chairman of Special Committee
on Aging.
Lane Kirkland -- President, American Federation of Labor-Congress of
Industrial Organizations.
Daniel Patrick Moynihan -- Senator from New York and Ranking Minority Member
of Subcommittee on Social Security,,Committee on Finance.
Appointed by the Speaker of the House of Representatives,
in consultation with the Minority Leader
William Archer -- Representative from Texas and Ranking Minority Member,
Subcommittee on Social Security, Committee on Ways and Means.
Robert M. Ball -- Visiting Scholar, Center for the Study of Social Policy,
Washington, DC (Commissioner of Social Security, 1962-73).
Barber Conable -- Representative from New York and Ranking Minority Member,
Committee on Ways and Means.
Martha E. Keys -- Director of Educational Programs, The Association of
Former Members of Congress, Washington, DC (Member of Congress from
Kansas, in 94th and 95th Congresses, and Assistant Secretary of Health
and Human Services, 1980-81).
Claude D. Pepper -- Representative from Florida and Chairman of Committee on
Rules.
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NATIONAL COMMISSION ON SOCIAL SECURITY REFORM
736 JACKSON PLACE, N.W.
WASHINGTON, D.C. 20503
January 20, 1983
The President
The White House
Washington, D.C. 20500
I hereby transmit to you the report of the bi-partisan National
Commission on Social Security Reform, which has made an in-depth review of the
financial condition of the Old-Age, Survivors, and Disability Insurance Trust
Funds in both the short range and the long range. The results of our
deliberations are contained in this report.
In accordance with Executive Order No. 12335, December 16, 1981, as
amended, copies of this report have been sent to the Majority Leader of the
Senate, the Speaker of the House of Representatives, and the Secretary of
Health and Human Services.
ctful submitted,
n Ure p
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Table of Contents
Chapter 1 Introduction
Chapter 2 Findings and Recommendations
Chapter 3 Financing Problems of the Medicare Program
Chapter 4 Additional Statements
Appendices
A. Executive Order 12335 Establishing the NCSSR and Executive
Orders 12397 and 12402 Modifying the Reporting Date
B. President's Remarks Announcing the Establishment of the NCSSR
C. Charter of the NCSSR
D. President's Letter to the Chairman and the Commission Members
E. List of Meetings of the NCSSR
F. List of Staff Memorandums Prepared for the NCSSR
G. Papers presented to the NCSSR
H. Staff of NCSSR
I. Glossary
J. Financial Status of the Social Security Program
K. "Old-Age, Survivors, and Disability Insurance and Hospital
Insurance Programs -- Actuarial Cost Estimates for OASDI and HI
and for Various Possible Changes in OASDI and Historical Data
for OASDI and HI", Background Book, revised version, December
1982.
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Chapter 1
INTRODUCTION
On December 16, 1981, President Reagan promulgated Executive Order 12335,
which established the National Commission on Social Security Reform. The
National Commission was created as a result of the continuing deterioration of
the financial position of the Old-Age and Survivors Insurance Trust Fund, the
inability of the President and the Congress to agree to a solution, and the
concern about eroding public confidence in the Social Security system.-l/
The National Commission is composed of fifteen members, eight Republicans
and seven Democrats. Five members were selected by the President, on a bi-
partisan basis; five were selected by the Senate Majority Leader, in
consultation with the Senate Minority Leader, on a bi-partisan basis; and five
were selected by the Speaker of the House of Representatives, in consultation
with the House Minority Leader, on a bi-partisan basis.
1/ Throughout this report, the term "Social Security" will be used to denote
the combination of the Old-Age, Survivors, and Disability Insurance program
(OASDI) and the Medicare program, which consists of the Hospital Insurance
program (HI) and the Supplementary Medical Insurance program (SMI). The
National Commission decided to limit its policy recommendations to the
OASDI program. The statutory Advisory Council on Social Security,
appointed by the Secretary of Health and Human Services in September 1982,
is charged with studying the Medicare program.
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The Executive Order provides that the National Commission should:
11
. . review relevant analyses of the current and long-term
financial condition of the Social Security trust funds;
identify problems that may threaten the long-term solvency
of such funds; analyze potential solutions to such problems
that will both assure the financial integrity of the Social
Security System and the provision of appropriate benefits;
and provide appropriate recommendations to the Secretary of
Health and Human Services, the President, and the Congress."
In carrying out its mandate, the National Commission met nine times, on
approximately a monthly basis. Because of the brevity of the time in which to
complete its work, the National Commission held no public hearings. However, it
reviewed the results of the many hearings, studies, and reports of other public
bodies, including Congress, the 1979 Advisory Council on Social Security, and
the 1981 National Commission on Social Security. The National Commission on
Social Security Reform sought the advice of a number of experts and thoroughly
examined a wide variety of alternative approaches.
Chapter 2 presents the major findings and recommendations of the National
Commission. Chapter 3 deals with the financial status of the Medicare program.
Additional Statements of individual members appear in Chapter 4.
The appendices to this report contain the following materials: Executive
Order 12335, establishing the National Commission; Executive Order 12397,
modifying the original Executive Order by extending the reporting date by 15
days; Executive Order 12402, giving a further extension in the reporting date
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(until January 20, 1983); the White House press release of December 16, 1981,
announcing the membership of the National Commission; the Charter of the
National Commission; the President's letter to the National Commission; a list
of meetings held; a list of the technical memorandums prepared for the use of
the members during their deliberations; a list of the prepared presentations
made by experts who appeared before the National Commission; a roster of the
staff; a detailed description of the financial status of the Social Security
program; and a detailed listing of possible options and their cost effects and
basic tables which served as background material for the meetings.
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Chapter 2
FINDINGS AND RECOMMENDATIONS
The National Commission was assigned the critical job of assessing whether
the OASDI program has financing problems in the short run and over the
long-range future (as represented by the 75-year valuation period) and, if so,
recommending how such problems could be resolved.
The National Commission has agreed that there is a financing problem for
the OASDI program for both the short run, 1983-89 (as measured using pessimistic
economic assumptions) and the long range, 1983-2056 (as measured by an
intermediate cost estimate) and that action should be taken to strengthen the
financial status of the program.!/ The National Commission recognized that,
under the intermediate cost estimate, the financial status of the OASDI program
in the 1990s and early 2000s will be favorable (i.e., income will significantly
exceed outgo) -- see Table 7A in Appendix K. The National Commission also
recognized that, under the intermediate cost estimate, the financial status of
the HI program becomes increasingly unfavorable from 1990 until the end of the
period for which the estimates are made -- see Table 7B in Appendix K.
/ The assumptions underlying these cost estimates are summarized in Tables 12
and 13 of Appendix K.
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The National Commission makes the following recommendations unanimously:
(1) The members of the National Commission believe that the Congress, in
its deliberations on financing proposals, should not alter the
fundamental structure of the Social Security program or undermine its
fundamental principles.* The National Commission considered, but
rejected, proposals to make the Social Security program a voluntary
one, or to transform it into a program under which benefits are a
product exclusively of the contributions paid, or to convert it into a
fully-funded program, or to change it to a program under which
benefits are conditioned on the showing of financial need.**
(2) The National Commission recommends that, for purposes of considering
the short-range financial status of the OASDI Trust Funds, $150-200
billion in either additional income or in decreased outgo (or a
combination of both) should be provided for the OASDI Trust Funds in
calendar years 1983-89.
(3) The National Commission finds that, for purposes of considering the
long-range financial status of the OASDI Trust Funds, its actuarial
See additional views of Commissioner Archer in Chapter 4.
See additional views (with regard to the last point) of Commissioners
Archer, Fuller, and Waggonner in Chapter 4.
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imbalance for the 75-year valuation period is an average of 1.80% of
taxable payroll.?/
The National Commission was able to reach a consensus for meeting the
short-range and long-range financial requirements, by a vote of 12 to 3. The 12
members voting in favor of the "consensus" package were Commissioners Ball,
Beck, Conable, Dole, Fuller, Greenspan, Heinz, Keys, Kirkland, Moynihan, Pepper,
and Trowbridge; the 3 members voting against the "consensus" package were
Commissioners Archer, Armstrong, and Waggonner.
The 12 members of the National Commission voting in favor of the
"consensus" package agreed to a single set of proposals to meet the short-range
deficit (with Commissioner Kirkland dissenting on the proposal to cover newly
hired Federal employees). They further agreed that the long-range deficit
should be reduced to approximately zero. The single set of recommendations
would meet about two-thirds of the long-range financial requirements. Seven of
the 12 members agreed that the remaining one-third of the long-range financial
requirements should be met by a deferred, gradual increase in the normal
retirement age, while the other 5 members agreed to an increase in the
contribution rates in 2010 of slightly less than one-half percent (0.46%) of
covered earnings on the employer and the same amount on the employee, with the
This figure is the actuarial lack of balance according to the intermediate
(Alternative II-B) cost estimate in the 1982 Trustees Report, after
adjustment for the effects of legislation and the actual benefit increase
for June 1982.
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employee's share of the increase offset by a refundable income-tax credit (see
the statements in Chapter 4 for a presentation of these approaches).
Various possible short-range and long-range financing options are displayed
in the Commission's Background Book entitled Old-Age, Survivors, and Disability
Insurance and Hospital Insurance Programs -- Actuarial Cost Estimates for OASDI
and HI and for Various Possible Changes in OASDI and Historical Data for OASDI
and HI, revised version, December 1982 (which is included in this report as
Appendix K). The derivation and underlying basis of the additional financial
resources needed in 1983-89, as stated in item (2), are described in detail on
pages 16-21 of Appendix J.
Provisions of "Consensus" Package
Recommendations Nos. (4) to (16) describe the provisions of the "consensus"
package. Table A presents the actuarial cost data for this package for both the
short range (1983-89 in the aggregate) and the long range (the 75-year valuation
period, ending with 2056). Table B gives the year-by-year actuarial cost data
for the short-range period. The cost estimates underlying these figures are
based on economic assumptions which have been developed in recent weeks and
which assume significantly lower levels of both price and wage inflation than
does the Alternative III estimate in the 1982 OASDI Trustees Report (and even
somewhat lower than in the Alternative II-B estimate).
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Proposal
Short-Term
Savings,
1983-89
(billions)
Long-Range
Savings
(percentage
of payroll)
Cover nonprofit and new Federal employeesc/
+$20
+.30%
Prohibit withdrawal of State and local
government employees
+3
--
Taxation of benefits for higher-income persons
+30
+.60
Shift COLAs to calendar-year basis
+40
+.27
Eliminate windfall benefits for persons with
pensions from noncovered employment
+.2
+.01
Continue benefits on remarriage for disabled
widow(er)s and for divorced widow(er)s
-.1
--
Index deferred widow(er)'s benefits based on
wages (instead of CPI)
-.2
-.05
Permit divorced aged spouse to receive benefits
when husband is eligible to receive benefits
-.1
-.01
Increase benefit rate for disabled widow(er)s
aged 50-59 to 713-2% of primary benefit
-1
-.01
Revise tax-rate schedule
+40
+.02
Revise tax basis for self-employed
+18
+.19
Reallocate OASDI tax rate between OASI and DI
--
--
Allow inter-fund borrowing from HI by OASDI
--
--
Credit the OASDI Trust Funds, by a lump-sum
payment for cost of gratuitous military service
wage credits and past unnegotiated checks
+18
--
Base automatic benefit increases on lower of CPI
or wage increases after 1987 if fund ratio is
under 20%, with catch-up if fund ratio
exceeds 32%
--
--
Increase delayed retirement credit from 3% per
year to 8%, beginning in 1990 and reaching
8% in 2010 b/
--
-.10a1
Additional long-range changes-
--
+.58
a/ This cost estimate assumes that retirement patterns would be only slightly
affected by this change. If this change does result in significant changes
in retirement behavior over time, the cost increase would be less (or possibly
even a small savings could result).
b/ Alternate methods for obtaining this long-range savings are presented in the
Additional Statements of the members (in Chapter 4).
c/ Includes effect of revised tax schedule.
NOTE: See text for complete description of the proposals.
2-5
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YEAR-BY-YEAR SHORT-RANGE COST ANALYSIS OF OASDI PROPOSALS
(in billions)
Proposal
1983
1984
1985
1986
1987
1988
1989
1983-89
Cover nonprofit and new Federal workersa/
--
+$l
+$2
+$3
+$4
+$4
+$5
+$20
Prohibit withdrawal of State/local workers
__
*
*
*
+1
+1
+1
+3
Taxation of benefits for higher-income persons
--
+1
+4
+5
+6
+7
+8
+30
Shift COLAs to calendar-year basis
+$5
+5
+5
+6
+6
+6
+7
+40
Eliminate windfall benefits
--
*
*
*
*
*
*
+.2
--
*
*
*
*
*
*
-.1
Benefits for remarried widow(er)s
Index deferred widow(er)'s benefits by wages
--
*
*
*
*
*
*
-.2
Divorced spouse's benefits when husband eligible
--
*
*
*
*
*
*
-.1
Higher benefit rate for disabled widow(er)s
--
*
*
*
*
*
*
-1
Revised tax schedule
--
+9
*
--
--
+15
+16
+40
Revised tax basis for self-employed
--
+1
+3
+3
+3
+4
+5
+18
Credit trust funds for military wage credits
+20
-1
-1
*
*
*
*
+18
+25
+16
+13
+17
+20
+37
+41
+168
* Less than $500 million.
a/ Includes effect of revised tax schedule.
NOTE: See text for complete description of the proposals. Those having no short-range cost effect are not
shown here. Totals do not always equal the sum of the individual items, due to rounding.
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The "consensus" package would provide an estimated $168 billion in
additional financial resources to the OASDI program in calendar years 1983-89.
This amount is very close to the midpoint of the $150-200 billion range stated
in Recommendation No. 2. Actually, because the economic assumptions which are
used for this package involve a lower inflation rate as to both prices and wages
than those which had been used earlier in the deliberations, the resulting $168
billion of additional financial resources is really relatively near the upper
end of the desired range.
(4).he National Commission recommends that coverage under the OASDI
program should be extended on a mandatory basis, as of January 1,
1984, to 11 ewly hired civilian employees of the Federal
Government.!/* The National Commission also recommends that OASDI-HI
coverage should be extended on a mandatory basis, as of January 1,
1984, to all employees of nonprofit organizations.
It is important to note that covering additional groups of workers such as
those specified in this recommendation not only results in a favorable cash-flow
situation in the short run, but also has a favorable long-range effect. The
_ Under present law, temporary Federal civilian employees are covered by the
OASDI-HI program, and all other Federal civilian employees are covered
under the HI program, beginning January 1, 1983. All persons in the armed
forces are covered by the OASDI-HI program.
* See additional views of Commissioner Archer and additional views of
Commissioner Kirkland in dissent, in Chapter 4.
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additional OASDI taxes paid on behalf of the newly-covered workers over the long
run will exceed, on the average, the additional benefits which result from such
employmen,t_
j/, assuming that the program is in long-range actuarial balance.
The National Commission believes that an independent supplemental
retirement plan should be developed for the Federal new hires, which would be
part of the Civil Service Retirement system (just as private employers have
plans supplementing the OASDI program). It is important to note that present
Federal employees will not be affected by this recommendation (and that the
financing of their benefits over the long run will not be adversely affected)
(5) Th
N
ti
l C
i
i
e
a
ona
omm
ss
on recommends that State and local governments
which have elected coverage for their employees under the OASDI-HI
program should not be permitted to terminate such coverage in the
future -- specifically, termination notices now pending would be
invalid if the process of termination is not completed5/ by the
enactment date of the new legislation.
4/ The vast majority of the individuals involved would have qualified for
sizable OASDI benefits as a result of other employment even if coverage
were not extended to these two categories of workers. Also, they tend to
have higher-than-average wages and, therefore, are entitled to less-heavily
weighted benefits.
5/ Current law provides that withdrawal can occur, after advance notice of at
least 2 years, at the end of the calendar year specified in the withdrawal
notice. For example, a withdrawal notice filed in February 1981 would (if
not withdrawn earlier by the State or local government entity) result in
the process of termination being completed on January 1, 1984.
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(6) The National Commission is concerned about the relatively large OASDI
benefits that can accrue to individuals who spend most of their
working careers in noncovered employment from which they derive
pension rights, but who also become eligible for OASDI benefits as a
result of relatively short periods in covered employment with other
employers. Accordingly, the National Commission recommends that the
method of computing benefits should be revised for persons who first
become eligible for pensions from non-covered employment, after 1983,
so as to eliminate "windfall" benefits.
The result of such a work history is to produce OASDI benefits that contain
"windfall" elements -- the benefits payable are relatively high compared to the
proportion of time spent and the OASDI taxes paid during covered employment.
This results from the weighted benefit formula, which treats these individuals
in the same manner as if they were long-service, low-earnings workers.
Specifically, the National Commission believes that these individuals should
receive benefits which are more nearly of a proportionate basis than the
heavily-weighted benefits now provided.
There are various methods of eliminating the "windfall" portion of benefits
(while still providing equitable, proportional benefits). One method would be
to modify the benefit formula for determining the Primary Insurance Amount by
making the second percentage factor (32%) be applicable to the lowest band of
Average Indexed Monthly Earnings (instead of the 90% factor), but the reduction
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in benefits would not be larger than the pension from non-covered employment.
Another method would be to apply the present benefit formula to an earnings
record which combines both covered earnings and also non-covered earnings in the
future for the purpose of determining a replacement rate (i.e., the ratio of the
benefit initially payable to previous earnings); then, that replacement rate
would be applied to the average earnings based solely on covered employment.
The short-range cost effect of these proposals -- applied only prospectively for
new eligibles -- would be relatively small. The long-range cost effect would
depend on the procedure used and on whether the recommended extension of
coverage is adopted.
(7) The National Commission recommends that, beginning with 1984, 50% of
OASDI benefits should be considered as taxable income for income-tax
purposes for persons with Adjusted Gross Income (before including
therein any OASDI benefits) of $20,000 if single and $25,000 if
married. The proceeds from such taxation, as estimated by the
Treasury Department, would be credited to the OASDI Trust Funds under
a permanent appropriation.*
It is estimated that about 10% of OASDI beneficiaries would be affected by
this provision. The National Commission noted that a "notch" is present in this
provision in that those with Adjusted Gross Income of just under the limit of
* See additional views of Commissioner Archer in Chapter 4.
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$20,000/$25,000 would have a larger total income (including OASDI benefits) than
those with Adjusted Gross Income just over the limit. The National Commission
points out the presence of this "notch" and trusts that it will be rectified in
the legislative process.
(8) The National Commission recommends that the automatic cost-of-living
adjustments of OASDI benefits should, beginning in 1983, be made
applicable to the December benefit checks (payable early in January),
rather than being first applicable to the June payments. The National
Commission also recommends that the amount of the disregard of OASDI
benefits for purposes of determining Supplemental Security Income
payment levels should be increased from $20 a month to $50.
The increase in the CPI for purposes of the automatic adjustments for any
particular year is currently measured from the first quarter of the previous
year to the first quarter of that particular year. This procedure should
continue to apply for the adjustment in benefit amounts for 1983 (payable in
early January 1984). However, for subsequent years, the comparison should be
made on a "third quarter to third quarter" basis.
The recommended increase in the amount of the disregard of OASDI benefits
for SSI purposes is estimated to have an initial cost of about $750 million per
year.
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(9) The National Commission recommends that the following changes in
benefit provisions which affect mainly women should be made:
(a) Present law permits the continuation of benefits for surviving
spouses who remarry after age 60. This would also be done for
(1) disabled surviving spouses aged 50-59, (2) disabled divorced
surviving spouses aged 50-59, and (3) divorced surviving spouses
aged 60 or over.
(b) Spouse benefits for divorced spouses would be payable at age 62
or over (subject to the requirement that the divorce has lasted
for a significant period) if the former spouse is eligible for
retirement benefits, whether or not they have been claimed (or
they have been suspended because of substantial employment).
(c) Deferred surviving-spouse benefits would continue to be indexed
as under present law, except that the indexing would be based on
the increases in wages after the death of the worker (instead of
by the increases in the CPI, as under present law).
(d) The benefit rate for disabled widows and widowers aged 50-59 at
disablement would be the same as that for non-disabled widows and
widowers first claiming benefits at age 60 (i.e., 712% of the
Primary Insurance Amount), instead of the lower rates under
present law (gradually rising from 50% at age 50 to 712% for
2-12
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disablement at age 60). Such change would not only be applicable
to new cases, but would also be applicable to beneficiaries of
this category who are on the rolls on the effective date of the
provision.
(10) The National Commission recommends that the OASDI tax schedule should
be revised so that the 1985 rate would be moved to 1984, the 1985-87
rates would remain as scheduled under present law, part of the 1990
rate would be moved to 1988, and the rate for 1990 and after would
remain unchanged. The HI tax rates for all years would remain
unchanged. The resulting tax schedule would be as follows:
Employer and Employee Rate (each)
OASDI OASDI-HI
Year Present Law Proposal Present Law Proposal
1983
5.4%
5.4%
6.7%
6.7%
1984
5.4
5.7
6.7
7.0
1985
5.7
5.7
7.05
7.05
1986
5.7
5.7
7.15
7.15
1987
5.7
5.7
7.15
7.15
1988-89
5.7
6.06
7.15
7.51
1990 and after
6.2
6.2
7.65
7.65
For 1984, a refundable income tax credit would be provided against the
individual's Federal income-tax liability in the amount of the
increase in the employee taxes over what would have been payable under
present law.*
See additional views of Commissioner Archer in Chapter 4.
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(11) The National Commission recommends that the OASDI tax rates for self-
employed persons should, beginning in 1984, be equal to the combined
employer-employee rates. One-half of the OASDI taxes paid by self-
employed persons should then be considered as a business expense for
income-tax purposes (but not for purposes of determining the OASDI-HI
tax).*
Under present law, self-employed persons pay an OASDI tax rate which is
approximately equal to 75% of the combined employer-employee rate (exactly 75%
for 1985 and after) and an HI tax rate which is 50% of the combined employer-
employee rate. Also, under present law, self-employed persons cannot deduct, as
business expenses, any OASDI-HI taxes paid. The reduction in income taxes
payable by the self-employed during 1984-89 as a result of considering one-half
of their OASDI taxes as a business expense is estimated to be about $12 billion.
(12) The National Commission recommends that the proposed OASDI tax rates
should be allocated between the OASI and DI Trust Funds in a manner
different from present law, in order that both funds will have about
the same fund ratios.
(13) The National Commission recommends that the authority for inter-fund
borrowing by the OASDI Trust Funds from the HI Trust Fund be
authorized for 1983-87.
* See additional views of Commissioner Archer in Chapter 4.
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(14) The National Commission recommends that a lump-sum payment should be
made to the OASDI Trust Funds from the General Fund of the Treasury
for the following items:
(a) The present value of the estimated additional benefits arising
from the gratuitous military service wage credits for service
before 1957 (subject to subsequent adjustments if the experience
deviates from the estimates).
(b) The amount of the combined employer-employee OASDI taxes on the
gratuitous military service wage credits for service after 1956
and before 1983 (which were granted as a recognition of non-cash
remuneration, and the cost of which is met, under present law,
when additional benefits derived therefrom are paid). The
payment would include interest, but would be reduced for any
costs therefor which were paid in the past to the OASDI Trust
Funds from the General Fund of the Treasury. In the future, the
OASDI Trust Funds would be reimbursed on a current basis for such
employer-employee taxes on such wage credits for service after
1982.
(c) The amount of uncashed OASDI checks issued in the past (which
were charged against the trust funds at time of issue), estimated
at about $300-400 million. (The problem of uncashed
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checks in the future has been corrected as a result of changed
procedures of the Treasury Department with regard to checks which
are uncashed for a long time.)
(15) The National Commission recommends that, beginning with 1988, if the
fund ratio6/ of the combined OASDI Trust Funds as of the beginning of
a year is less than 20.0% (except that, for 1988, the fund ratio to be
considered would be that estimated for the end of that year), the
automatic cost-of-living (COLA) adjustments of OASDI benefits should
be based on the lower of the CPI increase or the increase in wages.
If the fund ratio is 32.0% or more at the beginning of a year,
payments will be made during the following year as supplements to
monthly benefits otherwise payable to make up to individuals for any
use of wage increases instead of CPI increases in the past, but only
to the extent that sufficient funds are available over those needed to
maintain a fund ratio of 32.0%.L/
6 1 - - d ratio is the balance in the fund, exclusive of any outstanding
loan from the HI Trust Fund, as a percentage of the estimated outgo from
the fund in the year.
7/ When the fund ratio at the beginning of a particular year exceeds the
trigger level of 32.0%, there would be a "catch-up" for those individuals
on the benefit rolls at the time of the next COLA for whom some benefits in
the past had been increased on the basis of wage increases instead of CPI
increases. For each such person, the cumulative percentage benefit
reduction up to the beginning of that particular year would be recorded.
Such percentage reduction would be applicable as a percentage increase for
the benefits payable for the first 12 months following the next COLA. If
there were not sufficient funds available to provide a complete "catch-up",
then the percentage increase in the benefits for the 12-month period would
be pro-rated so that the estimated cost of this "catch-up" would equal the
funds available.
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This provision will serve as a stabilizer against the possibility of
exceptionally poor economic performance over a period of time.
The increases in wages would be determined from the "SSA average wage
index", the series used by the Social Security Administration in determining
such elements of the program as the maximum taxable earnings base and the "bend
points" in the formula for the Primary Insurance Amount. As an example,
assuming that this new indexing method were applicable for 1995 (for the
December checks), the COLA percentage would be the smaller of (1) the percentage
increase in the CPI from the third quarter of 1994, to the third quarter of 1995
or (2) the percentage increase in the "SSA average wage index" from 1993 to
1994.
(16) The National Commission recommends that the Delayed-Retirement Credit
should be increased from the present 3% (for persons who attained age
65 after 1981) to 8%, to be phased in over the period 1990-2010.
Under present law, persons who do not receive benefits after age 65
(essentially because of substantial employment of any kind) receive increases in
their benefit (and in their widowed spouse's benefit, but not in any other
auxiliary benefit) at the rate of 3% for each year of delay in receipt of
benefits from age 65 through age 71.$/ Under the proposal, the Delayed-
8/ A technical error in the law results in age 71 being stipulated, rather
than age 69; this provision should not be applicable after age 69, because
the earnings test no longer applies beyond that age. This error should be
corrected when the recommended change is legislated.
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Retirement Credit for months in 1990 would be at the rate of 34%, those for 1991
would be at the rate of 32%, etc. until an 8% rate would be reached in 2009 and
after.
Coverage of Payments Under Salary-Reduction Plans
(17) The National Commission recommends that, in the case of salary-
reduction plans qualifying under Section 401(k) of the Internal
Revenue Code, any salary reduction thereunder shall not be treated as
a reduction in the wages subject to OASDI-HI taxes.
Section 401(k) of the Internal Revenue Code permits employers to install
"salary-reduction" plans, under which employees may elect to forego a salary
increase or have part of their pay set aside in a tax-sheltered fund. Such
deferred salary is neither subject to Federal income tax currently, nor is it
subject to the OASDI-HI tax. The National Commission believes that, for both
OASDI-HI tax and benefit credit purposes, any salary deferred under a plan
meeting the requirements of Section 401(k) should be considered in exactly the
same manner as cash remuneration.
This proposal will not produce significant additional income to the OASDI
and HI programs currently, because not many of these salary-reduction plans have
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yet been put into effect. However, if the recommendation is not followed, it is
quite probable that many such plans will be instituted and that, in the absence
of the action recommended, considerable decreases in OASDI-HI tax income to the
trust funds and in benefit credits would result.
Fail-Safe Mechanisms
(18) The National Commission believes that, in addition to the stabilizing
mechanism of Recommendation (15), a fail-safe mechanism is necessary
so that benefits could continue to be paid on time despite
unexpectedly adverse conditions which occur with little advance
notice.!/ Several types of fail-safe mechanisms are possible other
than the one currently being used --inter-fund borrowing; there is
strong disagreement among the members as to which type of mechanism
should be used. A combination of these types of mechanisms would, of
course, be possible.
A number of mechanisms were considered. One would be to borrow, for a
limited period, from the General Fund of the Treasury. Such limitation would
prevent this procedure from being a part of the permanent method for financing
9F-ft- is most unlikely that such a situation would, with proper actuarial
guidance, happen with shorter notice than a year or so.
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the program. Another possibility along this line would be to permit the trust
funds to issue their own bonds for sale to the general public.
A second mechanism would be to reduce, temporarily, the benefits payable.
Alternatively, such a result could be accomplished indirectly, by reducing the
amount of the next benefit increase which would occur as a result of the
automatic-adjustment provision for benefits in eligibility status.
The third mechanism would be to increase, temporarily, the OASDI tax rates
and/or the maximum taxable earnings base.
The National Commission makes a number of recommendations in addition to
those discussed previously. Although these additional recommendations are of
importance, they will not likely have any significant financial effects, on the
average over the long run.
Investment Procedures
(19) The National Commission recommends that the investment procedures of
the OASI, DI, HI, and SMI Trust Funds be revised so that (1) all
future special issues would be invested on a month-to-month basis,
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(i.e., without fixed maturity dates, as under present law), at an
interest rate based on the average market rate of all public-debt
obligations with a duration of four or more years until maturit : ;not
including "flower bonds"10/ ); (2) all present special issues would be
redeemed at their face amount; (3) all "flower bonds"10/ would be
redeemed at their current market values; (4) all other current
holdings would be held until maturity (unless disposed of sooner, if
needed to meet outgo); and (5) only special issues would be purchased
by the trust funds in the future.
There has been widespread public discussion about the investment procedures
of the four Social Security trust funds. The view has frequently been expressed
that the investments have not been made on a proper basis and that sufficiently
high rates of return have not been obtained, because the average rate of return
has, in recent years, been far lower than that on newly issued Government
obligations. This is not a valid comparison, because it compares the new-issues
rate with the average portfolio rate, which includes the effect of the lower
interest rates on long-term obligations bought some years ago (at rates which
were equitable and proper at that time). The same situation as to a higher
10/ "Flower bonds" are certain series of government bonds that were issued in
the past (but which are no longer issued) which contain a provision that if
the purchaser holds them for a certain length of time, then for
inheritance-tax purposes, they are redeemable at par (regardless of the
market value).
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interest rate on new issues than on the total portfolio, as of recent years, has
also been present for private pension funds and insurance companies.
The National Commission believes that the investment procedures followed by
the trust funds in the past generally have been proper and appropriate. The
monies available have generally been invested appropriately in Government
obligations at interest rates which are equitable to both the trust funds and
the General Fund of the Treasury and have not -- as is sometimes alleged -- been
spent for other purposes outside of the Social Security program.
Nonetheless, the National Commission makes this recommendation in order to
improve the level of public understanding of the operations of the trust funds.
On the whole, and over the long-range future, it is likely that such a change in
investment procedure will have little (if any) effect on the financial status of
the Social Security program. It will probably result in a slightly higher
average rate of return in the immediate future. The long-range effects are not
determinable and, in any case, are not of great significance with regard to the
overall financing of the program.
Although the National Commission has not considered the Medicare program in
depth, it believes that the same investment procedures should apply for the HI
and SMI Trust Funds as for the OASDI Trust Funds.
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Public Members on Board of Trustees
(20) The National Commission recommends that two public members be added to
the Board of Trustees of the OASDI Trust Funds. The public members
would be nominated by the President and confirmed by the Senate. No
more than one public member could be from any particular political
party.
The National Commission believes that increasing the membership of the
Board of Trustees of the OASDI Trust Funds by including two individuals from
outside the Executive Branch, on a bi-partisan basis, would be desirable from
the standpoint of confidence in the integrity of the trust funds. The presence
of such public members would inspire more confidence in the investment procedure
(even though it is recommended that the procedure should be placed on a more or
less automatic basis, as under the previous recommendation) and would help to
assure that the demographic and economic assumptions for the cost estimates of
the future operations of the program would continue to be 'developed in an
objective manner. Although the National Commission is not generally making
recommendations in connection with the Medicare program, it would seem
reasonable that the same procedure of having two public members on the Board of
Trustees should also apply for the HI and SMI Trust Funds.
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Social Security and the Unified Budget
(21) A majority of the members of the National Commission recommends that
the operations of the OASI, DI, HI, and SMI Trust Funds should be
removed from the unified budget. Some of those who do not support
this recommendation believe that the situation would be adequately
handled if the operations of the Social Security program were
displayed within the present unified Federal budget as a separate
budget function, apart from other income security programs.
Before fiscal year 1969, the operations of the Social Security trust funds
were not included in the unified budget of the Federal Government, although they
were made available publicly and were combined, for purposes of economic
analysis, with the administrative budget in special summary tables included in
the annual budget document. Beginning then, the operations of the Social
Security trust funds were included in the unified budget. In 1974, Congress
implicitly approved the use of a unified budget by including Social Security
trust fund operations in the annual budget process. Thus, in years when
trust-fund income exceeded outgo, the result was a decrease in any general
budget deficit that otherwise would have been shown -- and vice versa.
The National Commission believes that changes in the Social Security
program should be made only for programmatic reasons, and not for purposes of
balancing the budget. Those who support the removal of the operations of the
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trust funds from the budget believe that this policy of making changes only for
programmatic reasons would be more likely to be carried out if the Social
Security program were not in the unified budget. Some members also believe that
such a procedure will make clear the effect and presence of any payments from
the General Fund of the Treasury to the Social Security program. (Under present
procedures, such payments are a "wash" and do not affect the overall budget
deficit or surplus).
Those who oppose this recommendation believe that it is essential that the
operations of the Social Security program should remain in the unified Federal
budget because the program involves such a large proportion of all Federal
outlays. Thus, to omit its operations would misrepresent the activities of the
Federal Government and their economic impact. Furthermore, it is important to
ensure that the financial condition of the Social Security program be constantly
visible to the Congress and the public. Highlighting the operations of the
Social Security program as a separate line function in the budget would allow
its impact thereon to be seen more clearly.
Social Security Administration as an Independent Agency
(22) The majority of the members of the National Commission believes -- as
a broad, general principle -- that it would be logical to have the
Social Security Administration be a separate independent agency,
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perhaps headed by a bi-partisan board. The National Commission
recommends that a study should be made as to the feasibility of doing
this.*
The Social Security Administration is now part of the Department of Health
and Human Services. Its fiscal operations and the size of its staff are larger
than those of the remainder of the Department combined.
The National Commission has not had the time to look into the various
complex issues involved in such an administrative reorganization and, therefore,
recommends that a study group should be formed to look into this matter. Issues
involved include whether the leadership of such an independent agency should be
assigned to a single individual or whether there should be a governing board of
several members, selected on a bi-partisan basis, and whether the operations of
the Medicare program should be included in such an independent agency, or
whether they should remain as a subsidiary agency within the Department of
Health and Human Sevices, as at present.
* See additional views of Commissioners Ball, Keys, Kirkland, Moynihan, and
Pepper in Chapter 4.
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Coverage of State and Local Government Employees
Although the National Commission believes that coverage of all persons who
are in paid employment is desirable, some members do not favor mandatory
coverage of employees of State and local governments.
A majority of the members is concerned about the constitutional problem of
covering State and local government employees under Social Security on a
mandatory basis because the Federal Government may not have the power to compel
State and local governments to pay the employer share of the OASDI-HI tax.
Other members believe that, regardless of the constitutionality question, the
Federal Government should not do so because the two levels of government have
equal roles and status. Some members point out that many State and local
governments already have adequate, well-financed retirement systems for their
employees, so that they do not need OASDI-HI coveragell/; others point out that
many State and local systems have serious financing problems and that protection
of the benefits under such systems against inflation (and often protection
against other risks) is not as adequate as under the OASDI program.
11/ A relatively small number of State and local government employees do not
have either OASDI-HI coverage or public-employee retirement systems.
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Benefit Provisions Primarily Affecting Women
In recent years, there has been widespread discussion as to whether the
basic structure of the Social Security program should be altered in view of the
changes in the role of women in our society and economy.*
Some members of the National Commission believe that there should be a
comprehensive change in the program to reflect the changing role of women, for
example, by instituting some form of earnings sharing for purposes of the Social
Security earnings record. Simply stated, earnings sharing means that all
covered earnings received by a couple during the period of marriage would be
pooled and half would be credited to each of their earnings records. Some other
members believed that such comprehensive changes were outside of the scope of
the charge of the National Commission.
Social Security Cards
The National Commission commends a recent decision of the Social Security
Administration to use banknote-quality paper for new and replacement Social
Security cards. The Senate Permanent Subcommittee on Investigations estimated
in June 1982 that fraud involving identification cards, of which Social Security
cards are the vast majority, cost the Federal Government between $15 and $24
billion per year.
* See additional views of Commissioner Fuller and additional views of
Commissioners Ball, Keys, Kirkland, Moynihan, and Pepper, in Chapter 4.
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Chapter 3
FINANCING PROBLEMS OF THE MEDICARE PROGRAM
This chapter deals with the consideration which has been given to the
financial status of the two portions of the Medicare program by the National
Commission.
HOSPITAL INSURANCE PROGRAM
According to the 1982 HI Trustees Report, the HI Trust Fund is estimated to
be depleted by the early part of the 1990s and possibly even by the end of this
decade. Over the next 25 years, the program is anticipated, under the
Alternative II-B assumptions of that report, to have an actuarial deficit that
averages about 1/% of taxable payroll.
About $12.4 billion was loaned to the OASI Trust Fund by the HI Trust Fund
in December 1982, as permitted by the law then in effect. Because the HI Trust
Fund will be depleted at some time within the next decade, according to current
estimates, the amounts borrowed by the OASI Trust Fund in 1982 should desirably
be repaid to the HI Trust Fund as soon as feasible.
These future financing problems of the HI program were not addressed
specifically by the National Commission, with the exception of those aspects
3-1
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that relate directly to the financial status of the OASDI program. Such action
was taken both because of the more immediate financing problems of the OASDI
program and because the recently-named Advisory Council on Social Security will
be concerned exclusively with making recommendations on the Medicare program and
its future solvency.
The "consensus" package described in Chapter 2 would result in some
additional financial resources for the HI program, as indicated below (see text
of Chapter 2 for complete description of the proposals):
Proposal
Short-Term
Savings,
1983-89
(billions)
Long-Range
Savings
(percentage
of payroll)
Cover nonprofit employees
+$1,7
+.02%
Prohibit withdrawal of State/local employees
+ .5
Total Effect
+ 2.2
+.02
Although the National Commission did not specifically address the future
financing problems of the HI program, some members were concerned about the
estimates of large future financing short-falls. The first major concern was
the possibility that any excess of income over outgo of the OASDI Trust Funds
during 1990-2010 could be endangered by the extensive financing needed by the HI
Trust Fund during that period. The second major concern was that, by ignoring
the cost of the HI program, the potential tax burden of the entire Social
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Security program might not be properly assessed when making reforms in the OASDI
portion of the program. Some members believe that the problem of financing the
HI program is not simply a matter of providing the funds to meet the costs
projected on the basis of past experience, but rather that first the matter of
slowing the rate of increase in hospital costs generally should be addressed.
According to the intermediate cost estimate, the combined OASDI-HI system
will develop significant annual deficits (excesses of outgo over income)
beginning shortly after 1990. These deficits will become increasingly larger as
time goes by. Thus, ultimately (2030-56), the combined deficits will be
somewhat more than 12% of taxable payroll.* About 65% of such deficits will be
caused by the HI program. In considering these estimates, it should be
recognized that the underlying assumption is that hospital costs will continue
to rise more rapidly than the general wage level for the next 25 years and at
the same rate thereafter. In other words, they assume that mandatory or
voluntary actions to control hospital costs undertaken in the next 25 years will
be effective only to the extent that the growth in hospital costs as compared
with the general level of wages will not be reduced below what is assumed in the
actuarial cost estimates for the HI program.!!
1/
These assumptions are summarized in Table Al of the 1982 HI Trustees
Report.
*
See views of Commissioners Ball, Keys, Kirkland, Moynihan, and
the undesirability of cost estimates for the HI program going
25 years into the future, in Chapter 4.
Pepper
further
as to
than
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SUPPLEMENTARY MEDICAL INSURANCE PROGRAM
The National Commission did not believe that it was necessary to make any
recommendations with regard to the SMI portion of the Medicare program. Its
financing is -- as discussed in Appendix J -- entirely on a year-by-year basis,
rather than on a long-range basis, as are the three payroll-tax-supported
programs (OASI, DI, and HI). For calendar year 1982, the payments from the
General Fund of the Treasury to the SMI Trust Fund are estimated to represent
77% of the total of the premium income and such payments. The financial status
of the SMI Trust Fund is currently excellent.
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Chapter 4
ADDITIONAL STATEMENTS
This chapter consists of additional statements of individual members of the
National Commission. These statements are presented alphabetically by name of
member; those which are signed onto by several members appear first.
The statements appear in the following order:
(1) Commissioners Archer, Beck, Conable, Dole, Fuller, Greenspan,
Heinz, and Trowbridge
(2) Commissioners Ball, Keys, Kirkland, Moynihan, and Pepper (long-
range financing and issues of special concern to women)
(3) Commissioners Ball, Keys, Kirkland, Moynihan, and Pepper
(independent agency)
(4) Commissioners Ball, Keys, Kirkland, Moynihan, and Pepper (HI cost
estimates)
(5) Commissioners Dole and Conable
(6) Commissioner Archer
(7) Commissioner Armstrong
(8) Commissioner Fuller (long-range financing)
(9) Commissioner Fuller (issues of special concern to women)
(10) Commissioner Kirkland
(11) Commissioner Waggonner
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SUPPLEMENTARY STATEMENT ON MEETING THE LONG-RANGE FINANCING
REQUIREMENTS BY COMMISSIONERS ARCHER, BECK, CONABLE, DOLE, FULLER,
GREENSPAN, HEINZ, AND TROWBRIDGE
The recommendations made in the "consensus" package fail to meet the long-
range goal of providing additional financing equivalent to 1.8% of taxable
payroll. The shortfall is an estimated .58% of taxable payroll. We believe
that this should be derived by a delayed, slowly phased-in increase in the
"normal" retirement age (the age at which unreduced retirement benefits are
available to insured workers, spouses, and widow(er)s -- which is age 65 under
present law).
The major reasons for this proposal are:
(1) Americans are living longer.
(2) Older workers will be in a greater demand in future years.
(3) The disability benefits program can be improved to provide cash
benefits and Medicare to those between age 62 and the higher
normal retirement age who, for reasons of health, are unable to
continue working.
(4) Because the ratio of workers to beneficiaries is projected to
decline after the turn of the century, younger generations are
expected to pay significantly increased taxes to support the
system in the 21st century. An increase in the normal retirement
age will lessen the increase.
(5) Given sufficient notice, coming generations of beneficiaries can
adjust to a later retirement age just as earlier generations
adjusted to age 65.
Statement (1), page 1
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Although we believe that greater action in this direction may be desirable,
we are suggesting only enough change to produce approximately the needed .58% of
taxable payroll. The recommended change would apply only to the normal
retirement age. Early-retirement benefits would continue to be available
beginning at age 62 for insured workers and spouses and at age 60 for widows and
widowers, but the actuarial reduction factors would be larger. The minimum age
for eligibility for Medicare benefits would continue to be the "normal"
retirement age for OASDI benefits. Disability benefits are now available under
somewhat less stringent definitions for those aged 60-64. However, because some
workers, particularily those in physically demanding employment, may not benefit
from improvements in mortality and be able to work longer, we asume that the
diability benefits program will be improved prior to th implementation of this
recommendation to take into account the special problems of those between age 62
and the normal retirement age who are unable to extend their working careers for
health reasons.
Under our proposal, the normal retirement age would be gradually
increased --one month each year -- to age 66 in 2015, beginning the phase-in
with those who attain age 62 in 2000. Beginning with those who attain age 62 in
2012, the normal retirement age would be automatically adjusted (on a phased-in
basis) so that the ratio of the retirement-life expectancy to the potential
working-lifetime (from age 20 to the "normal" retirement age) remains the same
over the years as it was in 1990. The estimated long-range savings of this
proposal is 0.65% of taxable payroll.
Statement (1), page 2
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SUPPLEMENTARY STATEMENT
Commissioners Robert M. Ball, Martha Keys,
Lane Kirkland, Daniel Patrick Moynihan and Claude Pepper
(members selected by the Democratic leadership of the Congress)
Long-Term Financing and Issues of Special Concern to Women
Meeting the Remaining Long-Term Deficit
All of us supported the compromise agreement which is being recommended by
a vote of 12 to 3 of the full Commission.!/ The agreement provides for fully
meeting the Commission's short-term financing goal and also for meeting about
two-thirds of the Commission's long-term goal--1.22% of payroll out of the 1.8%
projected need.
We recommend that the remaining 0.58% of payroll deficit be met by
providing additional revenues starting in the year 2010, in advance of the
period when the bulk of the deficit is projected to occur. Sufficient
additional revenues would be provided by an increase of less than one-half of 1%
(0.46%) in deductions from workers' earnings beginning in 2010 and a like amount
in employer payroll taxes (with an equal combined rate for the self-employed) or
the revenue could be supplied by an equivalent general revenue contribution, or
some combination of the two. For purposes of present legislation we would
support putting in the law now an increase in the contribution rate beginning in
_1% Mr. Kirkland is not joining in the recommendation to extend coverage to
Federal employees and has filed a supplemental statement on the issue.
Statement (2), page 1
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2010 of 0.46% of payroll (with the employee contribution offset by a refundable
income tax credit) recognizing, of course, that in the next century the Congress
may prefer to raise the money in some other way and that, in fact, such a rate
increase would not be allowed to go into effect unless estimates at the time of
the scheduled increase showed that it would be needed.
An increase of less than one-half of 1% in the contribution rates in all
probability would not mean an increase in the burden of supporting OASDI
because: (1) By 2010 real wages are likely to be substantially higher than they
are now; and, (2) although levied at a higher rate, the rate will apply to a
smaller portion of total compensation than today if the expansion of non-taxable
fringe benefits projected in the estimates actually occurs. (If such expansion
fails to materialize the contribution rate increase would be unnecessary.)
In contrast to our plan for meeting the part of the long-range deficit not
addressed by the compromise agreement, some members of the Commission seek to
meet the remaining deficit by raising the age at which full benefits are first
payable and then continuing to raise the age automatically in relation to
improvements in longevity. This proposal is a benefit cut. If the age is
raised to 68, benefits would be reduced by 20% relative to those received at age
65; if it is raised to age 67, the cut is 13%; and if set at age 66, the cut is
7%.
Statement (2), page 2
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The cut would be concentrated on those unable to work up to the newly set
higher age and on those unable to find jobs. It would cut protection for those
now young, the very group being asked to pay in more and for a longer period of
time. And an automatic provision changing the age of first eligibility for full
benefits would make it very difficult for people to plan for retirement. It
would also greatly complicate private pension planning. In our opinion it is
unwise to try to index Social Security for all possible future changes in
society. Social Security has enough indexing. Congress can act to make future
changes in the long-run future as needed.
We favor the maintenance of the full range of retirement options in present
law so that the program will be responsive to the great variety of occupations
in the American economy and to the great variety of individual circumstances.
It is one thing for example, to consider a higher age of first eligibility for
full benefits for white collar workers; something else again for those required
to do heavy work. The system today has the required flexibility. It provides:
(1) full benefits at any age for qualified workers who have long continued total
disability, (2) actuarially reduced benefits for those who apply between ages 62
and 65, (3) higher benefits for those who postpone retirement and continue to
work between 65 and 70 (3% a year additional benefits under present law, to be
raised to 8% during the 1990's under the Commission recommendations).
Some have argued for raising the age at which full benefits are first
payable on the ground that as life expectancy increases, so will the ability to
Statement (2), page 3
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work. However two leading government authorities on health and the aging
testified before the Commission that data on increased longevity carry no
evidence that health improved commensurately. If anything, they said, what
evidence there is indicates the contrary; more people living longer, but with
more chronic illness and impairments. Moreover, recent increases in longevity
may be related to retirement at earlier ages.
It is, of course, highly uncertain what the economy and the labor market
will look like in the next century. Two major possibilities exist. A labor
shortage may result from projected shrinkage of the proportion of persons in the
20-64 age group?/. In that event, greater market demand for the services of
older people would produce greater paid-work opportunities for them. Employers
would be seeking older people and the benefit increase for work after 65
recommended by the Commission would encourage older people to work. If, on the
other hand, a labor shortage does not materialize, raising the age of first
eligibility for full Social Security benefits would force a large number of
elderly persons into early retirement with lower benefits than current law
provides.
We should not cut benefits in an attempt to keep older persons at work.
Instead we should recognize and remove the impediments that stand between older
workers and employment. Most important of all, economic arrangements should
2% A labor shortage would result only if the relative reduction in the working
age population were not offset by productivity improvements.
Statement (2), page 4
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favor full employment and, then, the voluntary approach -- the incentives
prepared by the Commission -- will have a chance to work. Social Security
benefits are not so large as to cancel the lure of good wages. The best
medicine for Social Security is full employment and economic growth, not benefit
cuts.
Meeting Problems of Special Concern to Women
Since enactment of the Civil Rights Act of 1964, Federal law has sought to
prevent and redress unequal treatment of women. Despite those efforts,
substantial inequalities persist and much remains to be done.
In general, gender-based discrimination has been eliminated from the OASDI
program through legislative change and court decisions, but in recent years
there has been a growing concern regarding the extent to which the Social
Security system has adapted to the changed roles of women in society and the
economy. The labor force participation rate for married women has almost
doubled in the last 25 years. Over 65% of all women aged 20 to 54 are now in
the labor force. In addition, the divorce rate has increased significantly.
Two decades ago, there was one divorce for every four marriages; in 1976 that
rate had risen to one divorce for every two marriages.
Although the scope and urgency of economic considerations appropriately
consumed most of the time of the Commission, it did give attention to some of
Statement (2), page 5
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the problems that currently exist for women in Social Security coverage. Four
specific recommendations were made for important changes affecting certain
groups of widows, divorced women and disabled women.
Social Security has indeed given extensive protection to women and men. It
provides benefits for 91% of women over 65 today (compared to 10% of women who
received benefits from a private pension system in 1980). Nevertheless, the
significant changes in women's roles in society and the economy have caused many
inequities and unintended results for women beneficiaries.
Today, the majority (65%) of working age women are in the labor force; yet
their benefits may be greatly reduced if they leave the labor force for a period
of time for homemaking or child-caring. Also lower family retirement and
survivor benefits exist for 2 wage-earner couples than for 1 wage-earner couples
with the same family earnings history (although there are some advantages to
having benefits based on one's own earnings that are partly offsetting).
Homemakers have no individual coverage or eligibility to Social Security
and no credits of their own on which to build with later employment because of
early widowhood or any other reason. Divorced women may be severely affected by
the arbitrary 10-year duration-of-marriage requirement and the inadequacy of the
50% dependent benefit for their independent economic needs. Currently, the
benefit for the divorced woman depends upon the actual retirement of the former
spouse; however, the Commission has recommended a change which will correct this
Statement (2), page 6
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problem. Disability protection exists only for women who remain quite
continuously in the labor force and not at all for homemakers. It is often lost
to working women during a period of time spent in the home.
Since the introduction in 1976 by Representative Martha Keys and
Representative Don Fraser of legislation to implement the concept of earnings
sharing, many have believed this to be the best solution to these anomalies.
Earnings sharing is a recognition of marriage as an economic partnership with
equal respect given to the division of labor chosen by each couple. It accords
the right of each individual to a retirement income based on half of the total
retirement credits earned by the couple during their marriage. This is similar
in concept to the sharing of income in the joint tax return of a married couple.
Working women would have a continuous record of Social Security credits when
they retire instead of zero credits for years spent in the home. It would
respond to, and recognize, the economic value to the couple of full-time work in
the home by either spouse.
Earnings sharing has been proposed in many forms and was recommended for
consideration by both the 1979 Advisory Council on Social Security and the 1980
President's Commission on Pension Policy. Obviously, such a comprehensive
change in structure requires careful development of a detailed proposal and
thorough analysis of its impact. There are many technical and administrative
questions to be worked out and special consideration must be given to continued
strong protection for the family against death or disablement of its primary
Statement (2), page 7
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wage-earner. These are not insurmountable problems, however. We believe that
earnings sharing is the most promising approach to the solution of Social
Security problems of special concern to women and we urge renewed efforts to
develop a comprehensive proposal based on this concept.
Statement (2), page 8
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SUPPLEMENTARY STATEMENT
BY
Commissioners Robert M. Ball, Martha Keys,
Lane Kirkland, Daniel Patrick Moynihan and Claude Pepper
(members selected by the Democratic leadership of the Congress)
Social Security as an Independent Agency
We believe that it would improve the operation of the Social Security
system and strengthen public confidence in the integrity of the program if it
were administered as an independent agency under a bi-partisan 3oard as it was
in the early days of the program. We do not believe that an in-depth study is
necessary, but rather any study should be confined to the details of
implementation.
Statement (3)
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SUPPLEMENTARY STATEMENT
Commissioners Robert M. Ball, Martha Keys,
Lane Kirkland, Daniel Patrick Moynihan and Claude Pepper
(members selected by the Democratic leadership of the Congress)
HI Cost Estimates
We do not believe that the work of the Commission provided any basis for
overturning the long-term position of the Board of Trustees that the HI
estimates should be limited to 25 years, and we object to the use of a 75-year
valuation period for HI cost estimates. The Trustees consider that the degree
of uncertainty concerning future hospital costs, relative to the remainder of
the economy, is so great as to make projections beyond 25 years thoroughly
misleading.
Since official projections for the Hospital Insurance (Medicare) program
are made for only 25 years, tax rates are formulated based on expected income
and outgo only during that period. It is misleading to extend a fixed tax rate
into the distant future while assuming that costs continue to accelerate. This
procedure (1) exaggerates program costs and (2) assumes that unlimited growth in
health care costs would be permitted without intervention.
Statement (4)
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ADDITIONAL VIEWS OF
SENATOR ROBERT J. DOLE
AND CONGRESSMAN BARBER B. CO?]ABLE, JR.
When the National Commission. on Social Security Reform was
created on December 16, 1981, few people had real confidence in
what the commission could accomplish. And little wonder. For
the better part of a year, social security had been embroiled in
political controversy. The system moved closer to insolvency as
proposals for financial reform were subjected to partisan
political attack. The 15 selected as commission-members;
moreover, embodied widely divergent views At-least-to
outsiders, these members probably seemed incapable of reaching
any true bi-partisan consensus.
In the last several days, the commission accomplished what
some said was impossible. With the cooperation and approval of
President Reagan and House Speaker O'Neill, the commission forged
a consensus reform package with broad bipartisan support. As
detailed earlier in this report, the package is designed td close
the short-term deficit identified by the commission, and-go a
long way toward closing the long-range deficit. It requires
concessions from all of the parties who have a stake in social
security--current and future beneficiaries, taxpayers, and
government employees who do not now contribute to the system.
while no one member is happy with every specific recommendation,
the important fact is that a consensus was reached on how to save
Statement (5), Page 1'
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the system. The bipartisan reform package, which we plan to
introduce into the Senate with Senators Heinz, Moynihan, and
others, and into the House, merits speedy Congressional action.
Agreeing on the essential provisions of a social security
solution was by no means the only accomplishment of the
commission. It should be noted that the commission reached
unanimous agreement on the size of the short- and long-term
deficits in the social security cash benefit programs (old-age
and survivors insurance and dis.abili.ty insurance). That is, in
concrete dollar terms, the. -commission. quanti.f i-ed the seriousness
and the urgency of the financing problem. In our judgment, S150-
$200 billion is the amount required to keep the system (excluding
medicare) solvent through 1990. Over the very long term, the
next 75 years, the needs of the system amount to about S25
billion a year (in 1983 dollar terms) over and above currently scheduled tax
income. Only a year ago, partisan lines were drawn between those who did and-
and did not believe there was any financing problem at all before the year 2000.
In addition, the National. Commission provided a valuable
forum for the diverse views on social security. With the able
-leadership of Chairman Alan Greenspan and with the expert
assistance of Executive Director Robert Myers, members of both
political parties were able to work together in studying the
social security financing problem and options for financial
Statement (5), Page 2
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reform. The interests of the elderly, organized labor and
business, and the general taxpayer were all well represented. In
recent weeks, we engaged in intensive negotiations which were, to
a large extent, absent of the political partisanship that so
seriously damaged efforts for responsible -reform in 1981.
Finally, we believe the commission's recommendations are:
significant in that they narrowed the range of realistic. options
for closing the deficits. Realistic options were not judged to
include, nor was there any support for, proposals to reduce or
eliminate benefits for people now on the rolls. Options under
consideration involved restraining the growth-of benefits in
future years and providing additional financing through some form
of revenue increase. Current and future beneficiaries-should be
reassu.r.ed by the unanimously held view that social security is an
important and vital program that must be preserved.
With these accomplishments under our belts, we in Congress
are- in a strong position to hammer out the details of legislation
in the early months of the 98th Congress. The expiration of
interfund borrowing and the likely inability of the retirement
program to pay full benefits in July make prompt action
essential.
Statement (5), Page 3
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The Financing Problem
While the commission report accurately reflects the size of
the social security financing problem, perspective may be
provided by some additional facts. Most importantly, without
prompt Congressional action, the social security retirement
program will not be able to pay benefits on time beginning in
July. In fact, were it not for "interfund borrowing," authorized
by Congress in 1981 to permit the reserves of each social
security trust fund (old age and survivors insurance, disability
insurance, and hospital insurance) to be used to help pay
benefits from another, the retirement program would have stopped
meeting its monthly payments on time two months ago. With the
authority for interfund borrowing now expired (as of December 31,
1982), July is when all of the money borrowed from the other two
trust funds--$17.5 billion in total--fina4lly runs out.
Reauthorizing interfund borrowing can not-help the retirement
program for long. The retirement program is so large--
accounting for 73 percent of all social security spending--and
its borrowing demands are so heavy, the rest of the system could
be insolvent before the year is out. The Social Security Board
of Trustees, the Congressional Budget office, and a wide variety
of private actuaries and economists all agree that additional
trust fund revenues must be provided or savings must be achieved
if the social security system is to remain solvent through the
remainder of this decade.
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While it is the short-term financing problem that is
immediately pressing, the long-term financing problem is equally
serious, if not more so. The Social Security Board of Trustees
reports that the combination of the baby-boom generation retiring
and gradually lengthening lifespans will lead to a dramatic
increase in the cost of social security--about 55 percent between
2005 and 2035 alone. In the year 2035, when the young people of
today are beginning to retire, the actuaries expect that the
elderly population will account for 21 percent of the overall
population (as compared to 11 percent today), and the typical 65
year old will have a life expectancy of 17 years (as compared to
14.5 years today). The effect will be to decrease the ratio of
taxpayers to beneficiaries from just over 3:1 today to 2:1,.
helping to generate the enormous.long-term deficits we now
forsee.
According to the social security actuaries, the long-term
deficit in the non-medicare social security programs is 1.8
percent of taxable payroll. This is the figure adopted by the
National Commission. To translate, it means that over the next
75 years, the actuaries project that benefits will outstrip
payroll tax income, in dollar terms, by about S25 billion per
year, or $2 trillion in total (expressed in 1983 dollar terms).
Including medicare, the long-term deficit has been estimated at
7.01 percent of taxable payroll, or nearly $8 trillion in total.
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How Much Does the,System Need?
How much the system needs in additional financing depends on
how we expect the economy to perform in the years ahead and how
much of'a "safety margin" is accumulated in reserves. Each set
of forecasts provides a.different view of the needs of the*
system, as illustrated in the table below.
TABLE -- ADDIMNAL RESOURCES REQUIRED IN THE NEAR-TERM TO. BRINGQSDI
RESERVES UP TO CERTAIN LEVEL
(ti tiioas)
Percent of 1 year's expenddures desired at
beginning of 1990:
9 perced (1-im)
13 percent
15 t
20 ~t
P
30 pawl (6 mo)
C80
1992 trustees'
intermed+ate
(C-8)
19t2 ttastees'
pesiaiatie
tsssnaptioas
6856.6
.7
62
70
187,
195
743
74
2
16
89J
88
2
.-
120.1
113
246
180.7 M
163
303
-' ioble ncNades the dies of the iu Equity aid acal AMMOO Ad if 1952. Target reserve kvdi are
attained in even NOW increments
a ceo esiawtes aid irate s' estimates are not &edly rumparable bemuse C80 numbers include added
interest on.larter trust fund "m m wbk irostees riuabers do ail
The commission settled on $150-$200 billion as the amount
required in the years 1983-89 to ensure the solvency of the
system through 1990. This is roughly consistent with achieving a
reserve ratio (reserves relative to annual outgo) of 15 percent
by 1990, under the 1982 Board of Trustees' pessimistic
assumptions.
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Several points, are worth noting in this regard. First,
planning for a low growth decade is prudent in light of the
experience during the 1970s. (The pessimistic assumptions in the
1982 Board of Trustees Report project the economy will perform
much like in the past 5 years.) The failure to anticipate, both
in 1972 and 1977, that prices would grow more rapidly than wages,
and therefore benefits wquld grow more rapidly than tax income,
is why we are%in the situation we are in today. Second, a
reserve ratio of 15 percent is not, in and of itself, a "goal".
At this level, reserves would be lower than at any point in
history. Accumulating considerably larger reserves is desirable,
although this would be difficult to do very quickly. We believe
we express the views of-all members of the commission when we say
that it is our hope that the economy will perform better than we
assumed when we made our estimates and that a larger reserve
cushion will accumulate. Finally, if the medicare program-were
under consideration as well, the reserve needs of the system
would be considerably higher.
Not a New Problem
Given the partisan debate that raged over social :.ecurity in
1981, some people may have lost sight of the fact that the
financing crisis is- not a new problem. Trust fund reserves have
been on a down-hill course for years. As the table below
indicates, prior to 1970, there were always reserves on hand
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capable of financing a year's worth of benefits or more--that is,
reserves equal to 100 percent or more of annual outgo. By 1,976,
reserves had fallen to 57,percent of outgo, and today, the
combined reserves of the system stand at about 15 percent of
annual outgo, only 8-weeks worth of benefits. The situation is
even worse, at least today-, when medicare is excluded.
TABLE -HISTORICAL OASDHI RESERVE =RATIOS. 1950-83 -
[Assets of the begin* mi cub rcu an a peraeat of outgo dwelt
the 1'm1
Trost funds
Calendar yut
0L and all
com1 * 1
1950
1,156. .
1,156
1,156
1955
-405
-405
405
1960
186
180
304
186
1965
-110
109
121
110
1970
103
101
126
47
95
.
.1971
99
94
140
54
93
1972
93
88
140
47
87
1973
80
75
125
40
76
1974
73
68
110
69
73
1975
66
63
92
79
69
1976
57
54
71
77
60
1977
47
47
48
66
50
1978
37
39
26
57
40
1979
30
30
30
54
34
1980
25
23
35
52
29
1981
18
18
21
45
23
1982
15-
15
17
53
22
1983
11
8
11
39
16
I Estimated using Tnmrtees' i dermedzte (U-B) assumptions.--
Source: 1922 Wall and lU males' Reportz
TABLE -HISTORICAL LEVELS OF OASDHI TRUST FUND ASSETS. NUMBER OF MONTHS'
WORTH OF BENEFITS ON HAND
Calendar year
Number of months
ofapa&tures an band n
1950
138.7
138.7
1960
22.3
22.3
1965
13.2
13.2
1970
12.4
16
11.5
1975
.8.0
9.4
8.3
1980
2.9
6.2
3.5
1982
1.8
6.3
2.6
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Among other public groups to report in the last 5 to 10
years, the social security advisory councils of 1975 and 1979, an
expert consultant panel of actuaries and economists, reporting in
1976, and President Carter's Commission on Pension Policy and the
National Commission on Social Security, both reporting in 1981,
all underscored the seriousness of the short- and long-term
financing problem. Social security's financing problem dates to
the early 1970s and even earlier, when Congress increased
benefits and expanded eligibility without facing up to the cost
of doing so.
The Time for Action is Now
There is no denying that we have a big job ahead of us in
Congress. We face many difficult decisions as to the details of
the legislation, and the adequacy of the measures proposed. The
balance of the long-term deficit will also have to addressed. Ir.
our view, a balanced solution to this problem will involve
bringing: the cost of social security into line with the ability
of our working population to finance the system. The tax burden
is already heavy, and the confidence of young people critically
low. As reflected in the additional views, a majority of
commission members recommends increasing the retirement age, for
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people retiring in another 20 or 30 years, as an equitable way of
reducing long-range costs.
The American people--the 36 million people receiving benefits
as well as*the 116 million working people who support the
system--deserve more than another "quick fix" that holds the
system together until the next crisis comes along. They deserve
the speedy consideration of this bi-partisan package of
recommendations. Confidence in the long-term viability of social
security will only be restored by enacting measures that put the
system back on a sound financial footing and do so without
imposing an unrealistic tax burden on present and future workers.
Within a matter of weeks, the House Ways and Means Committee
and the Senate Finance Committee will begin the task of weighing
the options and then drafting social security financing
legislation. We feel confident that the essential elements of
the reform package we now recommend, as endorsed by President
Reagan, Speaker O'Neill, Majority Leader Baker and others, will
be adopted by the Congress and enacted into lat?; by May. Moving
quickly.to shore up the nation's largest domestic program is in
all of our interests.
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Dissenting Views of Congressman Bill Archer
to the Report of the National Commission on Social Security Reform
It is customary in instances such as this to address one's
dissenting views to the body of the main report itself.
In this case, however, it is perhaps more appropriate for me
to address my comments on the report to my children and future
grandchildren and those of their generations who will be most
affected by the changes proposed. Should the Commission's pro-
posals be enacted into law, it is they who have the most at stake.
Unquestionably, great credit is due the President, the Congres-
sional leadership and Commission negotiators who were able to
arrive at this point where a plan exists to be considered by the
Congress. The fact that I personally have strong reservations about
the specific plan proposed in no way diminishes my respect for that
effort.
It is unfortunate that the agreement reached continues to leave
in doubt, in my opinion, the future stability of the Social Security
system. We have not taken advantage of this rare historic oppor-
tunity to do more toward designing greater stability. The pro-
posals treat symptoms, not causes.
My concern stems from a variety of sources, but primarily from
those involving the basic economic and demographic assumptions used
to assess the short and long term deficits, and the failure to
address adequately the basic structural deficiencies which will
continue to cause severe strains on the system in the future.
The compromise agreement does not make a specific recommen-
dation regarding a portion of the long term need (.58% of payroll),
even assuming the accuracy of the projections of the dimensions of
the gap it sought to close. That significant element has been left
open to Congressional consideration under the terms of the agreement.
Neither does the agreement address certain factors influencing the
short term need, such as the repayment of loans made to the retire-
ment fund by the Health Insurance trust fund. Those revenues will
be badly needed as the HI fund becomes deficient in the near future.
In fact, the Commission's agreement bears no relationship to the
parallel dilemma faced in the health insurance program.
Statement (6), Page 1
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Fundamental principles inherent in the basic concept of Social
Security have been abrogated by the Commission's recommendations.
The large infusion of general revenues into the system makes it self-
sustaining no longer. The "earned right" concept which has been
basic to the system since it was created has been abridged by a new
means test. The concept of Social Security as a floor of protection
to supplement other retirement savings has been further eroded by
the agreement's perhaps unintended result of encouraging Social
Security to be viewed as a sole source retirement system.
Certainly there is some good`in the recommendations. The
proposal to bring federal employees into the system is a welcome
one, but its coverage of only newly hired employees continues an
inequity. Ironically, those now in Congress who must vote on the
plan are themselves going to continue to be exempt from coverage.
So will those presently employed by the federal government who will
administer the changes.
The plan provides very modest improvement in the treatment of
women, but continues major inequities in this area as well as in other
areas of the system.
There is a brief delay in cost of living increases for present
beneficiaries, as a partial attempt to offset benefit increases
which resulted in an increase of 52 percent in purchasing power
for the average Social Security recipient over the past 15 years.
This is essentially the only element of the plan which directly
affects those now retired or soon to retire -- except for those
retirees who have set aside a portion of their earnings in savings
for their retirement. The plan taxes those who have saved for
their retirement and imposes a means test for full benefits.
Those who do not save are rewarded by the system because of this
change.
Statement (6), Page 2
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A Congress which has acted in recent years to encourage indi-
vidual retirement savings is now being asked to enact a significant
disincentive to retirement savings. There is also a basic flaw in
the way the "means test" inherent in the tax on benefits is deter-
mined. Individuals with non-Social Security retirement income of
$20,000 or more will be taxed on half of all their Social Security
benefits. Those with incomes of $19,999.99 or less will not be
taxed on any of their benefits. One penny of income could make the
difference in whether hundreds of dollars in taxes must be paid.
The imposition of a means test, for the first time, destroys
the earned right concept fundamental to Social Security and lends
a new welfare aspect to its administration.
The same is true of the large infusion of general revenues
proposed by the plan. The self-financing structure of the Social
Security system has been significantly eroded.
Of the $168.7 billion in short term deficit reductions in the
plan, approximately one-third is represented by direct and indirect
infusion of general revenues, which, combined with payroll tax
increases accounts for some 75% of the short term deficit reductions.
In terms of the long term deficit, new taxes account for even more
of the reduction (excluding the portion of the deficit left unresolved
by the report).
I do not hold the position that the deficit reductions for both
the short term and long term should be accomplished without any addi-
tional taxes beyond those already scheduled by existing law to go
into effect. I am concerned, however, about a recommended proposal
which includes such an imbalance of dependence upon new revenues
(taxes and general Treasury funds) relative to structural changes
which would restrain the growth of spending outlays. I question the
ability of our tax base in the future to support this enormous
projected growth.
Structural changes are critical to the long term stability of
the system. The report leaves unanswered the question of what bene-
fit level our economy can afford in the next century and what those
in the work force at that time will be able to pay.
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What we should be providing here is a basis for realistic
expectations for future Social Security recipients against which
they can determine their own needs for retirement security beyond
what the system may provide them at that time. There is great
danger that these proposals have made promises which the system
will not be able to support.
Changes which would more directly relate taxes paid into the
system to benefits received are the type of structural changes
which would lend greater credibility to Social Security. The
Commission recommendations continue present inequities instead.
An individual with a short covered employment history continues
to be treated more favorably than his counterpart with the same
average income who has a longer covered employment history.
Another important consideration the agreement does not address
adequately is that of demographic changes, increased life expectancy
and improvements in the physical and mental ability of individuals
to continue to work. There is no direct recommendation by the
Commission that the age of retirement be adjusted to take such
changes into account. Nor is there adequate attention given to
revision of automatic cost of living increases relative to the taxes
which support them.
In regard to taxes imposed by the compromise, the use of a
refundable tax credit (a concept which has been rejected repeatedly
by Congress) ruptures the fundamental parity between employer and
employee.
The 33% increase in the OASDI tax rate on the self-employed is too great
a burden for those who are already operating at the margin because of difficult
economic conditions.
In summary, the recommendations proposed by the National
Commission on Social Security Reform, in my judgement, leave the
system's future very much in doubt. We are again addressing the
symptomatic deficits facing Social Security, rather than taking
advantage of this opportunity to address the causes of the problems
themselves.
Statement (6), Page 4
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We have postponed once again the day of reckoning by tranferring
the burden of supporting the system's shortcomings to future genera-
tions.
Social Security represents the single most important commitment
to the elderly made by our society. It is a great testimony to our
nation's dedication to assuring retirement security for our elderly
of all generations.
The question facing Congress as we begin consideration of the
Commission's recommendations is whether this particular plan
exactly fulfills that commitment as completely as it must. I
clearly have misgivings that it does.
As the legislative process begins, there remains an opportunity
for the thoughtful concerns of others who share those misgivings to
strengthen the product which is ultimately enacted. My own greatest
hope is that my strong desire to guarantee the solvency of Social
Security into the future can be matched by a confidence that the
solution accomplishes that goal.
Statement (6), Page 5
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VIEWS OF SENATOR WILLIAM L. ARMSTRONG
Since 1971 maximum Social Security tax rates have quadrupled. These rates
are scheduled to triple again in the 1980s as a result of legislation already on
the books.l/ During the approximately same period of time, from 1970-1981, the
"real" pay of working men and women fell hile Social Security benefits went up
about 50% faster than the cost of living .2
Now the National Commission on Social Security Reform is recommending new
taxes as well as acceleration of tax increases already scheduled. Can such
increases be justified?
I do not think so. The vast majority of workers, small business men and
women and retirees are not likely to think so either. I expect there will be
howls of outrage when Middle America discovers what the National Commission has
recommended and some political leaders have already endorsed. Hopefully, grass
roots lobbying will be sufficient to convince Congress to amend the Commission's
plan to make it more workable, fairer, and more sound economically. If such
amendments are ignored, Congress will be repeating the same basic mistake made
in 1977. At that time, legislation was enacted which purported to shore up the
financial solvency of the Social Security trust funds for the rest of our lives.
But instead of focusing on basic systemic difficulties of the trust
funds -- especially the growing ratio of retirees to taxpaying workers and
benefit increases far outstripping the cost of living -- Congress concocted the
largest tax increase in history.
A few of us objected. But the majority of Congress went along, and
President Carter hailed passage "as the guarantee that from 1980 to 2030 Social
Security funds will be sound."
I didn't quite work out that way. Social Security is again running out of
money. By midyear, unless Congress intervenes, the trust fund will be unable to
meet its obligations. The National Commission on Social Security Reform
estimates a funding gap of $150-$200 billion between now and the end of the
decade and a long-term deficit of 1.8 percent of payroll -- approximately $1.6
trillion. Even these gloomy prospects may prove too optimistic.
And once again the recommended solution is to raise taxes.
Taxes paid by "average" workers rose 259% from 1970 to 1980; they are
projected to rise another 246% this decade.
2/ From 1970 to 1981, pretax wages increased 122%; the Consumer Price Index
rose 136%; Social Security benefits (OASDI) went up 205%.
Statement (7), page 1
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On January 15, after a series of marathon negotiating sessions, and with
the approval of President Reagan and House Speaker O'Neill, the National
Commission recommended legislation. Unfortunately, the Commission suggested
closing the gap primarily through new taxes. But even with the recommended tax
increases, the plan fails to raise enough money to put Social Security back in
the black. It also avoids the permanent structural changes necessary to restore
public confidence in the solvency and fairness of Social Security. Moreover, the
Commission's recommendations violate several basic principles on which the
Social Security system has previously rested. Consider these facts about the
Commission recommendation:
Including revenue from expanded coverage, higher taxes account for 75
percent of the proposed deficit reduction between now and 1990 -- $126 billion
out of the $169 billion total. In the long run, the balance is even more
lopsided. Tax increases constitute 91 percent of the Commission's total
recommendation.
Such tax increases raise serious questions of economic impact. The first
payroll tax hike in the Commission's plan will cut paychecks in 1984. Will the
higher employment tax dampen the recovery? Will additional joblessness result?
I think most economists would agree that higher payroll taxes are bound to have
these undesirable effects.
Worse yet, the Commission's recommendations do not close the projected gap
between revenues and outlays in the trust funds, which totals several trillion
dollars: $1.6 trillion is the discounted present value of the deficit. Faced
with actuarial estimates of a deficit of 1.8 percent of payroll, the Commission
recommends measures solve only about two-thirds of the problem. Still more
taxes have already been proposed to cope with the remaining .58 percent payroll
deficit that the Commission left dangling.
It would not have been necessary to leave the long-term funding issue
unsettled had the Commission been willing to recommend modest changes in the age
of normal retirement. Previous advisory groups have suggested a variety of
gradual changes such as increasing the retirement age by one month each year for
the next 36 years or, possibly, even waiting to start such a phasing process
five or 10 years from now. The approach I favor is to gradually increase the
normal retirement threshold to age 66 with a phase-in period starting after the
turn of the century; thereafter, the retirement age would be automatically
indexed to changes in longevity. Such a proposal would apply only to persons
fully able to work and would not preclude early retirement for those entitled to
disability. Incredibly, this single, gradual change, which was ignored by the
National Commission, would be sufficient to fulfill the entire long-term funding
problem of Social Security, according to the actuaries.
Finally, the Commission may have erred in overturning at least three basic
principles on which Social Security has long rested: taxation of benefits, the
Statement (7), page 2
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parity of treatment between employers and employees, and general fund financing.
These conventions are deeply ingrained in the Social Security system and can
only be abandoned at substantial risk of losing public support for the system
itself. In my opinion, the present circumstances do not justify doing so.
There are other flaws in the Commission recommendations and, to be fair, a
number of good points as well. Overall, however, I cannot escape the conclusion
that the plan needs much improving. Whether this will happen remains to be
seen. At least one White House insider is freely predicting quick legislation
approval with few, if any, changes. He points out that a lot of "heavyweights"
are already backing the package. He could be right.
He may be wrong.
There are also some heavyweights who are convinced the package must be
amended in order to make it fairer and more financially sound. Among those who
insist on amendments and oppose the plan in its present form are the 13
million-member American Association of Retired Persons and the largest
association for small businesses -- who will feel the most impact of the
plan -- the National Federation of Independent Business. If these and other
citizen groups will energize their memberships to protest the Commission's plan
and work to develop an alternative package, there is reason to hope amendments
can be adopted that will significantly improve the final legislation.
As this issue develops, I expect strong support from employees and from
business men and women. They have important economic interest at stake.
However, I am increasingly convinced that support will also be forthcoming from
retirees and the elderly. Based on many conversations with senior citizens, I
doubt they will take a narrow or selfish view. They have much more at stake
than merely their personal well-being. They are also concerned about their
children and grandchildren. The last thing they wish is to leave a heritage of
economic wreckage or an unfair retirement system.
The Commission's Major Accomplishment -- And Some Objections
The most important single achievement of the Commission, under the patient,
considerate, and scholarly leadership of Chairman Greenspan, has been to
marshall a consensus for admitting the problem. Some of those who now hail the
recommendations were quite recently claiming no changes were needed. They said,
in effect ..don't let them touch Social Security...all this talk about reform
is just a plot to wreck Social Security...."
As the Washington Post pointed out, "The first step toward solving any
problem is to get people to admit the problem exists. The National Commission
on Social Security Reform, meeting this week in Washington, has already made a
huge contribution by getting its members of different political persuasions to
Statement (7), page 3
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agree that Social Security's problems are real, urgent, and -- within
reason -- measureable."
A number of the Commission's recommendations make sense to me. On balance,
however, in its present form, the plan falls short of the kind of balance
program needed to restore public confidence in the solvency and fairness of the
system. The plan:
? Does not meet the minimum long-term need of 1.8% of payroll, but
leaves needed reforms open for further consideration;
? Settles the short-term problem at the low end of projected need;
? Tax benefits for the first time;
? Will create a severe "notch" between Social Security recipients
whose adjusted gross income is just above and those just below
the arbitrary point at which benefits are to be taxed; the result
is unfair and will be so perceived;
? Grants refundable tax credits to employees, thereby upsetting the
historic parity between employees and employers;
? Provides permanent general fund financing;
? Prohibits withdrawal of State and local government units, a
legislative solution which may be subject to successful challenge
on constitutional grounds;
? Avoids decision on changing the normal retirement age, considered
by many experts and earlier advisory groups as essential to the
long-term stability of Social Security;
? Including revenue derived from expanded coverage, increased taxes
account for 75% of deficit reductions; (63% if expanded coverage
is excluded);
? In the long term, excluding the portion (.58% of taxable payroll)
left unresolved and including revenues from expanded coverage,
new taxes account for 91% of deficit reduction (not including
revenues from expanded coverage,
Congress Must Act Promptly
The need for congressional action is immediate.
Statement (7), page 4
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? Every single minute of every hour of every day, on the average,
OASDI pays out $17,000 more than it takes in.
? Present reserves in the retirement system will be insufficient to
fully meet benefit payments by mid-1983, unless Congress enacts
corrective legislation.
? In 1950, there were 16 workers paying Social Security taxes for
each beneficiary. Today there are just three workers per
beneficiary. By 2025, there may be only two workers per
beneficiary. The result? A steeply rising burden on workers
whose Social Security taxes keep the trust funds solvent.
? A fourth of U.S. taxpayers are paying more in Social Security
taxes than in federal income taxes, and sharply higher tax rates
are scheduled to support projected benefits.
? Polls show Americans are losing faith in the Social Security
system. Fifty-four percent of those surveyed by CBS/New York
Times doubt that Social Security will have money to pay en6 efit
in the future.
How does Congress begin the important work of enacting a fair retirement
system? I suggest adopting five principles to guide its work:
1. Current basic level of benefits on which so many persons depend,
must not be reduced.
2. Needed changes -- whether in future rates of benefit increases,
retirement ages, eligibility standards, etc., should be made
gradually, not in a drastic or abrupt manner.
3. Economic projections, on which the system is based, should be
conservative -- in short, we should hope for the best, but plan
for less optimistic economic conditions.
4. Permanent solvency must be achieved. Stopgap solutions are not
satisfactory.
5. Public confidence must be restored. The politics of
fear -- which has surrounded past Social Security
decision-making -- must end.
No solutions are easy, but we are in firm agreement on the goal: Our
elderly must feel assured of our good faith, and Social Security must be
restored and maintained as a valuable bond between generation and generation.
Statement (7), page 5
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Toward that end, it is important that everyone know the basic facts of
Social Security...how it began, how it grew, who it affects, what its future will
be.
Social Security Highlights
? One trillion dollars will be paid out in Social Security benefits the
next four years.
? Thirty-six million Americans receive Social Security benefits.
? Most Social Security retirees today receive more in benefits than they
paid in taxes -- by a ratio of 5 to 1.
? Social Security benefits have risen sharply over the past few years.
In the beginning, Social Security was designed to be supplemental
retirement income. Today, Social Security benefits on average equal
60% of their after-tax working income.
? In recent years, Social Security benefits have increased faster than
increases in wages or prices.
? Americans are living longer. Women becoming 65 in 1982 live, on
average, an additional 19 years; men live an additional 15 years. This
is a 20% increase in 40 years.
? Social Security comprises one-fourth of the total federal budget and
5% of the Gross National Product.
? The maximum Social Security tax an employee working from 1935 to 1982
could make is $17,000. This will nearly triple to $44,000 by 1990,
just seven years.
? Social Security taxes for the average worker have increased 2,000%
since 1935; the maximum Social Security tax has increased 6,500%.
? Fifty-one percent of all Americans pay more in Social Security taxes
than federal income taxes.
? Even with the additional $437 billion in tax increases that will be
implemented this decade because of a 1977 law, Social Security will
exhaust its reserves and total outgo will exceed income by the
mid-1980s, unless Congress takes decisive action.
? When Social Security began, only retirement benefits were paid to
workers. Today, there are about 21 general types of benefits provided
under Social Security.
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? One indication of the growth in Social Security: When President
Franklin Roosevelt proposed his Social Security program in 1935, he
contemplated Social Security expenditures would be about $1.3 billion
in 1980. Actual 1980 outlays: $149 billion.
? In designing his Social Security retirement program, President
Roosevelt rejected the use of general revenues, wanting instead for
the program to pay for itself through separate financing.
? The National Commission on Social Security Reform identified more than
80 options for restructuring Social Security financing to achieve
short- and long-term solvency. One example of potential savings
through gradual changes in Social Security: delaying the full
cost-of-living increase two months for three years will save $40 to
$60 billion this decade alone.
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Social Security...
.. In the Beginning
Social Security was created in 1935 to partially replace earnings
lost through retirement or death. Initially, only commerce and industry
workers (about five out of 10 jobs in America) over age 65 were eligible
for benefits.
Benefits were supplemental income-about 29% of pre-retirement
income (known as the "replacement rate" ...the percent of working income
replaced by retirement income).
Payroll taxes financed these benefits on a pay-as-you-go basis.
Iritial taxes were also small ...$60 per worker maximum (cost split between
employer and employee). In 1980 dollars, this tax equalled $360.
..Program Expansion
Congress and Presidents dramatically expanded the program through 13
expansionary laws and seven automatic benefit increases (although twice
Congress slightly reduced benefits). Today, three separate trust funds
pay benefits and collect taxes. Two trust funds -- Old Age and Survivors
(OASI) and Disability (DI) -- pay cash benefits directly to recipients.
The third -- Hospitalization (HI) -- pays costs of medical care provided
to the elderly and disabled.
Nine out of 10 jobs in America are included in Social Security. The
program now pays retirement, early retirement, widow, children, parent,
disability and hospitalization benefits to 35.4 million. Basic benefit
rules were expanded, and later made inflation-proof through automatic
cost-of-living increases. Generally, eligibility has been liberalized.
Cash benefits -- not counting the value of hospital care -- as a percent
of pre-retirement income has increased to 49.3%.
Consequently, the tax rate, tax base and number of taxpayers have
also increased. Today, the combined employee-employer maximum tax is
$4,340. One hundred ten million workers pay taxes; 11 million (mostly
government employees) do not. While the number of taxpayers has increased,
the worker/recipient ratio has not. In 1940, there were 16 workers supporting
each recipient. Today, the ratio is only 3 to 1, and declining.
..As Part of the Federal Budget
Total Social Security outlays comprise about one-quarter of the
budget. Including all programs, 27.7% of the federal budget is devoted
to elderly needs. By 1985, pensions, national defense and interest payments
will comprise 75% of the U.S. budget. Total Social Security and other
senior citizen federal outlays amount to $15,000 per elderly couple.
-Statement (7), page 8
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..As Part of the National Economy
Benefits comprise about 5% of the real gross national product, and
it's rising. If no changes are made, and if government spending were to
be maintained at 20% of GNP, then by 1985 other government spending must
be cut 13.1%.
Since Social Security is a major component of the economy, it is
particularly sensitive to economic fluctuation. Each 1% of inflation
increases costs $1.5 billion annually (although the higher costs are
offset in part by higher revenues). Each 1% of unemployment reduces
revenues by $2 billion. Social Security tax increases exacerbate unemploy-
ment. For example, the Congressional Budget Office projected that the
Social Security tax increases since 1977 reduced employment by 500,000
jobs. Accelerating to 1983 the tax increase scheduled for 1990 is projected
to increase unemployment two to four million job years by the end of the
decade.
.Economic and Demographic Developments
Since Social Security began, significant changes have reshaped America.
Once an economy dominated by manufacturing and agriculture, America is
quickly becoming a service based economy. Once men dominated the work
force; now half of all jobs are held by women. In 1935, a third of all
elderly Americans were impoverished; today less than 15% have incomes
below the poverty threshold. Forty years ago, less than three marriages
in 10 ended in divorce; today five of 10 marriages end in divorce. Family
size has declined.
Americans are living longer; on average, men live 15 years past
retirement, and women 19 years ...a lifespan increase of 20% over 40 years.
Even so, more Americans are opting for early retirement before age 65.
Today 90% of Americans who retire opt for retirement before age 65.
.As Part of the Lives of Recipients
Social Security is a financial lifeline to most recipients. Fifty
percent of benefits are paid to elderly single members of households for
whom Social Security is their principal income. Median income for all
those over 65 is $ 5,771. Average median income for a retired couple
receiving Social Security is $14,300.
Newly eligible retirees -- 80% of whom opt for early retirement --
generally are improved financially. Median retirement income is $14,259,
of which 42% is Social Security. Gross family assets -- including personal
residences or automobiles -- exceed $48,000. Seventy percent of new
retirees either outright own their home, or pay less than $200 in monthly
mortgage or rent. The average value of a new retiree's home is $54,000.
Most Social Security recipients today will receive far more in benefits
than they contributed in taxes... by a ratio of 5 to 1. This ratio will
decline for future recipients. Social Security benefits are progressive...
meaning that low-income receive relatively higher benefits than middle-
or high-income.
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.As Part of the Lives of Workers
The maximum Social Security tax a worker and his employer could have
paid from 1937 to 1982 is $16,932. This will nearly triple by 1990 when
the maximum tax possible rises to $43,000.
For 51% of all families -- and practically all low-income families
-- they pay more Social Security taxes than federal income tax. This is
also true for employers, particularly the marginally profitable.
One trillion dollars will be spent from the Social Security trust
funds in the next four years (1983 to 1986), an amount roughly equal to
that spent from 1935 to 1981. Four-year spending and income by trust funds:
(billions)
Outlays
Income
Old Age and Survivors (OASI)
$728
$634
Disability (DI)
83
135
Hospitalization (HI)
198
210
$1009
$979
--Social Security Administration
September 1982
Monthly Social Security costs exceed $17.9 billion.
Of trust fund outlays...
...67% go to retirees, their spouses, children or survivors.
...9% go to the disabled, their spouses, children or survivors.
...22% pay medical costs.
Cash benefits
paid from the OASI and DI trust funds:
(millions)
Average annual benefit
Retired workers
20.3
$4,686
Their spouses
3.0
2,350
Their children
.5
1,841
Total
23.8
Survivors
Widowed parents
.5
3,372
Widowed spouses
4.4
4,210
Children
.2
3,278
Disabled, widowed spouses
.1
2,760
Parents
.01
3,732
Total
5.21
Disabled workers
4.1
4,944
Their spouses
.4
1,452
Their children
1.0
1,428
Total
5.5
.1
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The maximum possible benefit for a retired couple with children
under 18 is $14,748 annually.
These benefits do not include the value of medical benefits provided
through Medicare. Since all benefits are tax free, current benefits are
about 60% of after-tax, pre-retirement income.
.Taxes
About $1 trillion in taxes has been raised since 1935. If a worker
contributed the maximum taxes from 1937 to 1982, he would have contributed
$17,000 (an amount matched by his employer). By 1990, this will nearly
triple to $44,600.
Today, the total Social Security tax is 13.4% of up to $32,400 of
income. This rate will increase to 15.3%, and the base up to $45,600 of
income by 1990.
The average tax paid by a worker and his employer annually is about
$2,000.
...Individual Equity and Social Adequacy
Social Security emphasizes social adequacy, not individual equity.
The social adequacy basis is evident through the provision of relatively
high minimum benefits, paying proportionately higher benefits to low
average wage earners, the imposition of maximum benefits regardless of
past earnings, and the payment of derivative benefits at no additional
cost to the worker. While there are some elements of individual equity
-- benefits in relation to earnings -- Social Security, over the years,
has moved away from individual equity and more toward social adequacy.
.As It Affects Women
Social Security was created when men dominated the work force. Since
then, a number of economic and demographic changes involving women affect
Social Security and its future. More women work today, are living longer,
and the divorce rate is increasing. Since these changes were not contemplated
at the time Social Security was created, retirement benefit adequacy for
women is a significant concern because a high percentage of the elderly
poor are widowed, divorced or were never married. It is also a concern
since the current labor force -- once male dominated -- has a high percent
of women workers who pay Social Security taxes, and expect to receive
just benefits.
Problems in providing benefits to women exist in part because benefits
are linked to an individual's earnings and work history. Working women
frequently have interrupted work histories due to child rearing. Women
also have had generally lower career earnings than men. As a result, a
large proportion of women fail to qualify for Social Security benefits,
qualify for benefits on their lower earnings, or they qualify based on
their husband's benefits, and then receive half of these benefits. Some
of these concerns have been addressed by changes made in the computation
of spouse benefits, but questions of equity continue to be raised with
regard to women, particularly those who work. The National Commission on
Social Security Reform identified 12 options that address the issue of
making Social Security equitable for women.
Statement (7), page 11
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.and Other Federal Pension Policies
Since Social Security was created, there have been significant developments
in federal pension policy. Among them:
1. Individual Retirement Accounts: Most workers can contribute up
to $2000 annually tax free into Individual Retirement Accounts,
the proceeds of which are invested, and then paid out as retirement
income as early as age 59 1/2. Workers with wives who do not
work contribute up to $2,275 annually.
2. Keogh retirement plans: The self-employed can set aside $15,000
annually to help replace earnings lost through retirement.
3. Employee Retirement Income Security Act: Regulates company
sponsored, tax-deferred pension plans.
Sixty percent of workers between age 25-34 are covered by retirement
pensions other than Social Security.
.Financial Status
Social Security is going broke. High inflation, slow economic growth,
rising numbers of beneficiaries, increased benefit levels and an eroding
tax base have increased Social Security's costs, and depressed revenues.
The retirement and survivors trust fund has run a de'icit since the early
1970's. This deficit erased the once large cash reserves...to the point
where Congress had to enact legislation permitting the OASI trust fund to
borrow from the DI and HI trust fund to make full and timely benefits.
By the mid-1980s, however, even these reserves will be exhausted. Technically,
Social Security will have no choice but to either reduce all benefits by
the amount of income then on hand, or delay checks until enough income is
on hand to pay full benefits.
Thus, Congress must achieve two goals in the short-term: Enact
legislation that eliminates the future deficits, and achieve adequate
reserves so that enough money is on hand to pay two months of benefits.
The National Commission on Social Security Reform unanimously agreed
that $150-200 billion is needed this decade to assure Social Security
solvency. In addition, the Commission projects that Social Security
needs to either increase revenues or reduce spending $1.6 trillion over
the next 75 years to guarantee solvency.
Statement (7)p page 12
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Social Security... Explained
To make changes necessary to insure solvency in Social Security
first requires understanding its current benefit and tax structure.
A. Coverage
Originally, Social Security only provided benefits to those age 65
and over working in commercial and industrial employment. Only five out
of 10 jobs in America were covered.
Since then, Congress expanded Social Security to cover about nine
out of every 10 jobs. Coverage was extended to most self-employed, hired
farm and domestic workers, armed forces, and professionals. Optional
coverage was provided clergymen. State and local governments and non-profit
organizations can opt for Social Security coverage. Both state and local
governments and non-profit organizations, if they elect Social Security
coverage, can later elect to opt-out of Social Security.
For certain military personnel, the armed forces pays Social Security
taxes up to a maximum of $1,200 (representing the cash value of non-taxable
income). This contribution is not matched by the servicemen.
Work not covered by Social Security is federal civilian employment,
non-covered state and local governments (30% are'not covered), and non-covered,
non-profit organizations (about 15% are not covered).
Statement (7), page 13
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B. The Benefit Structure --- Retirement and Survivors Benefits -- OASI
Four principal components comprise the Social Security benefit
structure... eligibility, computing initial benefits, annual benefit
increases and types of benefits.
1. Eligibility
To be eligible a worker must be "insured" through earning "quarters
of coverage." Some explanation...
Becoming "fully insured" means working in a Social Security covered
job (and thus paying Social Security taxes) and earning at least $340 in
a calendar quarter. Doing so entitles a worker to a quarter of coverage.
A worker receives one quarter for each $340 up to a maximum of four quarters.
With 31 quarters -- as little as eight years work -- a worker and his
family is entitled to full Social Security benefits based on his earnings.
The number of quarters required will increase one quarter for each year
until a maximum of 40 quarters is reached.
"Currently insured status" applies only to a worker dying before
retirement. A worker becomes currently insured -- and thus eligible for
benefits -- by attaining six quarters in the 13 quarters preceding death.
Of course, a worker does not automatically receive benefits when he
becomes insured. A condition for receiving OASI benefits is reaching
retirement age or death. Full benefits are paid at age 65; lesser benefits
at age 62. Age eligibility varies for other OASI benefits... and are
described in Part C.
2. Calculating Initial Benefit Levels
Benefit levels for retired and disabled workers, dependents and
survivors are generally related to the past earnings of the covered worker,
and more directly to a percent of the benefits that the covered worker
will receive.
There are four basic steps used in most cases to compute a worker's
Social Security benefit:
a. "Computation Years".. .That is, the years worked in Social Security
employment between age 21 and the year of death, disability, or
the attainment of age 62, then drop out the five lowest income
years.
b. "Index Earnings".. .The earnings of each year are converted, or
indexed, into more recent levels by increasing them to reflect
changes in wage levels since the time they were actually earned.
Indexing creates an earnings record that reflects the value of
the individual's earnings relative to national average earnings
in the indexing year. The indexing year is the second year
before the year in which the worker attains age 62 (in other
words, age 60), becomes disabled or dies. Earnings after the
indexing year are counted at their current value (not indexed).
Earnings are indexed by increasing the actual earnings in each
year after 1950 by the percentage increase in national average
wages between that year and the indexing year.
Statement (7), page 14
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c. "Average Indexed Monthly Earnings" (AIME)...These indexed earnings
are then averaged to a monthly amount... known as the AIME. Simply
divide total indexed earnings by the number of months in the
computation years.
d. "Primary Insurance Amount" (PIA)...A percentage formula is applied
to the AIME to derive the primary insurance amount, or basic
benefit level. The 1982 formula is:
90% of the first $230 of AIME, plus
32% of AIME over $230, but less than $1,388, plus
15% of AIME over $1,388
An example follows:
A worker retires at age 62 in 1982, and had earned $2,900 in
1960. The $2,900 would be multiplied by the ratio of average
annual wages in 1980 ($12,513), and divided by average annual
wages in 1960 ($4,077):
$2,900 x_$12,513 = $9,056
$4,077
Although the worker's actual earnings for 1960 were $2,900... his
wage indexed earnings would be $9,056.
This calculation is applied to each year between
1951
and 1980
(the second year prior to his attaining age 62).
Once
total
indexed earnings are obtained, they are divided by the number of
months in the computation years. This monthly amount is the
AIME.
Let's assume that after this worker's entire wage record is
indexed, his AIME is $420. Let's run
benefit formula:
this
through
the PIA
90% of the first $230 =
$207.00
32% of amount above $230 =
60.80
Total PII:
267.80
His PIA is $267.80. This is the amount he would receive at age
65. Since he opted for early retirement at age 62, he receives
80% of that total...or $214.00.
Statement.(7), page 15
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3. Types of Benefits
As already mentioned, benefit levels for retired and disabled workers,
dependents and survivors are generally related to the past earnings of
the covered worker, and more directly to a percent of the benefits -- or
the primary insurance amount -- that the covered worker will receive.
Below is a list of benefits provided through OASI, and the percent of PIA
each receives:
1. Full retirement: 100% of PIA/eligible at age 65/eligible for
reduced benefits at age 62.
2. Widowed spouses: 100% of PIA/eligible at age 65/eligible for
reduced benefits at age 60.
3. Spouses: 50% of PIA/eligible at age 65, or younger if caring
for a disabled child, or a child under age 16/eligible for reduced
benefits at age 62.
4. Divorced spouses: 50% of PIA/same eligiblity for spouses, but
must have been married at least 10 years.
5. Children: 50% of PIA/eligible until 18 if child of a retired or
deceased insured worker, or until 19 if still in high school.
College benefits to age 21 will be phased out by 1985.
6. Surviving children: 75% of PIA/eligibility same as 5.
7. Parents: 75% of PIA/eligible if surviving spouse caring for a
child under 16 at time of death.
8. Maximum Family Benefits: 188% of PIA (175% of PIA for high
income earners) if total benefits to a family exceed 188% of PIA
(or 175%) then all benefits for family members is reduced by an
amount to bring all benefits under the 188/175% caps.
9. Lump Sum Death Benefit: Not a percent of PIA... just a $255
payment on the death of a worker. Paid to survivors.
10. Transitionally insured benefits: Not a percent of PIA... is paid
to those over age 65 with insufficient quarters of coverage.
11. Special age 72: Not a percent of PIA... paid to those over 82
with insufficient quarters of coverage to qualify for a retired
worker benefit and who do not receive public assistance.
12. Special minimum: Not a percent of PIA... increases benefits for
workers with low average earnings.
13. Retroactive: For persons over age 65, retroactive benefits can
be paid up to six months. For disabled beneficiaries, benefits
can be paid retroactively up to 12 months.
14. Currently Insured: OASDI benefits paid to survivors of workers
not fully insured but who worked at least six of the 13 quarters
preceding death.
Statement (7), page 16
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4. Annual Cost-of-Living Adjustments
All benefit levels are increased each year when the Consumer Price
Index exceeds 3% increase each year, and when it does, the full CPI increase
-- not just the amount above 3% -- is applied to benefit levels automatically
without action by Congress.
5. The Retirement Test
Under current law, all benefits are reduced when a beneficiary's
earnings record exceeds certain levels. This is called the earnings
test, or retirement test, and applies to beneficiaries until they reach
age 72 (in 1983 and later, the retirement test will not apply after age
70). The amount of annual earnings permitted in 1982 without causing a
benefit reduction is $4,440 for persons under age 65, $6,000 for persons
age 65-72. Each $2 of earnings in excess of these amounts reduces annual
benefits by $1.
6. Policy Summary
These five sections summarize the mechanics of the benefit and
eligibility rules. But what is the overall effect of this formula, and
what are the policy implications? Several aspects should be mentioned:
First, only minimum requirements are imposed to become eligible for
Social Security. The fact that eligibility is so easy to attain is the
reason why there are so many who receive more than one federal pension... the
so-called "double-dippers" who receive "windfall" benefits.
Second, the entire benefit structure heavily favors those with low
average earnings. This does not necessarily mean the low income... it
means those with sporadic work histories, those who often shift between
covered and non-covered Social Security employment, go through periods of
unemployment. It achieves this effect through three ways... the low minimum
eligibility requirements, dropping out of the computation years the five
lowest income producing years, and heavily weighting the PIA formula to
the low-income.
Third, wage indexing provides retirees with a significant though
usually not noticed added benefit: By basing retirement benefits on real
wage increases, it permits retirees to share in retirement the overall
productivity growth achieved by workers.
Fourth, wage indexing, coupled with drop-out years and automatic
cost-of-living increases for all benefits, is achieving a remarkable
effect. This formula increases real benefits paid to new beneficiaries
each year. For example, those who retire in the year 2040 will receive
double the current value of benefits paid to those retiring this year.
Statement (7), page 17
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Fifth, replacement rates -- the percent of working income replaced
by retirement income -- have increased sharply. When Social Security
began, the average replacement rate was about 29%. Today, the average is
49% for all beneficiaries. That is for pre-tax income. The replacement
rate today for after-tax income is closer to 60%...meaning that in
retirement a worker will receive 60% of his pre-retirement income. Incredible
though it may seem, a worker with low average earnings in his lifetime
who retired in 1981 will in retirement earn more in Social Security benefits
than he earned while working.
Because of legislation enacted in 1977, these high replacement rates
will gradually decline somewhat.
Replacement rates have increased primarily because of legislative
and automatic benefit increases. Cost of living increases the past decade
have been generous. From 1970 to 1981, pre-tax wages went up 122%; the
CPI increased 136%; Social Security benefits have increased 205%.
7. Program Growth Since Social Security Began
Although the number of benefits has vastly increased and the requirements
determining insured status have been liberalized, the basic notion of
insured status has not changed since Social Security began. In 1940,
three requirements had to be met before a worker or his family received
benefits: The worker had to be industrially or commercially employed,
earning at least $50 ($568 in 1982 dollar) in at least six calendar
quarters, and be over age 65.
Since then, almost all age requirements for benefit eligibility have
been reduced, types of benefits expanded. Benefits are now increased
automatically each year.
Statement (7), page 18
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C. Benefit Structure -- Disability Insurance (DI)
Social Security disability began in 1956, and operates on the same
insured status concept used by OASI.
To be eligible for disability, a worker must be both fully insured
under OASI, as described in Section II-A, and disability insured.
To be disability insured, the worker must have 20 quarters of coverage in
the 40 quarters immediately preceding disability. Generally, disability
is defined as the inability to engage in gainful activity by reason of
any medically determinable physical or mental impairment that can be
expected to result in death, or last at least 12 continuous months.
Before benefits can be paid, a waiting period must lapse of at least five
months, benefits are paid up to age 65, and then regular full retirement
benefits are paid, and benefits can be paid retroactively up to 12 months.
A worker disabled in the line of work need not file for worker's
compensation. Disability benefits are offset by all other disability
benefits, with the exception of veterans disability benefits. Currently,
Social Security and the states are reviewing all disability cases, and
terminating benefits to those who never were or no longer are eligible.
Benefits are being denied in about 50% of all cases, but are restored on
appeal to administrative law judges about 64% of the time. Appeal takes
six months or longer, and benefits are paid for only 60 days during that
time.
1. Disabled worker: 100% of PIA/eligible 5 months after disability
2. Disabled surviving spouse: 100% of PIA/eligible at age 60/eligible
for reduced benefits at age 50
3. Disabled child: 50% of PIA/eligibility begins at age 18
4. Disabled surviving child: 75% of PIA/eligibility begins at 18
5. Retroactive: up to 12 months
Only benefits for disabled workers (and their dependents) are paid
out of the DI trust fund. Benefits #2 - #4 are simply the dependents and
survivors benefits paid out of the OASI trust fund.
Statement (7), page 19
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D. The Benefit Structure -- Hospitalization Insurance/Medicare (HI)
Created in 1965, Medicare is a national health insurance program for
the aged and certain disabled persons. Almost all citizens over age 65
are automatically entitled to Medicare coverage. If they are not, they
can purchase the coverage for an annual premium of $1,360.
Medicare has two parts: Part A, hospital insurance, pays hospital,
post-hospital and home health services. This program is financed through
Social Security payroll taxes. Part B, supplementary medical insurance,
is a voluntary program, financed through individual medical premiums, and
through general revenues. Elderly beneficiaries pay one-quarter of the
costs (about $150 a year with a $75 deductible), the disabled pay one-seventh,
and the federal government pays the difference. Services and fees vary
between the two programs.
PART A:
During each benefit period -- whenever a patient has not been in a
hospital for 60 consecutive days, Medicare Part A pays for the following
services:
Inpatient Hospital Care: Ninety days of coverage. For the first 60
days, all costs are paid, except for the first $304 deductible. For the
last 30 days, Medicare pays for all but $76/daily in covered costs. After
that, patients can draw upon a lifetime reserve of 60 hospital days. For
reserve days, all costs after the first $152 each day are paid.
Nursing Facility Care: One hundred days of coverage are paid for.
The first 20 days of care are free for the patient. After that, all
patients pay $38 each day, and the rest of the cost is paid by Medicare.
Home Health Care: Medically necessary home health care visits by
nurses, therapists and other health workers are paid for by Medicare.
There is no limit to the number of benefit periods a patient can
Institutions are reimbursed for their reasonable costs incurred in
providing services to Medicare patients. Reasonable costs are determined
by law and regulation. Services and costs are reviewed by Professional
Standards Review Organizations. Medicare is administered by the Health
Care Financing Administration which, in turn, contracts much of the operational
work to private sector intermediaries.
PART B:
During any calendar year, Part B pays 80% of reasonable charges for
services rendered by doctors, osteopaths, chiropractors, psychiatrists,
independent therapists. Most medical services and outpatient and laboratory
services are covered.
Statement (7), page 20
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E. Administration
Administration costs in 1981 were $1.7 billion or 1.2% OASDI benefit
payments or 1.3% of revenues.
Retirement and survivors insurance is largely administered by the
federal government, with disability insurance administered by the states.
F. Taxes
In 1982, the combined employer-employee tax rate is 13.40% on earnings
up to $32,400. The maximum tax today is $4,342. Self-employed pay 150%
of the employee's share of the tax.
In 1977, Congress enacted legislation that significantly increased
taxes during the rest of this decade. By 1990, the tax rate will increase
three times, to 15.3%, and the tax base seven times. The total maximum
tax paid in 1990 will exceed $9,400. The 1977 law will pump another $437
billion in additional taxes into the Social Security Trust Fund.
Under current law, Social Security benefits are tax free.
Social Security only taxes payroll, and no other tax revenues flow
into the Social Security trust funds.
G. Social Security Tax, Benefit, Trust Fund, Chronology, Charts, Tables
and Graphs
The following pages contain selected tables highlighting key aspects
of Social Security.
Statement (7), page 21
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IV. References/Recommended Reading
Sources: Social Security Administration, General Accounting Office,
Congressional Budget Office, Office of Management and Budget, Congressional
Research Service, House Ways and Means Committee, Senate Finance Committee,
Senate Select Committee on Aging, selected books and publications.
For those interested in further reading, perhaps the five best references
about the past, present and future of Social Security are:
Policymaking for Social Security
--Martha Derthick
The Brookings Institute
Developments in Aging: 1981: Volume 1
--Senator John Heinz, Chairman
Senate Select Committee on Aging
Social Security
--Robert J. Myers
McCahan Foundation Book Series
Major Federal Expenditures in Jurisdiction of the Senate Finance
Committee
--Senator Robert Dole, Chairman
Senate Finance Committee
Social Security: The Need For Action
--Robert Beck, Chief Executive Officer
Prudential Life Insurance Company
Statement.(7), page 22
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Statement (7), page 23
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TOTAL ANNUAL EXPENDITURES
OASI AND DI PROGRAMS COMBINED
240 7
220
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B 180
I
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1974 AND AFTER
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CUMULATIVE BENEFIT
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DISABILITY
BENEFITS
1957
1950 1955 1960 1965 1970 1975 1980 1985
NOTE: 1985 BASED ON INTERMEDIATE PROJECTIONS
Statement (7), page 24
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Statement (7), page 25
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Statement (7), page 26
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PAYOUTS BY THE FOUR SOCIAL SECURITY FUNDS IN 1980
Hospital Insurance
(HI) Trust Fund
$25.1 billion
16.1%
Disability Insu
rance
(DI) Trust Fund
$15.4 billion
9.9%
Old-Ape and Survivors
Insurance (OASI) Trust Fund
$106.1 billion
67.2%
Chart A shows: Of the total benefits paid by Social Security in 1980
($156.2 billion), more than two-thirds ($105.1 billion)
came from the OASI trust fund.
Statement (7), page 27
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PAYOUTS BY THE OASI TRUST FUND IN 1980
Special Aq 72 Benefits
$.1 billion, .1%
Lump Sum Death Benefits 2
Retiree Benefits
$70.4 billion
67.0%
Survivor Benefits
$26.7 billion
25.4%
Retiree Dependent Benefits
$7.5 billion
7.1%
Chart B Shows: The total of benefits that survivors and dependents of
retirees receive is less than half of what retirees receive.
SA special benefit is sometimes available to persons 72 or older who do
not qualify for regular retirement benefits.
-VA sum of $255 to apply to burial expenses. This benefit was restricted
in 1981 to entitled spouses and children.
Statement (7), page 28
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A Social Security Fact Sheet
Here, as supplied by the Social Security Administration, are some pertinent
facts on social security's recipients, its taxpayers and its financial health.
NUMBER OF BENEFICIARIES
1972 1977 April 1982
Old age and survivors trust fund 25,204,542 29,228,350 31,808,503
Disability trust fund 3,271,486 4,854,206 4,337,195
AVERAGE MONTHLY BENEFIT
1972 1977 Sept.1982
Retired worker $157 $237 $405
Retired worker and aged spouse 273 404 692
Widowed mother, two children 383 547 925
Disabled worker 175 266 429
Disabled worker and family 363 538 869
SOCIAL SECURITY PAYROLL TAXES
The tax rate is for both employers and employees, and the increases shown are
already scheduled; the wage base is indexed under the law, and increases
assume moderate economic growth.
Tax rate Wage base Maximum contribution
1972 5.20% $9,000 $468
1977 5.85 16,500 965
1982 6.70 32,400 2,171
1983 6.70 35,100 2,352
1984 6.70 37,500 2,513
1985 7.05 40,500 2,855
1986 7.15 43,800 3,132
1987 7.15 46,800 3,346
1988 7.15 50,100 3,582
1989 7.15 53,400 3,818
1990 7.65 57,000 4,361
CASH OUTLAYS
(Calendar years, billions of dollars)
1972 1977 1982 (est.)
Old age $38.5 $75.3 $141.9
Disability 4.7 11.9 18.1
TRUST FUND RESERVES
Reserves (in billions) are shown for the old age and survivors, disability and
hospital insurance funds; fund ratios-money on band at the beginning of a year
as a fraction of the amounts needed for the full year-are for old age and
survivors combined with disability, and for all three funds combined.
Year-end reserves Fund ratios
OAST DI HI OASDI OASDHI
1972 $35.3 $7.5 - 93% -
1977 32.5 3.4 - - -
1982 17.3 1.6 $15.8 15 22%
1983 -2.6 8.7 19.0 11 16
1984 -26.4 18.4 21.0 3 10
1985 -50.0 34.6 23.6 -4 5
1986 -77.6 53.8 28.0 -7 3
Statement (7), page 29
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NEWLY ENTITLED RETIREE FAMILIES'
MEAN AND MEDIAN LNOO, E`. ,
BY SOURCE AND FAMILY TYPE (note a)
All
Total reported Social Security other i.ncor e
income retirement income (rote b)
Mean Median Mean Median Mean Median
All respondents $14,259 $11,450 $ 4,777 $ 4,754 $ 9,482 $ 6,252
Early retirees 14,003 11,428 4,615 4,694 9,388 6,252
Regular retirees 16,411 13,303 6,134 6,681 10,277 6,350
Family type
Early retirees:
Retiree only 13,442 10,548 4,121 4,407 9,321 6,075
Retiree & spouse 17,082 14,521 7,500 7,463 9,582 7,200
Retiree, spouse,
& children 16,759 16,200 7,965 8,810 8,794 7,200
Retiree & children 17,652 15,358 6,267 6,242 11,385 8,200
Regular retirees:
Retiree only 14,999 11,377 5,394 5,776 9,605 5,669
Retiree & spouse 21,165 18,322 8,850 9,008 12,315 8,680
Retiree, spouse,
& children 26,884 24,588 10,859 12,181 16,025 13,025
Retiree & children 26,529 22,990 9,694 11,188 16,835 14,188
Table 23 s}yvws: The median social security income ($4,754) accounts for 42 per-
cent of the median total first year income ($11,450) of all retirees. The
median first year income of regular retirees with a spouse and children who
also received benefits was $24,588. Their median family income was about 50
percent higher than that of early retirees with a spouse and children.
Notes:
1.
Children benefits include student benefits, which are scheduled for
significant curtailment by 1985.
2.
See note 2, Table 19.
a/See note a, Table 19.
b/Includes retiree families who reported no other income.
Statement (7), page 30
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Newly Retired Workers (65 and older)
Average Annual Benefits and Poverty Level
Year
Retired
Workers
Annual
Benefits
Poverty
Level
Unrelated
Individuals
(1).(2)=
Retired Workers
and Spouse
Annual
Benefits
Poverty
Level
Head of
Household
(4):(5)=
1959
$1,001.76
$1,397
.72
$1,502.64
$1,761
.85
1960
1,006.44
1,418
.71
1,509.66
1,788
.84
1961
977.97
1,433
.68
1,466.95
1,808
.81
1962
1,005.96
1,451
.69
1,508.94
1,828
.83
1963*
1,033.08
1,470
.70
1,549.62
1,850
.84
1964
1,051.32
1,488
.71
1,576.98
1,875
.84
1965
1,106.00
1,512
.73
1,659.00
1,906
.87
1966
1,206.84
1,565
.77
1,810.26
1,970
.92
1967
1,159.44
1,600
.72
1,739.16
2,017
.86
1968
1,311.44
1,667
.79
1,967.16
2,102
.94
1969
1,374.12
1,757
.78
2,061.18
2,215
.93
1970
1,607.28
1,861
.86
2,410.92
2,348
1.03
1971
1,801.32
1,940
.93
2,701.98
2,448
1.10
1972
1,952.44
2,005
.97
2,928.66
2,530
1.16
1973
2,223.60
2,130
1.04
3,335.40
2,688
1.24
1974
2,465.54
2,364
1.04
3,698.31
2,982
1.24
1975
2,728.71
2,581
1.06
4,093.07
3,257
1.26
1976
2,876.60
2,730
1.05
4,314.90
3,445
1.25
1977
3,285.40
2,906
1.13
4,928.10
3,666
1.34
1978
3,577.50
3,127
1.14
5,366.25
3,944
1.36
1979
4,029.50
3,479
1.16
6,044.25
4,390
1.38
1980
4,543.10
3,950
1.15
6,814.65
4,980
1.37
* Base year.
Statement (7), page 31
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NEWLY ENTITLED RETIREE FAMILIES'
INVESTMENTS AND 7VrAL
ASSETS, BY MEDIAN AMOUNTS AND FAMILY TYPE (note a)
Investments
Percent
Total family assets
Percent no
response
(note b)
Median
amount
(note c)
reported
no invest-
ments
Median
amount
(note c)
Percent
reported
no assets
All respondents
Family type
22.0
$ 7,598.14
11.2
$48,499.06
4.9
Early retirees:
21.5
7,581.52
1.1
48,126.45
4.8
Retiree only
20.8
7,565.21
10.5
45,800.00
5.2
Retiree & spouse
Retiree, spouse,
28.2
24,897.20
6.8
59,724.42
6.1
& children
Retiree &
20.6
3,580.35
27.1
46,250.02
2.8
children
8.8
3,635.41
25.8
44,350.00
6.6
Regular retirees:
26.6
15,028.16
11.9
62,395.59
6.1
Retiree only
13.0
14,967.10
13.2
52,975.01
7.3
Retiree & spouse
Retiree, spouse,
8.4
25,076.55
7.1
85,012.93
1.6
& children
Retiree &
18.4
25,020.83
7.5
93,000.00
1.8
children
7.5
24,912.50
9.4
78,000.00
2.1
Table 26 shows: For families consisting of a retiree, spouse, and children,
the median investment and total assets for early retiree families was $3,580
and $46,250 compared with $25,020 and $93,000 for regular retiree families.
a/Excludes personal residence and automobiles.
b/No response indicates the percentage of questionnaire respondents who failed
to provide ca;plete answers to income-related questions.
c/Includes our estimate of what the no response group would have reported had
they provided complete answers to income-related questions.
Statement (7), page 32
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TOTAL SOCIAL SECURITY BENEFICIARIES
(in millions)
1945............ 1.1 1965............ 20.2
1950............ 2.9 1970 ............ 25.8
1955 ............ 7.6 1975............ 31.4
1960............ 14.3 1980 ............. 35.1
1981 ............. 36.0
-TOTAL SOCIAL SECURITY BENEFICIARIES
AND PAYMENTS, STATE-BY-STATE (1980)*
State Beneficiaries Paid State
Alabama......... .6 $ 2.2 Missouri ......... .9 $ 3.2
Alaska.......... .02 .1 Montana .........1 .5
Arizona......... .4 1.6 Nebraska ......... .3 1.0
Arkansas ........ .4 1.5 Nevada.... ..... .1 .4
California...... 3.2 12.7 New Hampshire.... .1 .6
Colorado........ .3 1.3 New Jersey....... 1.2 5.0
Connecticut ..... .5 2.0 New Mexico....... .2 .6
Delaware........ .1 .4 New York......... 2.9 12.1
Dist. of Col..... .1 .3 North Carolina... .9 3.1
Florida ......... 2.0 8.0 North Dakota..... .1 .3
Georgia......... .8 2.6 Ohio ............. 1.6 6.6
Hawaii.......... .1 .4 Oklahoma......... .5 1.7
Idaho........... .1 .5 Oregon ........... .4 1.7
Illinois........ 1.6 6.7 Pennsylvania..... 2.1 8.5
Indiana......... .8 3.3 Rhode Island ..... .2 .7
Iowa...... ..... .5 1.9 South Carolina... .4 1.5
Kansas.......... .4 1.5 South Dakota..... .1 .4
Kentucky........ .6 2.0 Tennessee ........ .7 2.5
Louisiana....... .6 2.0 Texas ............ 1.8 6.5
Maine ........... .2 .7 Utah :............ .1. .6
Maryland ........ .5 2.0 Vermont .......... .1 .3
Massachussetts.. .9 4.0 Virginia ......... .7 2.6
Michigan........ 1.3 5.7 Washington....... .6 2.4
Minnesota....... .6 2.3 West Virginia.... .4 1.3
Mississippi..... .4 1.3 Wisconsin........ .8 3.0
Wyoming.......... .01 .2
American Samoa... .002 .003
Guam ............. .003 .008
Puerto Rico...... .6 1.2
Virgin Islands... .007 .002
Abroad........... .3 1.0
*beneficiaries in millions, dollars in billions
Statement (7), page 33
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Growth of Real After -Tax incomes *
of Average Social Security Recipients**
(1957=100)
200
190
180
Retired 1981
?
Retired 1980 ----....
170
160
150
140
130
120
110
100
Retired 1977
Retired 1975
Retired 1972 , ????.,,
% 1% off on go
%
?`
1967 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82
* After-tax incomes deflated by CPI.
* * The "Retired" plots reflect the widening spread in benefits for
thn.p rptirprl p1irl pr to thnep rptirino in more recent veers.
Statement (7), page 34
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Annual
Benefits
Retiring
to "Average" Age 65 Worker
in Various Years
(in
1967 dollars)
1967
1972
1975
1977
1980
1981
1967
1477
1968
1571
1969
1519
1970
1631
1971
1726
1972
1768
2052
1973
1902
2208
1974
1808
2098
1975
1813
2104
2193
1976
1837
2132
2222
1977
1821
2113
2203
2329
1978
1807
1981
2186
2313
1979
1756
1925
2132
2247
1980
1736
1903
2101
2222
2543
1981
1773
1942
2145
2269
2596
2640
Initial
Benefit
as a % of
Pre-Tax
Earnings
29.9
37.7
42.3
44.8
51.1
54.7
1981
Benefit
as a % of
Pre-Tax
Earnings
35.9
32.3
40.1
42.2
53.2
54.7
Initial
Benefit
as a % of
Post-Tax
Earnings
35.0
46.0
51.3
52.8
56.4
61.8
1982
Benefit
as a % of
Post-Tax
Earnings
42.0
43.6
50.2
51.5
57.6
61.8
Statement (7), page 35
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Comparison of the Growth in Average Real After-tax
Earnings and Social Security Benefits
Over Selected Time Periods
Percent
20
20
Retiree
Worker
15
10
2.1
.06
f6 -5.3 -5.6
-10
-5.3
-1.7
-7.9
i L
1967-81 1972-81 1975-81 1977-81 1980-81
Statement (7), page 36
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Current Law
Net Tax Changes
Bracket Creep Plus Payroll Tax Increase
Less Tax Cut Under ERTA
Family of four, 1982 earnings
with cost of living adjustment
$15,000.
$25,000 .....................
$30,000M-..----..-9
$40,000
$15,000
Ills&MM so "less
$20,000
$25,000
Net Decrease
From 1980
Tax Rate
-2001 I 1
1980 1981 1982
1983 1984
Statement (7), page 37
ego
..?? 00 $30,000
I I I
1985 1986 1987 1988
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Major Legislative Changes in Social Security
1935: A system of Federal old age benefits covering workers in
commerce and industry is established. Benefits were to
be based on cumulative wages and to be payable beginning
in 1942 to qualified workers age 65 and over. A payroll
tax of 1 percent on employer and employees, each imposed
on a wage base of $3,000, was to be collected as of
January 1937; the tax would rise to 3 percent by 1949.
1939: The starting date for benefits is advanced to 1940.
Benefits for dependents of retired workers and for surviv-
ing dependents in case of a worker's death are authorized.
1952: Benefits are increased by 12.5 percent.
1954: Coverage is almost universal except for Federal government
employees. The wage base is increased to $4,200, and
benefits are increased by 13 percent.
1956: Disability insurance (DI) benefits are added payable at
age 50. Women are permitted to retire at age 62 with
actuarially reduced benefits.
1958: Benefits are added for dependents of DI recipients, and
the DI eligibility standard is liberalized.
1960: The age 50 limitation for DI elibility is eliminated.
1961: Men may retire at age 62 with an actuarial reduction.
1965: Medicare becomes part of social security. Cash benefits
are increased by 7 percent.
1968: Cash benefits are increased by 13 percent. The tax rate
is now 4.4 percent and the wage base $7,800.
1969: Cash benefits increased by 15 percent.
1972: Cash benefit increases, which had previously been made in
an ad hoc fashion by the Congress, were made automatic as-
was the increase in the wage base. The 20 percent benefit
increase which occurred this year was made possible by a
change in actuarial assumptions from a level wage growth
path to a dynamic one.
Statement (7), page 38
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1977: An error in the 1972 automatic indexing at initial benefit
determination produced a long-run deficit due to the high
rates of inflation between 1972 and 1977. This error was
corrected and the current method of wage-indexing both
the earnings history and the bend points was decided upon.
Automatic cost-of-living adjustments remained intact.
The long-run deficit necessitated the largest increase
in scheduled tax rates in the system's history, culminating
at 7.65 percent on employee and employer in 1990.
1981: A short-run financing problem requires interfund borrowing
and some benefit reductions near-term. The long-term
actuarial and economic problems are worse. Even the
large pending tax increases are inadequate to cover the
large increases in real benefits being promised over time
under OASDI. The system's grand promises are depressing
the Nation's saving and growth rates, jeopardizing its
own tax base. There is a burgeoning long-run deficit
under HI which dwarfs the OASDI problem. Some politically
acceptable alteration in benefit formulas must be found
for the long run. This will inevitably involve indexing
changes.
Source: Derthick, Martha, Policymaking for Social Security,
The Brookings Institution, 1979, pp. 429-432.
Statement (7), page 39
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SUPPLEMENTARY STATEMENT BY MARY FALVEY FULLER
Working Toward Meaningful Social Security Reform
After a year's work, the National Commission on Social Security Reform,
together with the White House and the Speaker, have produced a package with the
potential to be passed into law within the next few months. The overriding
objective of our recent negotiations was to produce a package that would
generate enough support to be enacted by the Congress in time to prevent either
delay of benefit checks in July of this year or an emergency infusion of general
revenues. As a result, the compromise includes elements that are distasteful to
many Commissioners for different reasons.
In my view, the package contains two major provisions that are commendable:
1. Extension of coverage to new Federal employees and all employees of
nonprofit organizations, so that Social Security becomes closer to a
universal-coverage system.
2. Shift in the COLA to wages or prices or lesser after 1988 if the trust
fund ratio falls below 20%. Although this stabilizer of outgo
relative to income is effective only in times of real wage loss, it is
a step in regulating the COLA to reflect economic conditions.
Statement (8), page 1
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However, there are a number of additional provisions that I believe are
necessary for meaningful reform that we should work for vigorously in the months
and years ahead, specifically:
1. A clear commitment to increase the retirement age to reflect the
increased longevity of the American population. The increased life
expectancy of beneficiaries, coupled with the declining birthrate,
means that we will have only two workers supporting each beneficiary
in 2025 and after, in contrast to the 16 we had in 1950.
2. A combination of COLA stabilizer and fail-safe mechanism to guarantee
that crises like the one we face now, and the one we had in 1977,
will not recur before the end of the decade and in the future.
3. A balance between tax increases and benefit restraints that is
realistic and fair over the long term. This package relies on new
sources of revenue and tax increases for about $100 billion of the gap
of $168 billion, and the tax increases come on top of $300 billion
enacted in 1977 that apply to the 1983-89 period. Relatively little
has been accomplished to date in restraining the growth of benefits
over the long term.
Statement (8), page 2
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
4. Reliance on the payroll tax as the sole source of financing. This is
essential to preserve the discipline in managing the growth of
benefits relative to taxes, the parity between the employer and
employee contributions, and the earned-right character of the
program.
The remainder of this statement discusses each of these areas.
Clear Commitment to Increase the Retirement Age
The bi-partisan package leaves open a gap of .58% of payroll as part of the
total long-term gap of 1.80%. The package stipulates that the gap would be
filled by either a gradual increase in the normal retirement age or a
combination of other measures. I support the proposal to fill the entire gap
through a gradual increase in the normal retirement age. In fact, I believe
that this measure, while adequate based on the economic projections used in
costing out the package, may fall short of what will actually be needed.
Furthermore, the age of 66 in 2015 is about 5 years below the age at which a
person would work the same portion of his/her life as that determined by using
age 65 when it was enacted in 1935. Consequently, I believe that the increase
in the normal retirement age should be adjusted at some later time so as to
reach age 68 by 2015. This would produce long-range savings of 1.3% of payroll.
Statement (8), page 3
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There is a growing belief that this will be needed to fill a long-term gap of
2.4% of payroll, which results from the latest projections of fertility rates
by the Bureau of Census.
The Congress and the public may not be aware that actual economic
performance has, in recent years, consistently fallen short of the most
pessimistic economic projections made in the annual reports of the Board of
Trustees. It would be responsible, forward-thinking policy to provide for this
gap soon -- especially since a retirement age of 68 is what the many research
studies have shown to be appropriate by the year 2015 to reflect longevity at
that time -- even allowing for some growth in the proportion of life spent in
retirement. One could then delay the indexing schedule to begin after 2020 if
the trust funds show a substantial surplus. This would be fairer to the working
population than allowing another crisis to loom before taking needed action.
Combination of COLA Stabilizer and Fail-Safe Mechanism
The bi-partisan package includes a provision that would substitute the
lesser of the percentage wage increase or the percentage price increase,
beginning with 1988 if the combined OASDI trust fund ratio falls below 20%.
While this is a positive step, it is possible that action will be needed before
1988 to avoid another funding crisis. Several Commissioners had proposed
putting a cap on the COLA between 1984 and 1988 or basing the COLA on wage
Statement (8), page 4
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
increases minus 1/ percentage points. The latter method would make the
adjustment independent of the CPI and yet produce exactly the same benefit
increases over the long-term, (after the 1980s) as under present law, if
economic conditions are the same as those assumed under the intermediate
assumptions of the 1982 Trustees Report. On the other hand, if economic
conditions are unfavorable, and wages do not exceed prices by as much as is
projected, the financial solvency of the program would be protected, because
benefit increases would be smaller than under present law. Conversely, if
economic conditions are more favorable than assumed, benefit increases would be
larger than under present law, and the financial condition of the system would
still be strong.
If another funding crisis develops before 1988, we will be faced with
further tax increases -- on top of those enacted in 1977 and those that are
proposed in the "consensus" package -- or another COLA delay. I hope that this
does not occur, because our credibility in controlling the financial condition
of the Social Security program would be damaged in the eyes of the American
people. However, based on recent experience with actual economic conditions
versus projections, we cannot rule this out.
Several of us also recommended a fail-safe mechanism to ensure that
benefits would continue to be paid on time despite unexpectedly adverse
conditions, which can occur with little advance notice. One mechanism would be
Statement (8), page 5
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
to reduce, temporarily, benefits payable. Alternatively the same result could
be accomplished indirectly by reducing the next benefit increase that would
occur as a result of the COLA. Another mechanism could be to increase,
temporarily, the OASDI tax rates. Because of the already large tax burden on
today's workers, I would favor the first or second alternative. I recognize
that Congress is more likely to respond to actual, rather than potential crisis,
but I am concerned about further damaging public confidence in the Social
Security program by frequent short-term threats.
Balance Between Tax Increases and Benefit Restraints
The current estimated short-term gap of $150 to $200 billion for 1983-89
comes on top of a tax increase in 1977 that amounts to about $300 billion during
this period. The bi-partisan package contains new sources of revenue and tax
increases of about $100 to $130 billion depending on whether the taxing of
benefits is classified as a tax increase or a benefit reduction. In any case,
this means that at least $400 billion in new revenues and tax increases will
have been enacted in 1977 and after to close a gap of $500 billion. This is, in
my view, an unbalanced reliance on taxes, which places an excessive burden on
today's working population, while holding retirees relatively harmless. There
is a limit to the psychological as well as financial capacity of the working
population to absorb continued tax increases. This is especially true during
times when they are asked to accept wage increases that do not keep up with
inflation.
Statement (8), page 6
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The clear preference for tax increases rather than benefit restraints has
been shown by the actions taken over the last decade. This is one of the major
reasons that young people are afraid that the Social Security program will not
be around to support them when they retire. The public may be beginning to
realize that our overall budget deficit of about $200 billion is, essentially, a
commitment on the part of the next generation to pay increased income taxes.
The combined effects of increases in Social Security taxes, income taxes and,
inevitably, Hospital Insurance taxes appears formidable, to say the least, and
unfair when certain groups of people are partially exempt.
Reliance on Payroll Tax to Finance Social Security Program
The Social Security system has been based on the philosophy that benefits
are financed by payroll taxes, paid equally by employers and employees. The bi-
partisan package contains a refundable income tax credit for 1984 that would
offset the payroll-tax increase. This is a direct violation of this fundamental
principle; it upsets the parity between employer and employee contributions and
infuses general revenues into the Social Security program. It should not be
repeated under any circumstances. In my view, it is essential to maintain the
self-financed character of the Social Security program -- both to maintain
discipline in managing the system and to protect its status as an earned-right,
rather than a welfare program. The self-financed character of the system is
essential to prevent moving to a system that conditions benefits based on
Statement (8), page 7
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
financial need. Furthermore, to inject general revenues at a time when we have
the highest budget deficits in American history, it is very unfortunate and
should not be repeated in any form. Americans value the Social Security system
as a contributory program, and this is essential to the long-term health of the
system.
It has been a privilege to serve on this Commission and, though many of us
have had to swallow hard, some constructive steps have been taken. I am hopeful
that some meaningful reforms will emerge from the up-coming deliberations in the
Congress.
Statement (8), page 8
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
SUPPLEMENTARY STATEMENT BY MARY FALVEY FULLER
Addressing the Changing Role of Women
The effect on women of the Social Security program is a subject of major
importance, and much analytical work has been done to identify and evaluate
alternative approaches to correct the unintended inequities. In fact, the 1979
Advisory Council on Social Security spent more time on this issue than on any
other single issue. Unfortunately, our commission could not address this issue
due to the urgent priority of restoring the solvency of the system. But we do
not intend this choice to detract from the importance of restoring the equitable
treatment of women in today's world. The provisions of the bi-partisan package,
while advantageous to certain groups of women, do not begin to address the
fundamental, though unintended, inequities, that act to the disadvantage of all
people except members of intact one-earner couples.
The Social Security system was designed at a time when most families each
had one wage earner with a dependent spouse, and marriages were, for the most
part, lifelong. As a result, the benefits of the dependent spouse are
determined as a function of the earnings of the worker, and divorced spouses do
not receive any benefits unless the marriage has lasted for more than arbitrary
Statement (9), page 1
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number of years (which is now 10). Today, the times are different; a
substantial majority of women spend most of their lives in the paid workforce,
and there is one divorce for every two marriages, with two-thirds of divorces
occurring after less than 10 years. The Social Security program, therefore, has
some unintended inequities that need to be corrected:
1. The secondary earner, in most cases the woman, gets little, if
any, return on her Social Security taxes. Only if she earns more
than one-third of the combined couple's income do her benefits as
a worker exceed those she would receive as a dependent spouse.
2. Two-earner couples receive less in benefits than one-earner
couples with the same earnings. Survivors of two-earner
couples are, correspondingly, penalized.
3. Single retirees receive lower benefits relative to their tax
contributions then married couples.
4. The spouse receives no benefits on divorce unless the marriage
lasted 10 years or more.
These inequities result from the continued use of the concept of a
dependent spouse which is, in today's world, an anachronism. Marriage today is
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an economic partnership, and each partner contributes to the well-being of the
family. The most direct method of restoring the proper treatment of both
spouses is through a program of earnings sharing, where each spouse receives
credit for one-half of the combined earnings of the couple during the life of
the marriage. In this way, each spouse receives credit for her/his contribution
to the marriage year-by-year with no requirement eased on duration of the
marriage. The co,iceptual precedent is community property, which prevails in
several states.
Such a program would need to be tailored to special circumstances, such as
protecting the family in the event of loss of the primary earner's income
through disability. Moreover, the transition would need to be orderly and fair,
which is not to say, protracted and expensive. However, there is in my view, no
need to hold harmless groups (like divorced men) whose total benefits may have
been high relative to their contributions. There is also no need for increased
costs except for the transition. The earnings-sharing program developed for
evaluation by the 1979 Advisory Council had an increased cost of .09% of
payroll -- excluding the cost of adding disability protection for certain
groups, primarily homemakers. I do not believe that the evaluation of earnings
sharing should be complicated by adding benefits that do not exist today.
Responsibility for supporting homemakers during retirement and disability is a
separate subject with different arguments, which are based on different issues.
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The fact that transition to such a program will be complex to design and
implement should not prevent this much-needed change. Work on the program
should begin now so that the details can be worked out and communicated well in
advance. Implementation should begin as soon as the system is in a position to
support the cost of transition -- hopefully by 1990. Change is natural in a
healthy society, and effort is better spent implementing orderly change than
trying to force-fit elements of the status quo that have outlived their
relevance.
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Supplementary Statement on Mandatory Coverage
of Public Employees by Lane Kirkland
I cannot support the Commission's recommendation for mandatory
social security coverage of newly hired federal and postal employees.
The many complex issues involved make it difficult to protect federal and
postal employee rights under the best of circumstances. This is even
more difficult at the present time since the proposal is being put forward
in the context of a search for additional sources of revenue and Congress
is not likely to decide the issue solely on its own merits.
I could not support coverage unless all of the following conditions
were met:
1. No reduction in the level of pension benefits now available
to government workers.
2. No additional financial burden on government employees without
a commensurate adjustment in benefits.
3. Preservation of the identity for government workers' retirement
plans.
4. No diminution in the opportunity for these employees to improve
their retirement systems.
The Commission cannot know in advance whether the pension rights of
present and future employees will be adequately protected if Congress enacts
mandatory coverage. Federal and postal employees should have the right to
know and evaluate in advance the details of any proposal before they are asked
to take this step.
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Discussions are going forward to try to develop a solution to this
problem which will strengthen and reinforce both the Social Security System
and the Civil Service Retirement System. Those discussions ought not to be
hampered by untimely and imprecise recommendations of this Commission. The
Commission should not recommend nor should the Congress act when the coverage
details are unknown. Otherwise, there can be no assurance that they meet
criteria essential for assuring equity to those affected.
A majority of the Commission supports in principle social security
coverage of state and local government employees but has not so recommended
because of concern about constitutional barriers. The implication is that
Congress should mandatorily cover these employees if the constitutional issues
can be resolved. I will not support such coverage unless the protections
previously specified for federal employees are met by any legislation applicable
to State and local government employees.
I support legislation that would remove the option for State and local
governments and nonprofit organizations to withdraw from social security once
they have elected for coverage. The unilateral right of these employers to
withdraw has resulted in their employees losing valuable retirement, survivor
and disability protections. This "loophole" in the law should be eliminated.
Once this has been accomplished, public employers that have withdrawn in the past
should be permitted to reenter the system. The legislation should specify a way
for workers or their unions to initiate such action. This is not possible under
present law.
Proponents of coverage will contend that twenty billion dollars will be
lost between now and 1990 to social security trust funds if coverage of federal
and postal employees does not take place. As a substitute source of revenue
and as a meritorious proposal in its own right, I recommend requiring employers
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to contribute to social security on the basis of their total payrolls. This
would bring into the system about $40 billion between now and 1990 and
would reduce social security's long run deficit by .56% of taxable
payroll.
The wage base is necessary to determine the maximum employee benefit
but plays no similar role for the employer. Employers' responsibility for the
welfare of their employees should be based on their total payrolls, not just on a
portion of workers' earnings. Employees must pay federal income tax on their
social security contributions. Employers do not pay the full rate since they
deduct their tax as a business expense.
This give-back to employers in reduced income taxes is largely financed
by the income taxes of workers since federal revenues to an overwhelmingly degree
are based on taxes provided by individuals' incomes. Individual income taxes
now provide 71 percent of general revenues, up from 47.5 percent in 1954. The
corporate share is expected to be only 11 percent of general revenues for 1982.
In 1954, corporation income taxes supplied 34 percent of all revenues (excluding
employment taxes). As a result, employers pay only about one-third of the
combined costs of the program and employees two-thirds. Thus, there is every
reason why employers should pay social security taxes on their total payrolls.
Statement (10), Page 3
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Dissenting Views of Joe D. Waggonner, Jr.
It has been a privilege and an honor to serve on the National Commission on
Social Security Reform. Our country needs a sound, adequately financed Social
Security program. I thank the President for the opportunity to serve.
I strongly support the Social Security program and recognize its critical
role in providing income security. The program has been extremely successful
and must be preserved for this generation as well as future generations.
I am in complete agreement with the initial finding of the Commission, that
the fundamental structure of the Social Security program has proven to be sound
and should not be altered.
Since its inception nearly a half a century ago, the program has been
maintained on a self-financing, contributory basis. With a few limited
exceptions (i.e., gratuitous military wage credits and special benefits for
certain uninsured persons age 72 and over) the program has been financed
exclusively by taxes paid by workers and employers.
The self-financing principle has served a dual purpose. It has helped to
protect the program -- although it has not completely guaranteed it -- against
unwarranted and ill-considered over-expansion. At the same time, the "earned
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right" concept inherent in a self-financed program has helped to protect it --
although it has not completely guaranteed it -- from gradual conversion to a
needs-tested welfare program. Therefore, the public should rest assured that
there is strong support for the program. Neither party wants to see the system
fail. Consequently, I believe that the program is too important to be subjected
to politics. It is now, and in fact long since, time to cease the political
rhetoric and enact legislation that responsibly solves both the short-term and
long-term financing problems. The longer such action is delayed, the more
severe the consequences of such inaction.
There are a variety of reasonable solutions to the financing problems of
the system. Those solutions do not have the dire consequences that people fear
as a result of the emotional rhetoric. It is unnecessary to reduce benefits
currently being paid or to make precipitous changes in the future growth of
benefits. However, the future growth of benefits must be slowed. Revolutionary
or radical changes are not desirable. Similarly, there is no need for massive
tax increases or for the use of non-existent general-revenue financing.
It is critical that the solutions to the problems address the causes of the
short-term and long-range problems. The immediate cause of the short-term
problem is a technical deficiency in the cost-of-living adjustment that causes
the program to be unstable. It absolutely must be changed if a stable system is
to survive. The long-term problem is essentially the product of demographic
changes. The "baby boom" generation and continuing improvements in life
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expectancy will overwhelm the program unless changes are made. Demographics in
the long-range demand structural changes. Demographics is the long-term
problem.
I am greatly concerned that proposals have been made that do not adequately
address those causes. A brief background on the growth of the Social Security
program and further explanation of the causes is warranted.
Disability and Medicare benefits have been added since monthly benefit
payments started in 1940, coverage has been expanded, the level of benefits has
grown, and the tax liabilities of workers and employers have increased.
Fundamentals for financing and redistribution of benefits have changed very
little. The combined maturing of the program and the growth of real benefits
brought on by the runaway inflation of the 1970s, have raised the increased tax
burden. In 1950, only 20% of people above age 65 received Social Security
benefits. Today, more than 90% do. The average retired worker benefit has
increased from $70 a month in 1960 to about $420 a month today.
It was unquestionably intended that Social Security benefits provide a
basic floor of protection to be supplemented by other retirement income when
Social Security was enacted. Other retirement income was available then and
continues to increase. Too often, older Americans are portrayed as being
totally dependent on Social Security benefits for retirement income. Those who
paint the economic picture of the elderly often overlook certain truths. In
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past years, the relative value of other sources of income has significantly
increased. Among these sources are (1) pension programs, which have increased
from some 750 plans (private) in 1935 to some 700,000 plans today; (2) the Keogh
program for the self-employed recently was enlarged to encourage savings; (3)
Individual Retirement Accounts have been liberalized and will encourage a more
responsible attitude for retirement planning among employed workers; (4) CODAs,
which are cash or deferred arrangements are allowed by changes to the tax code
in 1978 which provide that workers can now establish cash or deferred
arrangements under qualified profit sharing or stock bonus plans; (5) in
addition, some 70% of the elderly couples own their homes at retirement and some
80% of those have no mortgage; (6) many have accumulated a significant amount of
wealth at retirement; (7) some continue to work after age 65; and (8) programs
with means-test eligibility criteria for the elderly such as the Supplemental
Security Income program, housing, food stamps, Medicaid, and energy assistance
provide additional protections for low-income elderly persons.
Just since 1968, cumulative Social Security benefit increases have totaled
270%, compared with a CPI increase over that same period of 189%. The
proportion of before-tax income replaced by Social Security benefits has
increased steadily over this same 15-year period. A male aged 65 with average
covered earnings who retired in January 1968 had 32.3% of his before-tax
earnings replaced by Social Security; in January 1983 a similar individual will
have 45.7% of his before-tax earnings replaced.
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As Social Security benefits and replacement rates have been steadily
increasing, the Federal Government has essentially placed itself in direct
competition with the private sector in the providing of retirement income
security.
As indicated previously, the method by which benefits are adjusted for
inflation permits benefits to increase more rapidly at times than the wages of
those paying taxes to support those benefits. As a result, benefits can grow
more rapidly than taxes, causing the program to be unstable when economic
conditions are adverse.
For example, in the past four years, CPI-indexed benefits grew by 50%,
while average wages grew by only 37%. If benefits had increased at the same
rate as wages, the program would be generating excesses of income over outgo and
there would be no short-term problems.
The Social Security program as presently structured is widely accepted by
the American people, although their confidence in its financing basis has been
unnecessarily shaken. The present financial difficulty is real, arguments to
the contrary notwithstanding, but emotion has overwhelmed reason. This
Commission is obligated to the President and the American people to recommend a
plan whose policy or policies would assure an on-going program for the benefit
of this Nation, our present and future generations. What are our options?
Basically only four exist. They are:
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(1) Increase or accelerate already scheduled tax increases. Surely, past
experience has demonstrated and proved the futility of such a policy. The last
major Social Security refinancing legislation, enacted in 1977, is a good
example. At that time, Congress and the Administration attempted to solve
Social Security's financing problems by the enactment of the largest peace-time
tax increases in U.S. history. In spite of this tremendous tax increase,
because subsequent economic conditions were far worse than those assumed in the
formulation of the legislation, the solution failed. This recent experience
must not be reenacted. Because forecasting future economic conditions is, at
best, an imprecise science, extreme caution must be taken when considering
current reform proposals to err on the side of caution -- to avoid simply
another short term fix.
Four tax rate changes have already gone into effect since 1977. Three more
are scheduled to go into effect during the next several years, and large
increases in the maximum earnings subject to taxes are also scheduled. Because
of the 1977 legislation, wage earners and their employers will pay an additional
$299 billion in taxes during the period 1983 through 1989. That does not
include the huge tax increases scheduled to begin in 1990.
Since 1977, maximum annual taxes paid by an individual have increased from
$965 to $2,392, an increase of almost 150%. In fact, since 1949, maximum taxes
have increased by 7900%.
Statement (11), page 6
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I am strongly opposed to a solution that depends to a large extent on tax
increases, which increase the cost of labor at a time when we should be
concerned about creating jobs. A further tax on labor will only serve to
significantly increase unemployment, as forecast by several econometric studies.
Such action would weaken some of our major industries struggling for survival in
the face of stiff foreign competition, as well as many small companies
struggling to avoid bankruptcy. Furthermore, despite the adverse effect on
unemployment, large payroll tax increases would be inflationary because some
companies would be able to pass along the higher labor costs to consumers.
Alternatively, further tax increases will tend to depress wage growth.
While decoupling provisions of the 1977 legislation cut the long-term
deficit by about 80 percent, its short-term financing provisions relied
primarily on tax increases rather than on reductions in costs. Thus,
legislation which was heralded as guaranteeing the financial soundness of the
program well into the second decade of the next century has proven inadequate in
less than five years. You simply can't raise enough money by taxation to
satisfy people's wants. We have long since exceeded our ability to pay for all
that people want from government.
(2) Provide general Treasury direct or indirect financing to meet the
program needs.
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This approach is totally unrealistic in the light of today's circumstances.
Even with the budget growth cuts that have been painfully enacted in the last
two years, there is now no end in sight for annual Federal budget deficits in
the neighborhood of $200 billion. Under these conditions, introducing general
revenues into the financing of the Social Security program would require the
program to compete with all of the other demands for the general funds of the
Treasury. It would be disastrous on the economy. Financial stability of the
Social Security program depends on a healthy economy. The "earned right"
concept would be abandoned, and almost overnight the program would take on all
the aspects of a welfare program. It would in fact become a "guaranteed annual
income" from the government such as the already rejected "Family Assistance
Plan". I strongly oppose this.
(3) Combine additional taxes through the system or Treasury financing A
mix of unrelated taxes such as excise taxes would simply employ the use of
concepts which would work to undermine the earned-right concept so central to
Social Security. I strongly oppose this.
(4) Tailor benefits to revenues. This is the only reasonable course. In
fact this Commission and, this policy may have been our last chance to preserve
the Social Security program as it was intended and should be. There will be no
return to reason, stability and solvency, you just don't go back. We must
tailor benefits to revenues.
Statement (11), page 8
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The elderly are fair and responsible. They don't want to see their
children and grandchildren, whose wages have not been keeping pace with
inflation and who face high levels of unemployment, burdened with large tax
increases. However, they are also very concerned about drastic cuts in benefits
because of all the political rhetoric. When the problems and solutions are
presented to them objectively and unemotionally, most agree to balanced
solutions that address the causes of the problems.
The demographic problems are well-documented. The "baby boom" represents a
tidal wave of future beneficiaries. Their benefits will be paid for by the
relatively small "baby bust" generation that results from the dramatic reduction
in birth rates since 1970. Substantial improvements in mortality compound the
problems because benefits will have to be paid over longer periods of time.
Once the baby boom generation retires, "best estimate" projections predict
there will be only two workers supporting each beneficiary. If the Office of
the Actuary modifies those "best estimate" assumptions to reflect continuation
of current birth rates, as has been done by the Census Bureau in its most recent
population forecast even fewer workers will be expected to support each
beneficiary.
While this Commission has not addressed the financing problems facing
Medicare, I recommend that the policy implications of Medicare be reflected in
OASDI legislation. The long-term deficit for the Hospital Insurance portion of
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Medicare is almost three times as large as the OASDI deficit. It is 5.21% of
payroll. That deficit occurs despite massive cost shifts and despite
assumptions that predict that health care costs will ultimately be controlled.
I recommend that it is imperative that long-term changes be enacted now for
several reasons. First, the confidence of young workers must be restored. The
best way to accomplish this is to make realistic and affordable benefit
promises. Second, those who are to be affected must be given adequate advance
notice for personal and financial planning, and the changes should be gradual.
If action is delayed, the changes may have to be precipitous. Third, the
Hospital Insurance program will begin to experience large deficits by the end of
the decade and proper OASDI changes can help mitigate the effect of those
deficits.
The Social Security program is an intergenerational transfer program. As
such, parents have to ask the question, "At what age should they expect their
children to support them and what level of income should their children transfer
to them?"
With all of this as background, I believe that the legislation should meet
certain reasonable and specific tests and/or constraints as follows:
1. All changes in their totality should be perceived to be fair to
everyone affected by Social Security -- taxpayers and beneficiaries
alike.
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2. All changes should have the objective of placing the Social Security
program on a sound financial basis for the short-term and long-term.
Those changes should not have the objective of balancing the budget,
but rather of preserving the solvency of the Social Security program.
Conversely, those changes should not increase the enormous budget
deficits of other government programs. The objective should be to
consistently maintain the trust funds in total at a reasonable level
through the years.
3. Changes should not be precipitous -- gradual changes can and should be
made so as to allow adequate time for planning.
4. Changes need not and should not reduce benefits of those now receiving
5. Recommended changes to improve the viability of the Social Security
program and to restore public confidence in the system must respond to
the causes of both the short and long-term problems:
There is a technical deficiency in the cost-of-living adjustment
that permits benefit increases to grow faster than wage
increases.
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The "baby boom" generation is not replacing itself. It is
responsible for the "baby bust".
People are living longer.
The ratio of taxpayers to beneficiaries will decrease.
Health care costs continue to increase rapidly.
6. Future tax rates for the entire Social Security program, including
Hospital Insurance, should be reasonable and affordable.
7. Should not (a) increase already scheduled tax increases; (b) provide
General Treasury, direct or indirect, financing to meet the program
needs; (c) funnel unrelated additional taxes through the system.
Recommendations approved by the National Commission on Social Security
Reform show progress toward closing the gap between projected revenues and
outlays in the OASDI system. The efforts which produced this package of
proposals also reflects credit on those who took part in extended negotiations,
including representatives of the President and the Speaker of the House.
Statement (11), page 12
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Unfortunately, however, in its present form, the bi-partisan plan falls far
short of fulfilling the mandate of our Executive Order insofar as it does not
specifically address or assure the long-term solvency of the Social Security
system. It is also deficient as a balanced solution which is necessary to
restore public confidence in the solvency and fairness of the Social Security
program.
Specific elements of the plan that I find unacceptable are:
1. The granting of a temporary refundable income tax credit to employees
for the differential between the proposed payroll tax rate and the
already scheduled payroll tax rate establishes a precedent for
permanent General Treasury financing of the program. It moves us
closer to the establishment of a guaranteed-annual-income policy by
putting the government in support of a refundable tax credit for the
first time and it upsets the historic parity of taxes between
employers and employees. The matter of providing a refundable tax
credit is a major tax policy consideration. It should not be resolved
as a Social Security matter in isolation from the Tax Code.
2. Taxing Social Security benefits establishes a means test on benefits,
effecting a penalty upon those who are prudent in saving and investing
for their retirement. Future program financing difficulties or
Statement (11), page 13
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efforts to further enhance the regressive redistribution of benefits
will exert pressure to retain the fixed thresholds of $20,000/$25,000
which will result in the taxing of a greater proportion of
beneficiaries in the future. In effect, certain people will never
quit paying into the system. Future retirees, especially those of the
baby-boom generation and beyond will receive far less of a return on
the taxes they they will have paid while working. Also, major
"notches" will develop as a result of this recommendation.
The matter of taxing Social Security benefits is a major tax policy
consideration, as is, for example, taxing unemployment compensation,
and should not be considered in isolation of the Tax Code.
3. The short-range deficit is met only at the low end of the projected
need. There is no adequate margin of safety provided through the end
of this decade, particularly in the years prior to 1988. Unless
economic conditions are much better than expected over the next few
years, we could once again be in a situation of having inadequate
revenue to pay checks on time. In fact, I believe the short-range
deficit is far more serious and the projected need is inadequate.
4. Over the period 1983-84 over one-half of the new revenue comes
directly from the General Treasury. The large infusion of general
revenues for the first time into the system assures that it will never
Statement (11), page 14
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again be self-sustaining. General funds should never be used. To
combine Treasury revenues and a refundable tax credit will complete
the transition of the program to welfare and once done, will not be
changed. The hope of the young is diminished.
5.) The plan adds to projected budget deficits by permanently increasing
the cost of the Supplemental Security Income program at a time of
severe overall budgetary concerns. This is a welfare consideration.
6.) Major necessary structural long-term reforms are entirely avoided.
There is no specific plan by which the long-term cost is met.
Demographic changes which are the primary cause of the long-term
problem are not adequately addressed. The proposed change in the
retirement age is tragically deficient.
7.) Adding to the cost of the program in the long-term through increasing
the delayed retirement credit is irresponsible inasmuch as the long-
term cost reduction goal is not specifically met.
8.) It repeats the mistake of the 1977 Amendments by relying primarily on
increasing taxes. Including revenue derived from expanded coverage,
increased taxes account for 75% of deficit reductions; (63% if
expanded coverage is excluded);
Statement (11), page 15
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In the long-term, excluding the portion left unresolved (.58% of
taxable payroll) and including revenues from expanded coverage, new
taxes account for 91% of deficit reduction (not including revenues
from expanded coverage, 66%).
9.) It does not provide a specific fail safe mechanism to assure that
benefits could continue to be paid on time despite unexpectedly
adverse conditions which occur with little advance notice. (See point
#3)
The list of options which I would now like to present do meet the tests
and/or constraints previously described in this statement. While these options
do address the basic causes of both the short-range and long-term problems they
by no means constitute an all inclusive list. It should be noted that the
options do not specify a single solution to either the short-range or the long-
term problem, but instead, the list provides several examples of changes, that
in combination could resolve the problems facing Social Security more fairly and
equitably than those in the Commission report. At the same time, these options
avoid violating the basic tenents of Social Security, in that they allow the
system to remain self-financing and do not introduce any elements of means-
testing. (The bi-partisan approach developed in 1981 by Congressmen Barber
Conable and Jake Pickle adopted a combined approach.)
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Some Alternative Options to the Commission Report
1. Coverage of new Federal hires and
Federal employees with under 5 years
of service, all nonprofit employees, and
elimination of windfall benefits (also,
prohibit opting out)
2. Suspend COLA adjustment for one year,
1983
3. COLA based on CPI minus 2% for next
3 years' COLAs, with cap on COLA of
6%; thereafter, use "wages minus 1/%"
basis
4. Four percent cap for 3 year's COLAS;
thereafter, lesser of wage or CPI
increase if fund ratio is under 25%
(with catch up when fund ratio is over
50%)
5. Provide future benefit increases equal to
75% of the CPI, effective 1983
6. Prorate both CPI and wage increase
adjustments in initial OASDI benefit
based on month of eligibility, effec-
tive 1984.
7. Accelerate State and Local deposits
8. Increase retirement age to 66 in 2002,
beginning phase-in in 1995; thereafter,
adjust according to changes in longevity.
Statement (11), page 17
Short-Term
Savings
(billions)
(1983-89)
Long-Term
Savings
(% of Payroll)
(75 Years)
$33
.31%
80
.15
75
1.45
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Short-Term Long-Term
Savings Savings
(billions) (% of payroll)
1983-89 (75 years)
9. Gradually increase the "normal" retire-
ment age from 65 to 68 in 2017 beginning
the phase-in with those who attain age
62 in 2000.
10.Increase "bend points" in the PIA benefit
formula by 75% of the increase in wages
until they are 80% of what they would have
been under 100% wage indexing, effective
2000.
1.22
11.Reduce percentages in PIA benefit formula
by 10% relatively, over a 15-year period
beginning 1984-98 1 1.10
"Fail-Safe" Mechanism
A "fail-safe" mechanism should be provided in the event that the OASDI
trust fund ratio falls below a specified level. In the event of the
determination of a fund-ratio-deficiency, all benefits due during the coming
year should be guaranteed to be sent out on time, but should be proportionately
reduced automatically by first affecting any scheduled COLA increase. In the
event that the fund-ratio-deficiency exceeded the scheduled COLA increase, then
the existing benefit amounts would be reduced proportionately unless Congress
acted to provide for the remaining fund-ratio-deficiency through raising payroll
tax rates.
Statement (11), page 18
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Dec. 16 / Administration of Ronald Reagan, 1981
National Commission on Social Security
Reform
Executive Order 12335.
December 16, 1981
By the authority vested in me as Presi-
dent by the Constitution of the United
States of America, and to establish, in ac-
cordance with the provisions of the Federal
Advisory Committee Act, as amended (5
U.S.C. App. I), the National Commission on
Social Security Reform, it is hereby ordered
as follows:
Section 1. Establishment. (a) There is es-
tablished the National Commission on Social
Security Reform. The Commission shall be
composed of fifteen members appointed or
designated by the President and selected as
follows:
(1) Five members selected by the Presi-
dent from among officers or employees of
the Executive Branch, private citizens of
the United States, or both. Not more than
three of the members selected by the Presi-
dent shall be members of the same political
party;
(2) Five members selected by the Major-
ity Leader of the Senate from among mem-
bers of the Senate, private citizens of the
United States, or both. Not more than three
of the members selected by the Majority
Leader shall be members of the same politi-
cal party;
(3) Five members selected by the Speaker
of the House of Representatives from
among members of the House, private citi-
zens of the United States, or both. Not
more than three of the members selected
by the Speaker shall be members of the
same political party.
(b) The President shall designate a Chair-
man from among the members of the Com-
mission.
Sec. 2. Functions. (a) The Commission
shall review relevant analyses of the current
and long-term financial condition of the
Social Security trust funds; indentify prob-
lems that may threaten the long-term sol-
vency of such funds; analyze potential solu-
tions to such problems that will both assure
the financial integrity of the Social Security
System and the provision of appropriate
benefits; and provide appropriate recom-
mendations to the Secretary of Health and
Human Services, the President, and the
Congress.
(b) The Commission shall make its report
to the President by December 31, 1982.
Sec. 3. Administration. (a) The heads of
Executive agencies shall, to the extent per-
mitted by law, provide the Commission
such information as it may require for the
purpose of carrying out its functions.
(b) Members of the Commission shall
serve without any additional compensation
for their work on the Commission. How-
ever, members appointed from among pri-
vate citizens of the United States may be
allowed travel expenses, including per diem
in lieu of subsistence, as authorized by law
for persons serving intermittently in the
government service (5 U.S.C. 5701-5707),
to the extent funds are available therefor.
(c) The Commission shall have a staff
headed by an Executive Director. Any ex-
penses of the Commission shall be paid
from such funds as may be available to the
Secretary of Health and Human Services.
Sec. 4. General. (a) Notwithstanding any
other Executive Order, the responsibilities
of the President under the Federal Advi-
sory Committee Act, as amended, except
that of reporting annually to the Congress,
which are applicable to the Commission,
shall be performed by the Secretary of
Health and Human Services in accordance
with the guidelines and procedures estab-
lished by the Administrator of General
Services.
(b) The Commission shall terminate thirty
days after submitting its report.
Ronald Reagan
The White House,
December 16, 1981.
[Filed with the Office of the Federal Regis-
ter, 2:22 p.m., December 16, 1981]
National Commission on Social Security
Reform
Appointment of the Membership.
December 16, 1981
The President today announced his inten-
tion to appoint/ designate the following indi-
Weekly Compilation of Presidential Documents, Monday, December 21,
1981; Volume 17 -- Number 51; Pages 1371-1394
Appendix A, page 1
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Administration of Ronald Reagan, 1981 / Dec. 16
viduals to serve on a 15-member bipartisan
National Commission on Social Security
Reform. Alan Greenspan will serve as
Chairman.
Establishment of the Commission fulfills a
pledge made by the President in Septem-
ber to create a bipartisan task force to work
with the President and Congress to reach
two specific goals:
-To propose realistic, long-term reforms
to put social security back on a sound
financial footing, and
-To forge a working, bipartisan consen-
sus so that the necessary reforms can be
passed into law.
Robert A. Beck, chairman of the board and chief
executive officer, Prudential Insurance Co. of
America, Newark, NJ. He is a member of the
President's Export Council.
Mary Falrey Fuller, vice president, finance, Shak-
lee Corp., San Francisco, Calif. Previously she
was senior vice president and director, Blyth
Eastman Dillon & Co., Inc., New York, N.Y.
Alan Green.epan, chairman and president, Town-
send-Greenspan and Co., Inc., New York, N.Y.
He is a member of the President's Economic
Policy Advisory Board.
Alexander B. Trowbridge, president, National As-
sociation of Manufacturers, Washington, D.C.
He is a member of the President's Task Force
on Private Sector Initiatives.
Joe D. {iaggonner, Jr., consultant, Bossier Bank &
Trust Co., Plain Dealing. La He represented
the Fourth Congressional District of Louisiana
during the 87th to 95th Congresses.
Senate Majority Leader Howard Baker, in
consultation with Senate Minority Leader
Robert B%Td, selected the following individ-
uals to serve on the Commission:
William Armstrong, United States Senate (R-
Colo.), chairman of the Subcommittee on Social
Security of the Senate Finance Committee.
Robert Dole, United States Senate (R-Kans.),
chairman of the Senate Finance Committee.
John Heinz, United States Senate (R-Pa.), chair-
man of the Senate Special Committee on
Aging.
Lane Kirkland, president of the American Fed-
eration of Labor-Congress of Industrial Organi-
zations.
Daniel Patrick Moynihan, United States Senate
(D-N.Y.), ranking minority member of the Sub-
committee on Social Security of the Senate Fi-
nance Committee.
House Speaker Thomas P. O'Neill, in con-
sultation with House Minority Leader
Robert Michel, selected the following indi-
viduals to serve on the Commission:
William Archer, United States House of Repre-
sentatives (R-Tex.), ranking minority member
of the Subcommittee on Social Security, House
Ways and Means Committee.
Robert M. Ball, was Commissioner of Social Se-
curity in 1962-73. He is senior scholar, Insti-
tute of Medicine, National Academy of Sci-
ences.
Barber Conable, United States House of Repre-
sentatives (R-N.Y.), ranking minority member,
House Ways and Means Committee.
Martha E Keys, former Assistant Secretary of
Health and Human Services. She served in the
94th and 95th Congresses.
Claude D. Pepper, United States House of Repre-
sentatives (D-Fla.), chairman, House Select
Committee on Aging.
Weekly Compilation of Presidential Documents, Monday, December 21,
1981; Volume 17 -= Number 51; Pages 1371-1394
Appendix A, page 2
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Federal Register
Vol. 47, No. 249
Tuesday, December 28, 1982
Presidential Documents
The President National Commission on Social Security Reform
By the authority vested in me as President by the Constitution and laws of the
United States of America, and specifically the Federal Advisory Committee
Act, as amended (5 U.S.C. App. I), it is hereby ordered that Section 2(b) of
Executive Order No. 12335, establishing the National Commission on Social
Security Reform, is hereby amended to provide as follows:
"The Commission shall make its report to the President by January 15, 1983.".
THE WHITE HOUSE,
December 23, 1982.
IFR Doc. 82-35230
Filed 12-23-82; 1:21 pm]
Billing code 3195-01-M
Appendix A, page 3
396-938 0 - 83 - 10
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For Immediate Release January 15, 1983
NATIONAL COMMISSION ON SOCIAL SECURITY REFORM
By the authority vested in me as President by the
Constitution and laws of the United States of America, and
specifically the Federal Advisory Committee Act, as amended
(5 U.S.C. App. I), it is hereby ordered that Section 2(b) of
Executive Order No. 12335, as amended, establishing the
National Commission on Social Security Reforn, is hereby
further amended to provide as follows:
"The Commission shall make its report t3 the President
by January 20, 1983.".
THE WHITE HOUSE,
January 15, 1983.
Executive Order 12402 (January 15, 1983)
Appendix A, page 4
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Administration of Ronald Reagan, 1981 / Dec. 16
As a candidate in 1980 1 pledged that I
would do my utmost to restore the integrity
of social security and do so without penalty
to those dependent on that program. I have
honored that pledge and will continue to do
so. We cannot and we will not betray
people entitled to social security benefits.
In September I announced that I would
appoint a bipartisan task force to work with
the President and the Congress to reach
two specific goals: propose realistic, long-
term reforms to put social security back on
a sound financial footing and forge a work-
ing bipartisan consensus so that the neces-
sary reforms will be passed into law.
Senate Majority Leader Baker, Speaker
O'Neill, and I agreed we would each select
five members for a new national commis-
sion on social security. Today I am pleased
and honored to announce the formation of
the commission and that Alan Greenspan
has agreed at my request to serve as Chair-
man of that commission.
I'm asking the commission to present its
report to the American people at the end of
next year. I can think of no more important
domestic problem requiring resolution than
the future of our social security system.
Let me make one thing plain: With bi-
partisan cooperation and political courage,
social security can and will be saved. For
too long, too many people dependent on
social security have been cruelly frightened
by individuals seeking political gain through
demagoguery and outright falsehood, and
National Commission on Social Security this must stop. The future of social security
Reform is much too important to be used as a politi-
cal football.
Remarks Announcing Establishment of the
Commission. December 16, 1981
In recent years inflation has created great
uncertainty about our social security
system. Time and again we've been reas-
sured the system would be financially sound
for decades to come, only to find that recal-
culations of receipts and benefits forecast a
new crisis. Current and future retirees now
question the system's ability to provide
them the benefits they've been led to
expect. Americans look to us for leadership
and for answers.
Saving social security will require the best
efforts of both parties and of both the ex-
ecutive and legislative branches of govern-
ment. I'm confident this can be done and
that in its deliberations this commission will
put aside partisan considerations and seek a
solution the American people will find fis-
cally sound and fully equitable.
That's the end of the statement.
Note: The President spoke at 12:03 p.m. to
reporters assembled in the Briefing Room at
the White House.
Weekly Compilation of Presidential Documents, Monday, December 21,
1981; Volume 17 -- Number 51; Pages 1371-1394
Appendix B
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C H A R T E R
National Commission on Social Security Reform
Purpose
The National Commission on Social Security Reform was established
by Executive Order No. 12335 on December 16, 1981 to provide
appropriate recommendations to the Secretary of Health and Human
Services, the President, and the Congress on long-term reforms
to put Social Security back on a sound financial footing.
Authority
The National Commission on Social Security Reform was established
by Executive Order of the President on December 16, 1981 (Executive
Order 12335), and is governed by the provisions of the Federal
Advisory Committee Act, (5 U.S.C. App. I; 86 stat. 770) which sets
forth standards for the formation and use of advisory committees.
Function
The National Commission on Social Security shall:
(1) review relevant analyses of the current and long-term
financial condition of the Social Security trust funds;
(2) identify problems that may threaten the long-term
solvency of such funds;
(3) analyze potential solutions to such problems that will
both assure the financial integrity of the Social
Security System and the provision of appropriate
benefits; and
(1+) provide appropriate recommendations to the Secretary
of Health and Human Services, the President, and the
Congress.
Structure
The Commission shall be composed of fifteen members appointed or
designated by the President and selected as follows:
(1) Five members selected by the President from among
officers or employees of the Executive Branch,
private citizens of the United States, or both.
Not more than three of the members selected by the
President shall be-members of the same political party;
Appendix C, page 1
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(2) Five members selected by the majority leader of the
Senate from among members of the Senate, private
citizens of the United States, or both. Not more
than three of the members selected by the Majority
Leader shall be members of the same political party;
(3) Five members selected by the Speaker of the House of
Representatives from among members of the House,
private citizens of the United States, or both. Not
more than three of the members selected by the Speaker
shall be members of the same political party.
The President shall designate a Chairman from among the members of
The Commission.
The Commission shall have a staff headed by an Executive Director.
Any expenses of the Commission shall be paid from such funds as
may be available to the. Secretary of Health and Human Services.
Notwithstanding any other Executive Order, the responsibilities of
the President under the Federal Advisory Committee Act, as amended,
except that of reporting annually to the Congress, which are
applicable to the Commission, shall be performed by the Secretary
of Health and Human Services in accordance with the guidelines and
procedures established by the Administrator of General Services.
Meetings
Meetings are held approximately once a month at the call of the
Chairman, who approves the agenda. A Government official is
present at all meetings.
Meetings are open to the public except as determined otherwise by
the Secretary; notice of all meetings is given to the public.
Meetings are conducted and records of the proceedings kept, as
required by applicable laws and Department regulations.
Compensation
Members of the Commission shall serve without any additional
compensation for their work on the Commission. However, members
appointed from among private citizens of the United States may be
allowed travel expenses, including per diem in lieu of subsistence,
as authorized by law for persons serving intermittently in the
Government service (5 U.S.C. 5701-5707), to the extent funds are
available therefor.
Appendix C, page 2
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Subject to the availability of funds, the estimated cost for
operating the Commission, including travel expenses for members,
but excluding staff support, is $300,000 to $700,000. Estimate
of man-years of staff support required is 10 to 15, at an
estimated cost of $325,000 to $525,000, totaling an estimated
cost of $625,000 to $1,225,000.
Reports
The Commission shall make its report to the President by
December 31, 1982.
The Commission shall terminate thirty days after submitting its
report.
Approved:
,6 82_
Date Ric
Secretary
Appendix C, page 3
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February 27, 1982
Dear Chairman Greenspan
and Commission Members:
As you convene for the first time today, the
Nation will be watching with great interest the
work and progress of the National Commission on
Social Security Reform. As I wrote to you at
the time you agreed to serve, I can think of no
more important domestic problem requiring reso-
lution than restoring the integrity of Social
Security and to do so without penalty to those
dependent on the programs.
Every American, of every age, has an important
stake in the success of your work. Each of you
comes to this Commission from a position in gov-
ernment or the private sector through which you
can make possible the successful implementation
of a truly bipartisan solution to this great
national problem.
This Commission is the product of the leadership
of both parties of both houses of the Congress
as much as it is mine. Therefore, on'behalf of
all Americans I wish you success as you begin
your deliberations.
Sincerely,
e %--~ (Lo-~
Chairman Alan Greenspan
and Members of the National Commission
on Social Security Reform
Appendix D
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MEETINGS OF THE NATIONAL COMMISSION SOCIAL SECURITY REFORM
Date
Time
Saturday, February 27
10:00 a.m. - 2:00 p.m.
Friday, March 26
9:00 a.m.
- 1:00 p.m.
Monday, May 10
1:00 p.m.
- 5:00 p.m.
Monday, June 21
2:00 p.m.
- 6:00 p.m.
Monday, July 19
2:00 p.m.
- 6:00 p.m.
Friday, August 20
9:00 a.m.
- 1:00 p.m.
Monday, September 20
2:00 p.m.
- 6:00 p.m.
Thursday, Friday, and
Saturday, November 11-13
10:00 a.m. - 5:00 p.m.
Friday, December 10
2.00 p.m.
- 5:00 p.m.
Appendix E
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STAFF MEMORANDUMS PREPARED FOR THE NATIONAL COMMISSION ON SOCIAL SECURITY REFORM
Staff Memorandum, Latest Cost Estimates for OASDI and HI Programs,
February 26, 1982
Staff Memorandum, Development of the Social Security Program,
February 27, 1982
Memorandum No. 1, Basic Method of Computing Social Security Benefits,
March 9, 1982
Memorandum No. 2, History of Replacement Rates for Various Amendments to Social
Security Act, March 10, 1982
Memorandum No. 3, Measurement of Actuarial Status of OASDI Program,
March 11, 1982
Memorandum No. 4, Survey as to Valuation Period for OASDI and HI Programs,
March 12, 1982
Memorandum No. 5, Annual Actuarial Balances of the Social Security Program,
March 13, 1982
Memorandum No. 6, Progress of OASDI Trust Funds over the Years,
March 14, 1982
Memorandum No. 7, Sensitivity Analysis of Assumptions in Alternative I and II-B
of 1981 Trustees Report, March 15, 1982
Memorandum No. 8, Actuarial Status of OASDI Program over Next 25 Years under
Alternative Assumptions, March 16, 1982
Memorandum No. 9, Analysis of Various Marginal Changes in Assumptions in
Actuarial Cost Estimates, March 25, 1982
Memorandum No. 10, Short-Range Cost Estimates Made by CBO, March 29, 1982
Memorandum No. 11, Reimbursements to the Social Security Trust Funds from
General Revenues, April 6, 1982
Memorandum No. 12, Comparison of Status of OASDI and HI Trust Funds as Shown in
198 and 1982 Trustees Reports, April 6, 1982
Memorandum No. 13, Survey of Public Confidence as to Financial Status of the
Social Security Program, April 7, 1982
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Memorandum No. 14, History of Net Replacement Rates for Various Amendments to
the Social Security Act, April 22, 1982
Memorandum No. 15, Past Trends of Actuarial Imbalances of OASDI and HI Trust
Funds, April 7, 1982
Memorandum No. 16, Possible Method of Revising Social Security to a Self-
Adjusting, Self-Stabilizing Basis, April 29, 1982
Memorandum No. 17, Background Information on Private Pensions, May 4, 1982
Principal Consultant Memorandum, Problem Areas in Private Pensions and State and
Local Government Pensions, May 4, 1982
Memorandum No. 18, Analysis of Various Marginal Changes in Assumptions in
Actuarial Cost Estimates, May 6, 1982
Memorandum No. 19, Possible Method of Revising Social Security to a Self-
Adjusting Self-Stabilizing Basis (continued), May 27, 1982
Memorandum No. 20, The Low-Cost Demographic Period in the 1990s and Early 2000s,
May 25, 1982
Memorandum No. 21, Further Information on Cost of OASDI Program According to
1982 Trustees Report, May 27, 1982
Memorandum No. 22, Increasing the Normal Retirement Age Under Social Security by
an Automatic-Adjustment Method, June 4, 1982
Memorandum No. 23, How a Proposal for Automatic Changes in OASDI Tax Rates Would
Operate, June 4, 1982
Memorandum No. 24, Possible Solutions to Long-Range Financing Problems of OASDI
Program, June 4, 1982
Memorandum No. 25, Prevalence of Elections of Joint-and-Survivor Annuities under
Private Pensions, June 7, 1982
Memorandum No. 26, Possible Method of Revising Social Security to a Self-
Adjusting, Self-Stabilizing Basis (continued #2), June 4, 1982
Memorandum No. 27, Pension Receipt and Pension Coverage by Sex, June 14, 1982
Memorandum No. 28, Illustrative Cost Effects on Year-by-Year Basis for Several
Proposals Affecting OASDI Long-Range Costs, June 21, 1982
Memorandum No. 29, Cost Aspects of Increasing the Normal Retirement Age under
ooial Security by an Automatic-Adjustment Method, June 28, 1982
Appendix F, page 2
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Memorandum No. 30, Investment Procedures for the Social Security Trust Funds,
June 28, 1982
Memorandum No. 31, Changes in Tax Treatment of Employee Contributions to Social
Security and of Benefits and Faster Implementation of Currently Scheduled
Payroll Tax Increases, July 1, 1982
Memorandum No. 32, Advantages of Social Security Coverage for Federal Employees,
June JU_
1982
Memorandum No. 33, Relative Changes in Social Security Benefit Levels,
June 30, 1982
Memorandum No. 34, Constitutionality of Prohibiting Withdrawal of Nonprofit
Organizations Which Elected Social Security Coverage, July 1, 1982
Memorandum No. 35, Various Possible Funding Methods for OASDI Program,
July 1, 1982
Memorandum No. 36, Cost Aspects of Indexing OASDI Benefit Formula by 75% of Wage
Increases for a Limited Period, July 2, 1982
Memorandum No. 37, Comparison of Social Security Benefits and Replacement Rates
Under Present Law and Under Proposal to Index Benefit Formula by'75% of Wage
Increases for a Limited Period, July 12, 1982
Memorandum No. 38, Long-Range Cost Effect of Advancing the 1990 OASDI Tax Rate
to 1983 or 1985, August 2, 1982
Memorandum No. 39, Ways in Which Civil Service Retirement System Provides
Greater Benefit Protection Than Social Security, July 29, 1982
Memorandum No. 40, Crediting Unnegotiated Social Security Checks to the Trust
Funds, July 30, 1982
Memorandum No. 41, Pros and Cons Regarding Proposals to Dedicate Alcohol and
Tobacco Excise Taxes to Hospital Insurance or Disability Insurance Trust Funds,
August 4, 1982
Memorandum No. 42, Earnings Sharing at Divorce under Social Security Programs in
Canada and Germany, August 5, 1982
Memorandum No. 43, The Effects of Redeeming Trust Fund Assets, August 6, 1982
Memorandum No. 44, The Relative Economic Status of the "Young-Old" and the "Old-
Old", August 12, 1982
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Memorandum No. 45, Money's-Worth Comparison for Social Security Benefits,
August 12, 1982
Memorandum No. 46, Recent Legislation Passed by Congress, September 1, 1982
Memorandum No. 47, "Personal Security Accounts: A Proposal for Fundamental
Social Security Reform", by Boskin, Kotlikoff, and Shoven, September 1,1982
Memorandum No. 48, An Independent Social Security Agency, September 1, 1982
Memorandum No. 49, Conceptual Difference Between the Open-Group and Closed-Group
Methods of Determining the OASDI Long-Range Unfunded Liability,
September 1, 1982
Memorandum No. 50, Adjusting the Payroll Tax Rate to Compensate for the Erosion
of the Tax Base Due to the Growth of Fringes, September 7, 1982
Memorandum No. 51, Amounts Needed in Short Run to Restore Financial Soundness of
OASDI System, and Possibility of Obtaining Them from Increases in Tax Rates,
September 9, 1982
Memorandum No. 52, Actuarial Cost Estimates of the Early 1970s in the Light of
Current Conditions, September 8, 1982
Memorandum No. 53, Inclusion of Operations of Social Security and Medicare Trust
Funds in the Unified Budget, September 8, 1982
Memorandum No. 54, Additional Information on CBO Estimate of Outlay Reductions
and/or Revenue Increases Needed by OASDI Program in FY 1984 and 1985,
September 9, 1982
Table, Comparison Of Combined Employer-Employee OASDI Tax Rate With OASDI Cost
Rate For Various Future Years Under Different Economic Assumptions,
September 28, 1982
Memorandum No. 55, Comparison of Two Alternative Wage Rate Measures That Could
be Used in Indexing Social Security Benefits, September 29, 1982
Memorandum No. 56, Cost Effect of Increasing Contribution Rate for Self-Employed
Persons to Combined Employer-Employee Rate, October 8, 1982
Memorandum No. 57, Reconciliation of Cost Estimates of CBO and SSA as to Amount
of Additional Funding Needed by OASDI Trust Funds in 1982-85 in Order to Have
Specified Fund Ratio at Beginning of 1986, October 14, 1982
Memorandum No. 58, The Effect of a Combination of Proposals on OASDI Long-Range
Costs Assuming (1) Revocation of the 1985 and 1990 Tax Rate Increases or (2)
Revocation of Only the 1990 Increase, October 15, 1982
Appendix F, page 4
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Memorandum No. 59, Investment of the Social Security Trust Funds,
October 20, 1982
Memorandum No. 60, Selected Temporary Sources of Revenues for the OASI Trust
Fund for the 1980s, November 2, 1982
Memorandum No. 61, Number of Months Required for Total Benefit Payments to
Exceed Accumulated OASDI Taxes, November 4, 1982
Memorandum No. 62, Amounts Needed in Short Run to Restore Financial Soundness of
OASDI System Under "More Realistic" Pessimistic Cost Estimates, November 5, 1982
Background Book, Actuarial Cost Estimates for OASDI and HI and for Various
Possible Changes in OASDI and Historical Data for OASDI and HI, November 1982
Table, Various Packages Which Will Meet the Shortfall in 1983-89, According to
Alternative III Assumptions of 1982 Trustees Report, November 10, 1982
Tables, Comparison of Estimates of OASDI Income, Outgo, and Trust-Fund Balances
Made by Social Security Administration and by Department of Commerce,
November 10, 1982
Memorandum No. 63 (Revised), Methods to Assure Adequate Financing of OASDI
Program Through Loans or Through Automatic Adjustment of Either Benefits or
Taxes, November 22, 1982
Memorandum No. 64, Amounts Needed in Short Run to Restore Financial Soundness of
OASDI System Under "More Realistic" Pessimistic Cost Estimates (extension of
Memorandum No. 62), November 18, 1982
Decision Memorandum, Adoption of Certain Recommendations, December 3, 1982
General Memorandum, Section 401(k) of the Internal Revenue Code,
December 9, 1982
General Memorandum, A Proposal to Index Benefits in Eligibility Status by
Increases in Wages Minus 12 Percentage Points, on a 15-Year Moving-Total Basis,
December 9, 1982
Decision Memorandum, Adoption of Certain Recommendations (Revision and extension
of Memorandum of December 3), December 13, 1982
Memorandum No. 65, Two Proposals as to Stabilizing the Cost of the OASDI Program
With Regard to the Indexing of Benefits in Eligibility Status (Revised),
December 15, 1982
Appendix F, page 5
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Memorandum No. 66, Dilemma of Making Cost Estimates for Indexing by "Lesser of
Wages or Prices", December 15, 1982
Decision Memorandum, Adoption of Recommendation on Extension of Coverage,
December 15,
Appendix F, page 6
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PAPERS PRESENTED TO THE
NATIONAL COMMISSION ON SOCIAL SECURITY REFORM
Alicia H. Munnell, "The Private Pension System and Its Role in
Providing Economic Security", May 10, 1982
Quentin I. Smith, Jr., "The Private Pension System and Its Role in
Providing Economic Security", May 10, 1982
Robert N. Butler, "Note for Discussions Before the National
Commission on Social Security Reform", June 21, 1982
Jacob J. Feldman, "Work Ability of the Aged Under Conditions of
Improving Mortality", June 21, 1982
Nancy M. Gordon, "Statement Before the National Commission on Social
Security Reform", July 19, 1982
Alice M. Rivlin, "Statement Before the National Commission on Social
Security Reform", August 20, 1982
Henry Aaron, "Summary of Remarks to the National Commission on
Social Security Reform", August 20, 1982
Michael J. Boskin, "Alternative Social Security Reform Proposals",
August 20, 1982
Appendix G
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STAFF MEMBERS OF THE NATIONAL COMMISSION ON SOCIAL SECURITY REFORM
Executive Director Robert J. Myers
Nancy J. Altman
Merton C. Bernstein
E. Annette Coates
Suzanne B. Dilk
Renato A. DiPentima
Susan A. Dower
Elizabeth T. Duskin
Timothy J. Kelley
Eric R. Kingson
Edward F. Moore
Virginia P. Reno
Bruce D.Schobel
Carolyn L. Weaver
Support Staff
Laurie A. Brown
Ercell C. Campbell
Elisabeth J. Darling
Wanda G. Moody
Edward E. Mosley
Tracey A. O'Donnell
Isabel R. Paurowski
Carol J. Upperman
Doris C. Washington
NOTE: Some of these individuals were on the staff for
only part of the duration of the National
Commission, and some were part-time employees.
Appendix H
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Average Indexed Monthly Earnings (AIME) -- The earnings used to determine the
Primary Insurance Amount, on which benefits for a worker and family will be
based. Earnings for each year after 1950 are updated (indexed) to the indexing
year (the second year before the year in which the worker becomes age 62 or, if
earlier, becomes disabled or dies) to take account of the increase in average
wages since the year that they were earned. Earnings for the indexing year and
subsequent years are used at their actual values. Then, the highest years of
indexed earnings for a specified number of years are selected and averaged to
yield the AIME.
Primary Insurance Amount (PIA) -- The amount on which all monthly OASDI benefits
are based. A worker's PIA is derived from Average Indexed Monthly Earnings by
applying it in a weighted benefit formula. Such formula for persons reaching
age 62 in 1983 (or dying or becoming disabled before age 62 in 1983) is 90% of
the first $254 of AIME, plus 32% of the next $1,274 of AIME, plus 15% of AIME in
excess of $1,528. For persons attaining age 62 in subsequent years, the dollar
figures are changed to reflect relative changes in nationwide average wages. A
worker's disability benefit or old-age benefit at age 65 is equal to 100% of
PIA. Other benefits are various percentages of the worker's PIA.
Maximum Family Benefit -- The maximum monthly amount that can be paid on a
worker's earnings record. Whenever the amount of benefits payable on an
earnings record exceeds the maximum, each auxiliary or survivor benefit is
proportionately reduced to bring the total within the maximum. (Benefits for
divorced spouses and surviving divorced spouses are excluded from this limit.)
Replacement Rate -- The worker's benefit (or the family benefit) as a percentage
of prior earnings. If a worker earned $500 a month before retirement and
receives a benefit of $350, the replacement rate is 70%.
Generally, the replacement rate is the relationship between the annual benefit
rate payable for the first month of entitlement and the gross taxable earnings
for the year before entitlement. However, in some contexts, it may be the
relationship between the benefit and net after-tax earnings for the prior year.
(In other contexts, the benefits payable for the first full year of entitlement,
including any CPI increase for June and thereafter, are used as the numerator.)
Bend Points -- The points in the PIA benefit formula at which the percentage
factor that is applicable to the AIME changes. For example, in the formula for
those reaching age 62 in 1983, these points are $254 and $1,528. The
percentages applicable are 90%, 32%, and 15%. When developing the formula for
persons attaining age 62 in subsequent years, the percentages remain constant,
but the dollar figures are changed to reflect relative changes in nationwide
average wages.
Trust-Fund Ratio -- The trust-fund balance expressed as a percentage of total
outgo during the next 12 months.
Cost Rate -- The outgo for benefits and administrative expenses for a year
expressed as a percentage of the payroll that is taxable for Social Security
purposes for that year.
Appendix I
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Appendix J
As a background for the discussion of the extent of the financing problems
of the Old-Age and Survivors Insurance program (OASI), and recommendations for
dealing with them, this appendix will deal with the operational procedures of
the Social Security trust funds, their funding bases, the measures of actuarial
or financial soundness, and the past and estimated future financial status of
each trust fund.
There are four Social Security trust funds -- the OASI Trust Fund, the
Disability Insurance Trust Fund (DI), the Hospital Insurance Trust Fund (HI),
and the Supplementary Medical Insurance Trust Fund (SMI). The National
Commission has considered almost exclusively the first three of these trust
funds, which are financed primarily from payroll taxes. The SMI Trust Fund
deals with that portion of the Medicare program which primarily provides partial
reimbursement for the cost of physician services; it derives its financing from
premiums paid by the enrollees and from payments from the General Fund of the
Treasury.
NOTE: This appendix was prepared by Robert J. Myers, Executive Director.
Any views expressed herein are those of Mr. Myers, and not necessarily
those of the members of the National Commission.
Appendix J, page 1
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OPERATIONAL PROCEDURES OF THE TRUST FUNDS
All four of the trust funds function as separate, closed entities. All
sources of their financing (including any interest earned on their invested
assets) go into the funds, and all benefit payments and related administrative
expenses are paid from them. As a general principle, if a particular trust fund
has insufficient assets to meet outgo, there is no way under the permanent law
that it can borrow from any of the other three trust funds or from the General
Fund of the Treasury. (A temporary borrowing authority, which exists for 1982
only, will be discussed later.) Any assets of the trust funds which are not
needed for immediate payment of benefits or administrative expenses are invested
in interest-bearing government obligations, and relatively small working cash
balances are maintained.
The income from payroll taxes for the OASI, DI, and HI Trust Funds tends to
be spread rather evenly throughout each month (although not equally throughout
the months of the year, with somewhat more being collected in the early months
than in the later ones, due to the effect of the maximum taxable earnings base).
The vast majority of the benefit payments from the OASI and DI Trust Funds are
made at the beginning of each month. In contrast, the outgo of the HI and SMI
Trust Funds tends to be more or less evenly spread throughout the month.
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As a result of these different flows of income and outgo, the three trust
funds which are supported primarily by payroll taxes have somewhat different
financial situations during the month. The OASI and DI Trust Funds must have
sufficient assets during the first few days of each month to meet the full
amount of monthly benefit checks sent out then. Benefit checks cannot be
transmitted to the beneficiaries unless sufficient payroll-tax and other income
has been received to build up the trust-fund balance to the necessary level.
The HI Trust Fund need have only a very small balance at the beginning of the
month in order to reimburse hospitals and other providers of services in a
proper manner, because both its income and outgo are evenly spread throughout
the month.
The SMI Trust Fund, too, need have only a very small balance at the end of
each month, because it receives the vast majority of its enrollee-premium income
at the beginning of the month (through automatic deductions from monthly OASDI
benefit checks).
FUNDING PROCEDURES FOR THE TRUST FUNDS
Under present law, the OASI, DI, and HI Trust Funds are financed almost
entirely from the OASDI-HI taxes levied on employers, employees, and the
self-employed. Eacn or these trust funds receives relatively small payments
from the General Fund of the treasury as reimbursement for the cost of benefits
Appendix J, page 3
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for certain special closed groups of persons.!/ This self-supporting financing
principle has, on the whole, been applicable to the OASI, DI, and HI programs
ever since their inception. For a short period in the late 1940s, the financing
basis was rather indeterminate, because provision was made for payments from the
General Fund of the Treasury, if needed. This provision was never used, and it
was repealed in 1950.
In the early years, the OASI program was funded on a modified-reserve
basis. It was intended that a sizable fund would be built up, so that interest
earnings could help to finance the outgo. This basis would by no means result
in a "fully-funded" system.
Over the years, the original emphasis on building up and maintaining a
large fund was reduced. Gradually, the funding basis shifted, in practice, to
what might be called a current-cost or pay-as-you-go basis. The intent under
such a basis is that income and outgo should be approximately equal each year
and that a fund balance should be maintained which will be only large enough to
meet cyclical fluctuations both within the year and also over economic cycles
which have durations of several years. There is no established rule as to the
desirable size of a contingency fund, although the general view is that it
should be an amount equal to between 6 and 12 months' outgo.
The financial status of the OASI, DI, and HI Trust Funds has always been
evaluated over a long future period. For the OASI and DI Trust Funds, 75 years
Appendix J, page 4
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is used (although prior to 1965, a longer period -- namely, into perpetuity --
was used). The valuation period for the HI program is 25 years, although
estimates for a 75-year period have been made. The shorter valuation period for
the HI program was adopted because of the greater uncertainty about future
trends of hospital costs.
The actuarial valuation of the SMI program is on an entirely different
basis, because it is, in essence, a "one-year term" plan. The valuation
procedure used compares the assets on hand with the accrued, but unpaid claims
(and associated administrative expenses).
MEASURES OF ACTUARIAL OR FINANCIAL SOUNDNESS
Several measures have been developed to determine the actuarial status or
financial soundness of the programs. Some of these relate essentially to the
short-range period (the next 5-10 years), whereas others relate to the valuation
period used for the particular program.
Short-Range Measures of Soundness
Undoubtedly, the primary measure of short-range soundness is that the
particular trust fund should always have at least enough assets to meet current
expenditures.
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A measure frequently used for measuring both the short-range and long-range
financial status of the OASI, DI, and HI Trust Funds is the "fund ratio". This
is defined as the trust-fund balance at the end of a month expressed as a
percentage of total outgo during the next 12 months.?/
It is usually stated that the OASI and DI Trust Funds must have fund ratios
of at least 8% or 9% as the minimum possible for monthly benefits to be paid on
time. Much more desirably, the "bare minimum" size should not be below some
higher figure, such as 15% (or perhaps 20%) so as to provide a "cushion" against
the effects of adverse economic conditions. The 8-9% figure for the OASI and DI
Trust Funds is derived from the fact that, if outgo during the year were spread
equally over each month, the monthly disbursements would be 8-1/3% of annual
outgo. Accordingly, this amount would have to be on hand at the beginning of
the year in order to meet the benefit payments due in a few days.3/
Benefit outgo tends to rise during a calendar year (primarily because of
the automatic increase in benefits for June and the gradual growth of the number
of persons on the benefit rolls). Also, in the early months of a calendar year,
tax income tends to be relatively higher than in later months of the year (due
to the effect of the maximum taxable earnings base and the payment of a
relatively large portion of the self-employment taxes in April). Accordingly,
the fund ratio could be as low as 7% at the beginning of a year, and yet the
program could meet all of its benefit obligations as they fall due if the level
of tax income during the year (which does not enter into the computation of the
Appendix J, page 6
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fund ratio) is sufficiently high. This could occur either because of an
increase in the tax rate or because of better economic conditions. The crucial
factor under such circumstances would be the fund ratio which would be reached
at the end of the year, which should be at a level of at least 8-9%.
The minimum fund ratio for the HI Trust Fund can be considerably lower than
the 9% used as the standard for the OASI and DI Trust Funds. It could be argued
that a relatively large fund ratio for the HI Trust Fund might be desirable,
because of the somewhat greater possible cost fluctuations and uncertainties of
this program as compared with the OASDI program. However, the minimum fund
ratio at the beginning of a year needed in order to assure prompt reimbursement
of providers of services can be as little as 1% -- as long as, in the coming
year, tax income will be at least as large as outgo during the year.!/
Long-Range Measures
One measure of the long-range financial status of the OASI, DI, and HI
Trust Funds is to compare the "average cost rate" with the "average tax rate"
over the valuation period. The "cost rate" for any particular year is the outgo
for benefits and administrative expenses expressed as a percentage of effective
taxable payroll.5/ The "average cost rate" is the sum of the annual cost rates
for the valuation period divided by the number of years therein. Similarly, the
"average tax rate" is the average of the combined employer-employee tax rates
for each of the years in the valuation period. When the average cost rate
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exceeds the average tax rate for the valuation period, there is a lack of
actuarial balance, expressed as a percentage of taxable payroll.
FINANCIAL STATUS OF OASI AND DI TRUST FUNDS
This section will examine the financial status of the OASI and DI Trust
Funds in past years, their current status, and their outlook over both the short
range and the long range.
Past Operations
Table 1 shows the year-end balances of each of the four trust funds for
various past years. The OASI Trust Fund increased slowly during the early
1970s, reaching a maximum in 1974. Thereafter, its balance decreased steadily.
The decline would have been even more rapid in 1980-81 if it had not been for a
reallocation of the combined OASDI tax rate, so that a larger proportion went to
the OASI Trust Fund (P.L. 96-403, October 9, 1980). As a result, almost $9
billion was, in essence, transferred from the DI Trust Fund to the OASI Trust
Fund.
At the end of October 1982, the balance in the OASI Trust Fund amounted to
$10.0 billion -- about $1 billion less than the amount needed to pay benefits in
early November. As a result, the inter-fund borrowing of $.6 billion from the
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BALANCES IN TRUST FUNDS AT END OF VARIOUS PAST YEARS
(in billions)
Calendar
Year
OASI
DI
OASDI
HI
SMI
Total
1970
$32.5
$5.6
$38.1
$3.2
$.2
$41.5
1971
33.8
6.6
40.4
3.0
.5
43.9
1972
35.3
7.5
42.8
2.9
.6
46.3
1973
36.5
7.9
44.4
6.5
1.1
52.0
1974
37.8
8.1
45.9
9.1
1.5
56.5
1975
37.0
7.4
44.4
10.5
1.4
56.5
1976
35.4
5.7
41.1
10.6
1.8
53.5
1977
32.5
3.4
35.9
10.4
3.1
49.4
1978
27.5
4.2
31.7
11.5
4.4
47.6
1979
24.7
5.6
30.3
13.2
4.9
48.4
1980
22.8
3.6
26.4
13.7
4.5
44.6
1981
21.5
3.0
24.5
18.7
5.9
49.1
08/31/82
14.3
6.3
20.6
20.9
5.8
47.3
09/30/82
12.5
6.8
19.3
20.8
5.8
45.9
10/31/82
10.0
6.9
16.9
20.5
5.9
43.3
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DI Trust Fund, authorized by P.L. 97-123 (December 29, 1981), was utilized to
make up the difference. In early December, $3.4 billion was borrowed from the
HI Trust Fund. In late December, an additional $13.5 billion was borrowed --
$4.5 billion from the DI Trust Fund, and the remainder from the HI Trust Fund.
From this time on (until corrective legislative action is taken), the OASI Trust
Fund will, in fact, have a negative balance in at least part of each
month -- when the assets on hand are measured against the outstanding loans from
the DI and HI Trust Funds.
It was not at all unexpected that borrowing would occur in late 1982. In
fact, the 1982 OASDI Trustees Report contains estimates which indicate that the
total borrowing of the OASI Trust Fund from the DI and HI Trust Funds during
1982 would amount to about $7-11 billion. The actual amount borrowed in 1982
was $17.5 billion. Almost all of this will be utilized in the first six months
of 1983, because the legislative action permitted no more to be borrowed in 1982
than would be necessary to meet the estimated outgo requirements through
June 1983.
The DI Trust Fund had a balance of $7.5 billion at the end of 1972, but
this decreased steadily thereafter, reaching $3.4 billion at the end of 1977.
Then, as a result of the reallocation of the OASDI tax rate in the 1977
Amendments (P.L. 95-216) to give more of the OASDI tax rate to the DI Trust Fund
(as discussed in more detail later), the balance increased -- reaching $5.6
billion at the end of 1979. Such balance was lower at the end of both 1980 and
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1981, as a result of the further revised allocation of the OASDI tax rate for
1980-81 mentioned previously -- reaching $3.0 billion at the end of 1981. The
DI Trust Fund increased during most of 1982 and had a balance of $6.9 billion on
October 31. However, by the end of the year its working balance (considering
only investments and cash accounts) was lower -- as a result of the loans made
to the OASI Trust Fund. From an accounting standpoint, however, the assets of
the DI Trust Fund should include the amount of such loans, and so its "true"
year-end balance will be significantly higher than its balance on October 31.
The balance in the OASI Trust Fund at the beginning of 1970 was
approximately equal to annual outgo -- i.e., a fund ratio of about 100% (see
Table 2). The fund ratio steadily decreased thereafter, reaching 15% at the
beginning of 1982. In the absence of inter-fund borrowing -- or, equivalently,
if the loans from the DI and HI Trust Funds were paid back at the beginning of
1983 -- the fund ratio then would be only about 4-6% (which would be
insufficient to pay benefits on time).
The DI Trust Fund had a fund ratio of 126% at the beginning of 1970. This
fell to 26% at the beginning of 1978 and then rose to 35% at the beginning of
1980. As a result of the revised allocation of the OASDI tax rate, it decreased
to only 16% at the beginning of 1982. However, at the beginning of 1983, the
fund ratio would be about 40% if the loans to the OASI Trust Fund are considered
as assets.
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Table 2
TRUST-FUND RATIOS AT BEGINNING OF VARIOUS PAST YEARS
Calendar
Year
OASI
DI
OASDI
HI
OASDI-HI
1970
101%
126%
103%
47%
96%
1971
94
140
99
54
93
1972
88
140
93
47
87
1973
75
125
80
40
76
1974
68
110
73
69
73
1975
63
92
66
79
68
1976
54
71
57
77
60
1977
47
48
47
66
50
1978
39
26
37
57
41
1979
30
30
30
54
34
1980
23
35
25
52
29
1981
18
21
18
45
23
1982
15
16
15
53
22
NOTE: The "trust-fund ratio" is the ratio of the balance in the Trust
Funds on a particular date to the outgo in the next 12 months.
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Actual Experience in 1978-81 as Compared with Estimates Made in 1977
The 1978 OASDI Trustees Report stated that the 1977 Amendments would
"restore the financial soundness of the cash benefit program throughout the
remainder of this century and into the early years of the next one." It was
further stated that, beginning in 1981, the short-range and medium-range annual
deficits of the trust funds would be eliminated. However, this did not
occur -- because of the adverse economic conditions during 1979-81, when prices
rose more rapidly than wages and unemployment was substantially higher than
anticipated (and despite the actual disability experience being more favorable
than had been estimated to occur).
The intermediate cost estimates for the OASDI Trust Funds that were made in
1977 for the law as then amended showed decreases in the fund balance in 1978-80
(a total drop of $8.0 billion), but a significant build-up in 1981 ($7.4
billion). In actuality, there were decreases of $9.4 billion in 1978-80 and of
$1.9 billion in 1981. The pessimistic estimate made in 1977 showed that income
and outgo would be in very close balance in 1981-84, but the actual economic
conditions have been worse, so that a substantial deficit occurred in 1981
instead, and much larger ones apparently are ahead.
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Short-Range Cost Situation
Under present law, the OASI Trust Fund will very likely be unable to pay
benefits on time beginning in July 1983. Table 3 compares the income (exclusive
of interest payments) and the outgo of the OASI Trust Fund for 1982-90, under
the intermediate cost estimate (Alternative II-B) and under the pessimistic cost
estimate (Alternative III). Under the intermediate estimate, the deficit of
income as against outgo is about $20 billion in most years. Under the
pessimistic estimate, the annual deficit increases from about $20 billion in the
early years to $55 billion in 1989 (and even in 1990, when there is a higher tax
rate, it is $43 billion).
The bleak picture for OASI changes somewhat when the DI program is also
considered. It will be recalled that, in the 1977 Amendments, the portion of
the OASDI tax rate which is allocated to the DI Trust Fund was increased
significantly, because of its unfavorable and worsening situation during 1970-75
and the expectation that this adverse trend would continue. Instead, beginning
in 1976, the disability experience became more favorable (although this was not
recognized in the cost estimates made at the time of the 1977 Amendments). In
addition, several legislative changes were made in 1977 and 1980 which resulted
in lower costs for the DI program. As a result, the DI Trust Fund had,
following 1977, very favorable net-income experience.
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Table 3
COMPARISON OF INCOME (EXCLUDING INTEREST) AND OUTGO
(in billions)
OAS I
Calendar Net
Year Income Outgo Income
DI OASDI,
Net Net
Income Outgo Income Income
Alternative II-B Estimate
1982
$124.9
$141.9
-$17.0 $22.3 $18.1 +$4.2 -$12.8
1983
137.4
156.5
-19.1 24.9 19.0 +5.9 -13.2
1984
152.3
173.0
-20.7 27.5 19.9 +7.6 -13.1
1985
172.4
190.9
-18.5 34.4 21.3 +13.1 -5.4
1986
187.8
208.5
-20.7 37.6 22.7 +14.9 -5.8
1987
203.4
226.3
-22.9 40.8 24.2 +16.6 -6.3
1988
220.2
244.5
-24.3 44.1 25.8 +18.3 -6.0
1989
237.3
263.2
-25.9 47.6 27.6 +20.0 -5.9
1990
272.4
282.2
-9.8 58.6 29.4 +29.2 +19.4
Alternative III Estimate
1982
$124.9
$141.9
-$17.1 $22.2 $18.1 +$4.1 -$13.0
1983
134.5
157.7
-23.2 24.3 19.1 +5.2 -18.0
1984
147.3
177.2
-29.9 26.6 20.3 +6.3 -23.6
1985
170.1
199.8
-29.7 33.9 22.2 +11.7 -18.0
1986
188.8
224.0
-35.2 37.8 24.3 +13.5 -21.7
1987
208.3
250.2
-41.9 41.8 26.5 +15.3 -26.6
1988
229.5
277.7
-48.2 46.0 28.9 +17.1 -31.1
1989
252.0
306.8
-54.8 50.5 31.6 +18.9 -35.9
1990
294.6
337.5
-42.9 63.4 34.4 +29.0 -13.9
Appendix J, page 15
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Both the intermediate and pessimistic cost estimates for 1982-90 show that
the DI Trust Fund will have steadily increasing annual net income (as shown in
Table 3). When the OASI and DI Trust Funds are considered in combination,6/
deficits of income over outgo remain, but of a much smaller magnitude than for
the OASI Trust Fund alone.
As Table 3 shows, even under the intermediate cost estimate, the net income
of the combined OASDI Trust Funds shows deficits during the remainder of the
1980s -- about $13 billion per year in 1982-84 and about $6 billion per year in
1985-89. In 1990, however, with the scheduled increase in the tax rate, a
positive net income of almost $20 billion is shown.
However, a quite different picture for the combined OASDI Trust Funds
during 1982-90 is shown under the pessimistic estimate. The annual deficits are
about $20 billion in the early years of the period and increase to $36 billion
by 1989. In 1990, even with the tax-rate increase, a deficit of $14 billion is
shown.
A somewhat more precise way to examine the financial status of the OASI
Trust Fund in the 1980s is to consider the increase in tax income -- or,
alternatively, the reductions in benefit outgo -- that would be required during
the period to reach certain alternative target levels of the fund ratios for the
OASDI Trust Funds by the beginning of 1988.x/
Appendix J, page 16
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Tables 4a and 4b present the estimates of the increase in tax income needed
for the OASDI Trust Funds -- or, alternatively, the decrease in benefit outgo
needed -- according to the intermediate and pessimistic cost estimates of the
1982 Trustees Report. The figures are only slightly different whether there are
increases in tax income or decreases in benefit outgo. Table 4c gives similar
data for two other pessimistic sets of economic assumptions.
To achieve a trust-fund ratio of 15% by 1988 would require additional tax
income or decreased benefit outgo (or a combination of both) of about
$200 billion under the pessimistic estimate. If a trust-fund ratio of 25% were
desired, the corresponding figure would be about $225 billion under the
pessimistic estimate. Under the intermediate cost estimate, the corresponding
figures are about $75 billion for a 15% fund ratio and $100 billion for a 25%
fund ratio. Quite obviously, if the additional financing were provided on the
basis of the pessimistic estimate, and if the economic experience is more
favorable, the trust-fund ratio which would be obtained by the end of the period
would be higher than the target -- a not undesirable result.
In some ways, the economic assumptions underlying Alternative III do not
seem to be realistic in view of current economic events, because both the
assumed CPI and wage increases are relatively high as compared with current
experience. Accordingly, it seems desirable to test the effect of lower assumed
future increases in the CPI and in wages, but with a pessimistic real-wage
differential (as is the case, for example, in Alternative III).
Appendix J, page 17
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
ESTIMATED TOTAL INCREASE IN OASDI TAX INCOME
REQUIRED DURING 1983-89 TO REACH ALTERNATIVE
TARGET LEVELS OF TRUST-FUND RATIOS BY BEGINNING
OF 1988, UNDER ALTERNATIVES II-B AND III
(IN BILLIONS)
1988 Trust-Fund Ratio of 15%
1988 Trust-Fund Ratio of 25%
Calendar
Year
Alternative II-B
Assumptions
Alternative III
Assumptions
Alternative II-B
Assumptions
Alternative III
Assumptions
1983
$22
$26
$24
$27
1984
15
26
20
32
1985
7
20
11
25
rD
1986
8
25
13
30
a
1987
8
30
14
39
1988
8
34
8
35
1989
7
40
8
40
CD
1983-89
75
201
98
00
NOTE: The "trust-fund ratio" is the ratio of the balance in the OASDI Trust Funds on a
particular date to the outgo in the next 12 months.
NOTE: The figures in this table do not include the repayment of the loan from the
HI Trust Fund to the OASI Trust Fund in 1982 (about $5 billion).
NOTE: The figures do take into account the effect of the Tax Equity and Fiscal
Responsibility Act of 1982 (P.L. 97-248).
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
N
cMOt00iN.Lnt0 t0
C.JC')N(VMI+)qr N
69 N
OOr)() -ct C)0 O1
N N .-I '-I .--i 01
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4-3 C)
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fo
N
C1
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OOOOOOCO
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CD
Appendix J, page 19
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
COMPARISON OF ADDITIONAL FUNDS NEEDED
TO BUILD UP FUND RATIO FOR OASDI PROGRAM
(in billions)
Calendar
Year
Alternative III
Estimate
Revised Pessimistic
Estimate
Commerce
Alternative 2
Estimate
1983
$26
$23
$23
1984
26
26
22
1985
20
20
15
1986
25
23
23
1987
30
26
41
1988
34
26
39
1989
40
29
41
1983-89
201
173
205
Appendix J, page 20
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Accordingly, two sets of revised economic assumptions have been prepared.
In the first set, the CPI increases in Alternative II-B have been assumed to
apply for what might be referred to as the "revised pessimistic" cost estimate,
because these CPI increases seem reasonable in light of current conditions
(although they may be a little on the high side). It has been assumed that the
real-wage differential of Alternative III is then applicable on top of these CPI
increases, and from these two elements, the wage increases have been determined.
The second set has been prepared by the Department of Commerce at the request of
the National Commission. The resulting cost estimates of the additional
resources needed are shown in Table 4c.
The result under the "revised pessimistic" cost estimate is that $173
billion in additional resources would be necessary in 1983-89 in order to have a
viable program and to attain a fund ratio of 15% at the beginning of 1988 and
thereafter. Under the Alternative 2 (or pessimistic) estimate of the Department
of Commerce, the corresponding figure is $205 billion, which is almost exactly
the same as that under the SSA Alternative III estimate. Thus, it may be seen
that this is another justification of the $150-200 billion amount agreed to by
the National Commission.
Long-Range Cost Situation
The long-range financial status of the OASDI program will first be
considered by looking at the estimated cost rates as compared with the combined
Appendix J, page 21
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
employer-employee tax rates, on a year-by-year basis. The National Commission
has agreed that the long-range costs to be considered should be based on the
intermediate cost estimate. The other cost estimates are discussed here so as
to indicate the possible effect of alternative conditions.
Under the intermediate cost estimate, beginning in 1990 (when the OASDI tax
rate is scheduled to increase significantly, and when a period of favorable
demographic conditions is almost certain to occur8/), the cost rates are smaller
than the combined employer-employee tax rates (see Table 5). This situation
continues for about the next two decades, with the excess generally ranging from
about 1% to 12% of taxable payroll. This period has been widely referred to as
one when the program will be running large excesses of income over outgo and, as
a result, building up large trust-fund balances.
A quite different picture is shown for the 1990s and early 2000s under the
pessimistic cost estimate. The OASDI tax rate during the 1990s and early 2000s
falls short of the cost rate each year by about 2% of taxable payroll (see
Table 5). Corresponding figures for the optimistic (Alternative I) estimate
are not shown in Table 5 on a year-by-year basis, but they are shown for 25-year
periods in Table 6; under this estimate, the OASDI tax rate during the 1990s and
early 2000s exceeds the cost rate each year by about 3% of taxable payroll.
Appendix J, page 22
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
ESTIMATED COST RATES OF OASDI PROGRAM UNDER ALTERNATIVES II-B
AND III AND COMPARISON WITH TAX RATES,
1982-2055
(as percent of taxable payroll)
OASDI
Alternative II-B
Alternative III
Calendar
Tax
Cost
Cost
Year
Ratea/
Rate
Differenceb/
Rate
Differenceb/
1982
10.80%
11.78%
-.98%
11.83%
-1.03%
1985
11.40
11.70
-.30
12.40
-1.00
1990
12.40
11.64
+.76
12.85
-.45
1995
12.40
11.42
+.98
12.97
-.57
2000
12.40
11.03
+1.37
12.82
-.42
2005
12.40
10.95
+1.45
12.97
-.57
2010
12.40
11.53
+.87
13.92
-1.52
2015
12.40
12.82
-.42
15.76
-3.36
2020
12.40
14.44
-2.04
18.17
-5.77
2025
12.40
15.97
-3.57
20.70
-8.30
2030
12.40
16.83
-4.43
22.63
-10.23
2035
12.40
17.02
-4.62
23.94
-11.54
2040
12.40
16.80
-4.40
24.80
-12.40
2045
12.40
16.66
-4.26
25.80
-13.40
2050
12.40
16.72
-4.32
26.93
-14.53
2055
12.40
16.81
-4.41
27.87
-15.47
Averages
1982-2006
12.01
11.37
+.64
12.73
-.72
2007-31
12.40
14.08
-1.68
17.84
-5.44
2032-56
12.40
16.81
-4.41
25.66
-13.26
1982-2056
12.27
14.09
-1.82
18.74
-6.47
a/ For employer and employee combined.
b/ Tax rate minus cost rate. Positive differences are referred to as
cash-flow surpluses, and negative differences as deficits.
NOTE: These estimates do not take into account the effect of the Tax
Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248). If
this had been done, the cost rates would have been slightly lower.
SOURCE: Tables 27 and 29 of the 1982 OASDI Trustees Report.
Appendix J, page 23
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
COMPARISON OF ESTIMATED AVERAGE COST RATE WITH AVERAGE TAX RATE
BY ALTERNATIVE AND TRUST FUND
[As percent of taxable payroll)
Estimated average cost rate by
alternative Difference by alternative
OAST:
1982.2006.....
9.93
8.64
9.31
10.14
11.37
1.29
0.63
-0.21
-1.44
2007-31.........
10.20
9.84
11.58
12.43
15.83
.36
-1.38
-2.23
-5.63
2032-56.........
10.20
10.58
14.11
15.20
23.60
-.38
-3.91
-5.00
-13.40
19822056...
10.11
9.69
11.66
1259
16.93
.42
-1.55
.2.48
-6.82
Di
1982.2006.....
2.07
1.11
1.16
1.23
1.36
.97
.92
.85
.72
200'-31
2.2C
1.45
1.57
1_65
2.00
75
.63
.55
.20
2032.56..._.... ?
2.20
1.30
1.54
1.61
207
.90
.66
.59
13
1982-2056.....
2.16
1.29
1.42
1.50
1.81
.87
.73
.66
.35
Total
1982-2006.....
12.01
9.75
10.46
11.37
12.73
2.26
1.55
.64
-.72
22007-31.........
12.40
11.30
1315
14.06
17.64
1.10
-75
-1.66
-5.44
2032-56......_.
12.40
11.88
15.65
16.81
25.66
.52
-3.25
-4.41
-13.26
1982-2056.....
12.27
10.98
13.09
14.09
18.74
1.29
-.82
.1.82
-6.47
Note. The definitions of alternatives I. II-A, 11-B. and III, cost rate. tax rate, and taxable payroll are presen.ed in the
text. Totals do not necessarily equal the sum of rounded components.
ACTUARIAL BALANCE OF THE HOSPITAL INSURANCE PROGRAM,
UNDER ALTERNATIVE SETS OF ASSUMPTIONS a/
(Percent of Taxable Payroll)
Average contribution rate, scheduled
under present law b/
Average cost of the program, for
expenditures and for trust fund
maintenance c/
Actuarial balance
I
II-A
II-B
III
2.86%
2.86%
2.86%
2.86%
3.72 a/
4.49 a/
4.93 a/
6.59 a/
-0.86
-1.63
-2.07
-3.73
a/ Does not reflect the effect of the Tax Equity and Fiscal Responsibility Act of
1982 (P.L. 97-248). When the effect of this legislation is taken into account,
the average 25-year cost exclusive of trust-fund building and maintenance under
Alternative II-B is 4.34% of taxable payroll (as contrasted with the comparable
figure of 4.83% before enactment of such legislation).
b/ Average for the 25-year period, 1982-2006.
c/ Average for the 25-year period, 1982-2006, expressed as a percentage of taxable
payroll.
NOTE: Taxable payroll is adjusted to take into account the lower contribution
rates on self-employment income, on tips, and on multiple-employer "excess
wages" as compared with the combined employer-employee rate.
SOURCE: 1982 OASDI-HI Trustees Report.
Appendix J, page 24
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
In the period following 2010, under the intermediate cost estimate, the
OASDI tax rate tends to fall short of the cost rate by an increasing
margin -- beginning in 2030, by almost 42% of taxable payroll. Under the
pessimistic cost estimate, the excess of the cost rate over the tax rate
steadily increases, until it reaches somewhat over 15% of taxable payroll. On
the other hand, under the optimistic cost estimate, the OASDI tax rate exceeds
the cost rate until about 2025; it is lower for the next 10 years, but once
again is higher (by about 1% of taxable payroll at the end of the 75-year
valuation period).
Over the entire 75-year valuation period, the average OASDI cost rate
exceeds the average combined employer-employee tax rate by 1.82% of taxable
payroll in the intermediate cost estimate of the 1982 Trustees Report (see
Table 6).9/ It may be noted that 1.82% of the total taxable payroll in 1982 was
about $25 billion per year.
The long-range actuarial imbalance is almost 62% of taxable payroll under
the pessimistic cost estimate. The optimistic cost estimate (Alternative I)
shows a favorable actuarial balance of 1.29% of taxable payroll, while the more
optimistic of the two intermediate cost estimates (Alternative II-A) shows an
actuarial deficiency of .82% of taxable payroll.
When successive 25-year periods are considered, the intermediate cost
estimate for the OASDI program shows a small positive balance (.64% of taxable
Appendix J, page 25
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
payroll) for the first period. This occurs because the "deficits" of income
over outgo in the 1980s are more than offset by the "surpluses" following 1990
(and up through 2006). Increasingly larger deficits are shown for the next two
25-year periods -- 1.68% of taxable payroll for the second period and 4.41% of
taxable payroll for the third period. The deficit in the second period is 12%
of the average cost rate (which means that, if benefit. outgo were to be
decreased sufficiently to be financed by the average tax rate, a reduction of
12% would be necessary). The deficit for the third period is 26% of the average
cost rate.
When the first 50-year period is considered as a whole, there is a
"deficit" of income over outgo of .52% of taxable payroll for the OASDI program,
according to the intermediate cost estimate. The corresponding figure for the
pessimistic cost estimate is a "deficit" of 3.08% of taxable payroll, while
under the optimistic estimate, there is a "surplus" of 1.68% of taxable payroll.
It is important to note that, if an economic stabilizing mechanism (such as
is described in Chapter 2) were in effect in the 1990s and after, then the
adverse results shown for present law under the pessimistic cost estimate would
not occur. Rather, there would be excesses of tax income over outgo for benefit
payments and administrative expenses throughout the period.
The estimated significant annual excesses of the OASDI tax rate over the
cost rate in the 1990s and early 2000s result in a sizable build-up of
Appendix J, page 26
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
trust-fund assets under the intermediate cost estimate (assuming that, in the
1980s, the deficits occurring then were financed in some manner, even though
they might be repaid later). Table 7 indicates that a fund ratio of about 180%
is estimated to occur between 2010 and 2015, but thereafter it decreases rapidly
until the fund would be exhausted shortly after 2025. Under the pessimistic
cost estimate, the OASDI fund ratio would never become positive, because the
cost rates always exceed the tax rates. Quite naturally, under the more
optimistic of the cost estimates, the cost rates are lower than the tax rates in
almost all years after 1990, and so the fund ratio increases steadily over the
75-year valuation period.
Effect of the Real-Wage Differential
Perhaps the most significant economic factor affecting costs in the
actuarial estimates for the OASDI program is the real-wage differential, which
is (1) the annual percentage increase in wages and salaries in covered
employment, minus (2) the annual percentage increase in the CPI(W). The
assumptions for the differential are based primarily on a projection of
historical trends, which in turn reflect productivity gains and the factors that
link such gains with the real-wage differential. Such differential has a direct
effect on the cost estimates, but the associated assumptions for productivity
gains and the factors linking such gains with the real-wage differential (as
discussed in the next paragraph) do not have a direct effect on the long-range
cost estimates expressed as a percentage of taxable payroll.
Appendix J, page 27
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Table 7
ESTIMATED TRUST FUND RATIOS BY ALTERNATIVE AND TRUST FUND, CALEN-
DAR YEARS 1982-2060
1982_ .................
15
16
15
15
16
15
15
16
15
15
16
15
1983............ _......
10
8
10
10
8
10
11
8
10
11
8
11
1984 ....................
1
48
6
(')
47
4
(')
43
3
(')
39
1
1985 ....................
-7
98
4
-11
93
(')
(9
84
-4
(')
71
(9
1986 ....................
-10
178
9
-18
169
(')
(')
148
-7
(')
125
(+)
1987 ..................
-10
265
17
-24
253
3
(')
217
-10
(')
181
(9
1988 ....................
-9
359
27
-28
342
8
(')
288
-13
(')
239
(')
1989 ...................
-6
464
40
-30
432
15
(')
361
-16
(')
297
(9
1990 ....................
(')
567
56
-32
524
22
(')
436
-19
(9
356
(9
e=1 ._._ .............
15
696
82
-26
642
39
(')
536
-13
(')
436
(')
1992.........__.......
31
811
110
-18
753
58
(9
631
-7
('l
509
(')
1993 ....................
47
934
138
-10
859
77
(')
723
(')
(')
577
(9
1994 ....................
65
1,041
167
(')
961
97
(')
812
7
(')
643
(')
1995 ....................
84
1,137
197
8
1,054
116
19
895
15
(+)
705
(9
1996 ....................
104
1,208
228
18
1,122
136
(')
959
23
(+j
755
(9
1997 ....................
127
1,278
260
29
1,187
157
(+)
1,019
32
(9
799
(')
1998 ....................
150
1,345
293
41
1,247
178
(9
1.076
42
(')
837
(')
1999_ ..................
175
1,411
326
52
1,317
200
(')
1,130
53
(')
871
(')
2000 ....................
202
1,468
362
67
1,369
223
(9
1,178
64
1')
900
(')
2001 ....................
232
1,532
400
82
1,421
247
(9
1,227
76
(')
927
(9
2002 ....................
262
1,589
438
99
1,467
271
(9
1.270
89
19
951
(+)
2003 ....................
293
1,630
474
116
1,502
295
(9
1.303
102
(')
967
(')
2004 ....................
324
1,656
510
133
1,526
317
(9
1,327
115
(')
977
(')
2005 ....................
354
1,656
542
149
1,531
338
(9
1,332
128
19
976
(9
2006 ....................
384
1,702
576
165
1,568
358
(+)
1,366
140
(')
991
('1
201D.. ..................
485
1,797
684
216
1,645
419
(+)
1,435
177
(')
1,005
(')
2015 ....................
539
1,967
745
224
1,779
434
(')
1,549
177
(+)
1,033
(')
2020 ....................
520
2,198
739
168
1,962
387
(9
1,703
125
(+)
1,076
(9
2025 ....................
457
2,549
698
67
2,240
300
(')
1,938
31
(')
1,162
(')
2030 ....................
386
3,000
662
(9
2,595
196
(')
2,241
(')
(')
1,287
(')
2035 ....................
332
3,410
651
(')
2,902
89
(9
2,504
(')
1')
1,390
(9
2040 ...................
304
3,735
675
(+)
3,123
(')
(')
2,693
(9
(')
1,456
(')
2045 ....................
298
4,031
719
(')
3,295
(')
('1
2,837
(')
(')
1,515
(')
2050 ....................
301
4,443
766
(9
3,558
(+)
(9
3,061
(')
(')
1,619
(9
2055 ....................
305
4,942
811
(')
3,873
(')
(9
3,330
(')
(9
1,758
(')
2060 ....................
311
5,435
860
(9
4,168
(9
(9
3,582
(9
(')
1,910
(9
Trust fund is
projected to
be firs, ex-
hausteo in:......
1983
(4)
1983
1983
(4)
1983
1983
(9
1983
1983
(')
1983
!Between -0.5 percent and zero.
'The fund is projected to be exhausted and not to recover before the end of the projection period.
'Between zero and 0.5 percent.
'The fund is not projected to be exhausted within the projection period.
Note: The ratios shown after the year in which a given fund is projected to be
exhausted are theoretical and are shown for informational purposes only.
In addition, the ratios for the total of the OASI and DI Trust Funds after
1982 are theoretical, because under the current law after 1982, the assets
of one fund cannot be borrowed by another fund. The money assumed to be
borrowed by the OASI Trust Fund in December 1982 is assumed to be repaid
in 1992 under Alternative Is in 1998 under Alternative II-A, and not at any
time in the long-range projection period under Alternatives II-B and III,
although interest is assumed to be paid on a current basis. The assets
used to compute the fund ratios are the gross assets, before taking into
account the loans which occurred in 1982. If that had been done (i.e.,
considering the het assets), the OASI fund ratios would have been smaller,
and the DI and HI fund ratios would have been larger.
Note: These estimates do not take into account the effect of the Tax Equity
and Fiscal Responsibility Act of 1982 (P.L. 97-248). If this had been
done, the fund ratios would have been slightly higher.
Source: Table 32 in 1982 OASDI Trustees Report.
Appendix J, page 28
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Such assumptions for productivity gains and the related linkage factors
have been used, as a subsidiary procedure, to obtain estimates of the Gross
National Product. Then, the long-range OASDI costs have then been expressed as
a percentage of GNP. However, for the purpose of planning the financing of the
OASDI program, by far the most important and critical measure is the
relationship with taxable earnings, because the tax rates which finance the
program are applied to such earnings.
The most important linkage factors between real-wage growth and
productivity are the following: (1) relative growth of nontaxable fringe
benefits as a proportion of total compensation, (2) the average number of hours
worked per week, and (3) the average number of weeks worked per year. In the
intermediate cost estimate (Alternative II-B), when GNP was estimated from the
primary assumptions as to real-wage differentials, the result of the linkages
was an ultimate (1992 and after) rate of productivity gains of 2.2% per year.
This figure was derived from the real-wage differential of 1.5% per year by
increasing it by .4% for the relative annual growth of fringe benefits, by .2%
for the average number of hours worked per week, and by .1% for the average
number of weeks worked per year (the net effect of other linkage factors than
the three which were used was considered to be negligible).
Consideration of these two figures can lead to greatly different
conclusions. On the one hand, it could be argued that the difference of .7%
between productivity gains and real-wage growth is too large and that,
Appendix J, page 29
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therefore, the real-wage differential used should be higher than 1.5% -- which
would produce a considerably more favorable financial picture for the OASDI
program than is currently estimated. On the other hand, it could be argued that
the assumed ultimate productivity rate of 2.2% is too high and that then either
(1) the several linkage factors are overstated, and the real-wage differential
of 1.5% is satisfactory, or (2) the linkage factors are appropriate, but the
real-wage differential should be lower than 1.5% -- which would produce a
considerably less favorable financial picture for the OASDI program than is
currently estimated.
The estimates of GNP that have been derived from the basic actuarial cost
estimates expressed as percentages of taxable payroll can be used to compare the
cost of the OASDI system with GNP. According to the intermediate cost estimate,
such cost is currently about 5.2% of GNP and will decrease slowly for the next
20 years, reaching a low of about 4.4%. It will increase to 6.1% in 2030, and
then again decline slowly, to about 5.5% at the end of the 75-year valuation
period.
Under the pessimistic estimate, the cost of the OASDI program as a
percentage of GNP remains relatively level at slightly more than 5% for the next
25 years, but it continuously increases thereafter to about 8.6% at the end of
the valuation period. On the other hand, under the optimistic cost estimate
(Alternative I), such ratio decreases slowly in the next few years, reaching a
minimum of slightly less than 4% of GNP after 20 years and then slowly rises to
Appendix J, page 30
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somewhat more than 5% in the 2020s; thereafter, it decreases to somewhat less
than 43'2% ultimately.
FINANCIAL STATUS OF HI TRUST FUND
This section will briefly examine the financial status of the HI Trust Fund
in past years, its current status, and its outlook over both the short range and
the long range. Also considered will be the combined cost rates for the OASDI
and HI programs over the 75-year OASDI valuation period.
Past Operations
The balance of the HI Trust Fund has built up steadily over the years and
was almost $21 billion at the end of October 1982 (see Table 1). At times (such
as in 1970-72 and 1975-77), the balances were relatively level, as a result of
the offsetting effects of periodic increases in the tax rates and the continuous
increases in hospital costs. Since 1970, the trust-fund ratio for the HI
program has generally been between 50% and 70% (see Table 2).
During December 1982, the HI Trust Fund loaned a significant amount to the
OASI Trust Fund (for the reasons described earlier). Such loans are, of
course, part of the assets of the HI Trust Fund, even though they are not
immediately available to meet outgo, and should be so considered in analyses of
its financial condition.
Appendix J, page 31
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Short-Range Cost Situation
Under the intermediate cost estimate, the balance in the HI Trust Fund is
estimated to increase for several years -- in large part because of the tax-rate
increase in 1981 and the increases that are scheduled for 1985 and 1986.
However, under this estimate, beginning in 1988, the balance will begin to fall,
and in 1991 it will be exhausted.10/ Under the pessimistic cost estimate, the
fund balance will remain relatively level during 1983-86, but will then decrease
rapidly and will be exhausted in 1988.
Long-Range Cost Situation
Table 8 compares the estimated cost rates of the HI program with the
combined employer-employee tax rates over the next 75 years, according to the
intermediate cost estimate.il/ After the relatively favorable situation in the
next few years, the cost rate increasingly exceeds the tax rate. About 50 years
from now, the differential is somewhat more than 8% of taxable payroll -- or, in
other words, the cost rate at that time is almost four times as high as the
combined employer-employee tax rate. In the 25-year valuation period used for
the HI program, the excess of the cost rate over the tax rate is about 1z% of
taxable payroll.
Table 6 presents the actuarial balances of the HI program over its 25-year
valuation period for the several alternative cost estimates. The actuarial
Appendix J, page 32
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Table 8
Calendar
Year
1982
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
Averages
1982-2006
2007-31
2032-56
1982-2056
ESTIMATED COST RATES OF HI AND OASDI-HI PROGRAMS UNDER
ALTERNATIVE II-B AND COMPARISON WITH
TAX RATES, 1986-2055*
(as percent of taxable payroll)
HI Program
OASDI-HI Program
Cost
Tax
Cost
Tax
Rate!/
Rateb/
Differencec/
Rate
Rateb/
Difference/
2.97%
2.60%
-.37%
14.75%
13.40%
-1.35%
2.74
2.70
-.04
14.44
14.10
-.34
3.51
2.90
-.61
15.15
15.30
+.15
4.47
2.90
-1.57
15.89
15.30
-.59
5.38
2.90
-2.48
16.41
15.30
-1.11
6.29
2.90
-3.39
17.24
15.30
-1.94
7.20
2.90
-4.30
18.73
15.30
-3.43
7.94
2.90
-5.04
20.76
15.30
-5.46
8.89
2.90
-5.99
23.33
15.30
-8.03
9.93
2.90
-7.03
25.90
15.30
-10.60
10.76
2.90
-7.86
27.59
15.30
-12.29
11.17
2.90
-8.27
28.19
15.30
-12.89
11.29
2.90
-8.39
28.09
15.30
-12.79
11.21
2.90
-8.31
27.87
15.30
-12.57
11.19
2.90
-8.29
27.91
15.30
-12.61
11.17
2.90
-8.27
27.98
15.30
-12.68
4.34
2.86
-1.48
15.71
14.87
-.84
8.78
2.90
-5.88
22.86
15.30
-7.56
11.19
2.90
-8.29
28.00
15.30
-12.70
8.10
2.89
-5.21
22.19
15.16
-7.03
!/ These cost rates do not include any allowance for building up and maintaining
the trust-fund ratio at 50% (which would require an additional .10% of taxable
payroll in 1982-2006).
For employer and employee combined.
Tax rate minus cost rate. Positive differences are referred to as cash-flow
surpluses, and negative differences as deficits.
NOTE: These estimates for OASDI do not take into account the effect of the Tax
Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248), but those for
HI do take this legislation into account. If this had been done, the
cost rates for OASDI-HI would have been slightly lower.
SOURCE: Table 27 of the 1982 OASDI Trustees Report and Table 8 of the 1982 HI
Trustees Report (extended beyond 2005 by Health Care Financing
Administration under assumption that, then, hospital costs rise at the
same rate as wages), in all cases reduced to allow for the effect of P.L.
97-248 (a reduction of about 10/% in all years after 1982).
* See views of Commissioners Ball, Keys, Kirkland, Moynihan, and Pepper as
to the undesirability of cost estimates for the HI program going further
than 25 years into the future, in Chapter 4.
Appendix J, page 33
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imbalance of about 12% of taxable payroll according to the intermediate cost
estimate can be compared with a figure of about 3% under the pessimistic
estimate (after allowance has been made in each case for the effect of the Tax
Equity and Fiscal Responsibility Act of 1982, whose effect is not included in
Table 6) -- or, similarly, of about 2% of taxable payroll under the more
optimistic cost estimate.
Cost Rates for Combined OASDI-HI Programs
Table 8 shows the year-by-year cost rates and combined employer-employee
tax rates on a year-by-year basis for the OASDI and HI programs combined,
according to the intermediate cost estimate. In almost all years in the 75-year
period considered, the cost rate exceeds the tax rate -- and by increasing
amounts following 1990. This deficit levels off at about 122% of taxable
payroll, beginning some 50 years hence. In this ultimate situation, the cost
rate is about 80% higher than the combined employer-employee tax rate.
FINANCIAL STATUS OF SMI TRUST FUND
This section will examine briefly the financial status of the SMI Trust
Fund in past years and its current status. No discussion will be given as to
its long-range future outlook, because its financing basis is essentially on a
"one-year term" basis, and its benefit provisions are not automatically adjusted
Appendix J, page 34
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for changing economic conditions -- as are many of the provisions of the OASDI
and HI programs. In the past, some of the benefit provisions of the SMI program
have been adjusted on an ad hoc basis.
The balance in the SMI Trust Fund increased from a relatively small amount
in 1970 to almost $6 billion at present (see Table 1). As of June 30, 1981, the
total assets of the SMI Trust Fund amounted to $3.8 billion, as compared with
estimated liabilities for the cost of the benefits incurred in the past and
still payable (but then unpaid) and the associated administrative expenses of
$4.0 billion. This small deficiency of $200 million represented only 1% of the
estimated total incurred expenditures for the following year. It is estimated
that, as of June 30, 1982, the assets on hand exceeded the incurred liabilities
by about $800 million, or 4% of the estimated total incurred expenditures for
the next 12 months.
Accordingly, it can properly be stated that the actuarial status of the SMI
Trust Fund in recent years and currently is satisfactory under any standard
considered (i.e., both on a cash basis and, more importantly, on an accrual
basis).
Appendix J, page 35
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FOOTNOTES
1/ For example, non-insured persons who were aged 65 or over at the inception
of the HI program (who were "blanketed-in" for such benefits) and certain
persons who were aged 72 or over before the mid-1970s (who were
"blanketed-in" for monthly benefits at a uniform rate). (Not included in
this context as payments from the General Fund of the Treasury are the
matching employer contributions or similar payments for members of the
armed forces and certain Federal civilian employees, because they are more
properly considered as employer taxes.)
2/ Occasionally, a retrospective fund ratio is used, which is based on the
outgo in the preceding 12 months, so as to utilize actual data for both
3/ Actually, slightly less than such amount would be sufficient, because the
payroll-tax receipts in the first few days of the month would be available.
4/ The HI program has financial patterns within the calendar year. Outgo
tends to be lower in the early part of the year, because of the effect of
the initial deductible and because of the effect of the increasing trend of
hospital costs over the years. There are other offsetting factors such as
higher hospital utilization in winter months than in the remainder of the
year. However, any seasonal outgo effects are more than offset by
Appendix J, page 36
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the relatively larger income in the early months of the year than in the
later months, for the same reasons as is the case for the OASDI Trust
Funds.
5/ Adjustment is made for such factors as that the self-employed pay less than
the combined employer-employee tax rate.
6/ Such consideration of the two trust funds combined can be interpreted as
there being either (1) permanent interfund borrowing permitted or (2) a
reallocation of the OASDI tax rate which would increase the portion thereof
assignable to the OASI Trust Fund. It would seem that, because the DI
program appears to have more than sufficient financing, not only in the
recent past, but also for the long-range future, such a reallocation of the
OASDI tax rate is both feasible and desirable.
7/ Such analysis is performed by considering the combined OASDI Trust Funds.
This is done because it may be desirable that the estimated future
overfinancing of the DI program shown by the current cost estimates should
be diverted to the OASI program (by increasing the proportion of the OASDI
tax rates which is allocated to OASI), so that they are on a comparable
financing basis.
8/ At that time, those reaching retirement age will be the survivors of those
born in the late 1920s and the 1930s, when the numbers of births per year
Appendix J, page 37
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were lower than before 1925 or after 1939. At the same time, the
post-World War II baby boom population will be at the working ages.
9/ This actuarial deficiency has currently been revised downward -- to 1.80%
of taxable payroll -- when account was taken of (a) the actual benefit
increase for June 1982 (which was slightly smaller than that estimated in
the Trustees Report) and (b) the effect of the Tax Equity and Fiscal
Responsibility Act of 1982 (P.L. 97-248).
10/ It should be noted that the financial outlook for the HI Trust Fund as
discussed here is somewhat more favorable than shown in the 1982 HI
Trustees Report. This is the result of including in the data discussed
here the effect of the Tax Equity and Fiscal Responsibility Act of 1982,
which significantly improved the short-run financial situation of the HI
program (by covering Federal employees and restricting the reimbursements
somewhat).
11/ As previously mentioned, such long-range estimates are more subject to
variation for the HI program than for the OASDI program. The valuation
period used for the HI system in the 1982 HI Trustees Report is 25 years.
Appendix J, page 38
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Appendix K
Old-Age, Survivors, and Disability Insurance
and Hospital Insurance Programs
(Revised Version)
Actuarial Cost Estimates for OASDI and HI
and for Various Possible Changes in OASDI
Historical Data for OASDI and HI
National Commission on Social Security Reform
Washington, D.C.
December 1982
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TABLE OF CONTENTS
Introduction
Cost Analysis of Various Possible Changes
A. Coverage
B. Tax Rates
C. Alternative Sources of Revenues
D. Cost-of-Living Adjustments for Benefits in Payment Status
E. Level of Primary Benefits
F. Retirement Age
G. Disability Benefits
H. Proposals Affecting Primarily Women
I Other Options Regarding Benefit Changes
J. Taxation of Benefits
K. Other Issues
Tables of Historical Data
NOTE: Pages are numbered successively within each lettered
section for the various possible changes.
Appendix K, page 1
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INTRODUCTION
This background book was originally prepared for the meeting of the
National Commission on Social Security Reform on November 11-13, 1982. The
present version has been revised to reflect certain additional information that
became available after the meeting and to correct a few minor errors.
It presents actuarial cost estimates, for various possible changes in the
Old-Age, Survivors, and Disability Insurance program. The changes presented are
intended to represent an objective selection which covers all of the major
options open for resolving the short-range and long-range financing problems of
the OASDI program. Quite naturally, there are many permutations and
combinations of the several options -- varying by effective dates, benefit
percentages, normal retirement ages, etc. However, it is believed that the
changes presented are reasonably representative. The effect of different
proposals than these can usually be seen from the data presented here.
Also presented are a number of tables which show the past experience of the
OASDI and Hospital Insurance programs and their estimated future experience.
Attention is particularly directed to Tables 5 and 10, which address the short-
range problem, and to Tables 6, 7, and 8, which address the long-range problem.
The various cost estimates presented were prepared in most cases by the
Office of the Actuary, Social Security Administration.
The long-range cost effects of the various possible changes considered are
expressed as percentages of taxable payroll -- which makes them comparable with
payroll tax rates. For example, a long-term cost of +.38% of taxable payroll
means that, if this were to be financed by a level tax rate in all future years,
then a combined employer-employee rate of .38% would be required. This is done
rather than expressing them in terms of dollars, because of the difficulty of
expressing costs over long future periods of years in such terms when
assumptions of continuously rising wages and prices are involved. The taxable
payroll in 1982 is about $1.4 trillion (so that 1% of payroll would be $14
billion).
Notes:
(1) Increased cost is indicated by a plus (+) sign.
2) Cost reduction is indicated by a minus (-) sign.
(3) All estimates are on the basis of calendar years.
(4) All estimates are for the OASDI Trust Funds only, unless otherwise
indicated.
(5) A "0" means that the cost effect for the year is zero, while a ".0" means
that it is less than $50 million.
(6) References to "long-term" mean the years 1982-2056.
(7) Long-term estimates are on the basis of the Alternative II-B assumptions of
the 1982 OASDI Trustees Report.
(8) When all of the short-term cost figures are zero, no short-term cost table
is presented.
Appendix K, page 2
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SUMMARY OF SECTION A - COVERAGE
Option No. Description
A-1 Cover all Federal, State and
local, and nonprofit employees.
A-2 Cover all Federal and nonprofit
employees.
A-3 Cover all nonprofit employees and
all new Federal employees.
A-4 Cover all new State and local
employees.
A-5 Prohibit withdrawal from coverage
by State and local governments and
by nonprofit organizations by not
permitting notices to be filed
after 1983.
A-6 Prohibit withdrawal from coverage
by State and local governments
and by nonprofit organizations by
providing that any notice of
termination filed after 9/30/82
is invalid.
A-7 Eliminate windfall benefits for
persons with pensions from
noncovered employment.
A-8 Cover all nonprofit employees, -26 -29 -.31
all new Federal employees, and
all present Federal employees
with less than 5 years of service.
Note: Long-term costs are presented as a percentage of taxable payroll, for
OASDI only.
* Less than $500 million savings.
Appendix K, page 3
OASDI
Cost 1983-89
(billions)
Long-
Term
II-B
III
Cost
-$110
-$117
-.53%
-62
-68
-.31
-19
-21
-.30
-13
-14
-.24
+50
+53
n.a.
n.a.
n.a.
n.a.
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A. COVERAGE
Present law. OASDI coverage now applies to almost all types of employment.
The principal types of employment not covered are the following: (1)
employees of nonprofit organizations which have not elected such coverage
(about 15% of such employees), (2) permanent civilian employees of the
Federal government, and (3) employees of State and local governments which
have not elected coverage (about 30% of such employees).
Options.
A-1 Extend coverage to all Federal employees, State and local employees,
and employees of nonprofit organizations*, effective in 1984.**
Cost (in billions of dollars
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B, OASDI
0
-14.0
-16.7
-18.0
-19.3
-20.6
-22.0
-110.5
III, OASDI
0
-14.2
-17.0
-18.7
-20.5
-22.4
-24.4
-117.2
II-B, HI
0
-1.6
-2.0
-2.3
-2.5
-2.7
-2.9
-14.2
III, HI
0
-1.6
-2.0
-2.4
-2.6
-2.8
-3.1
-14.5
25-Year Cost, OASDI: -.70% of taxable payroll
50-Year Cost, OASDI: -.64% of taxable payroll
Long-Term Cost, OASDI: -.53% of taxable payroll
25-Year Cost, HI: -.25% of taxable payroll
Such organizations which have religious principles against any form of
government insurance would be permitted to opt out on a permanent basis.
** If the effective date were later than 1984, the long-term cost effect would
be about the same as shown. The short-term cost effects would be zero, of
course, for years before the effective date and about the same as shown for
the effective year and thereafter.
Appendix K, page 4
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A-2 Extend coverage to all Federal employees and all employees of nonprofit
organizations*, effective in 1984.**
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B, OASDI
0
-8.1
-9.2
-9.9
-10.7
-11.4
-12.2
-61.5
III, OASDI
0
-8.4
-9.8
-10.7
-11.8
-12.9
-14.1
-67.6
II-B, HI
0
-.2
-.3
-.3
-.3
-.3
-.4
-1.8
III, HI
0
-.2
-.3
-.3
-.3
-.4
-.4
-1.9
25-Year Cost, OASDI: -.40% of taxable payroll
50-Year Cost, OASDI: -.37% of taxable payroll
Long-Term Cost, OASDI: -.31% of taxable payroll
25-Year Cost, HI: -.02% of taxable payroll
A-3 Extend coverage to all employees of nonprofit organizations* and all
new Federal employees, effective in 1984.**
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B, OASDI
0
-1.2
-2.1
-2.7
-3.4
-4.2
-5.0
-18.6
III, OASDI
0
-1.2
-2.2
-2.9
-3.7
-4.7
-5.8
-20.6
II-B, HI
0
-.2
-.3
-.3
-.3
-.3
-.4
-1.8
III, HI
0
-.2
-.3
-.3
-.3
-.4
-.4
-1.9
25-Year Cost, OASDI: -.25% of taxable payroll
50-Year Cost, OASDI: -.34% of taxable payroll
Long-Term Cost, OASDI: -.30% of taxable payroll
25-Year Cost, HI: -.02% of taxable payroll
Appendix K, page 5
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Cost (in billions of dollars)
Estimate
1983
198x198
1986
1987
1989
1983-89
II-B, OASDI
0
-.3 -1.1
-1.8
-2.6
-3.3
-4.2
-13.3
III, OASDI
0
-.3 -1.0
-1.8
-2.6
-3.5
-4.5
-13.7
II-B, HI
0
-.1 -.2
-.5
-.7
-.9
-1.1
-3.5
III, HI
0
-.1 -.2
-.5
-.7
-.9
-1.1
-3.5
25-Year Cost, OASDI: -.23% of taxable payroll
50-Year Cost, OASDI: -.28% of taxable payroll
Long-Term Cost, OASDI: -.24% of taxable payroll
25-Year Cost, HI: -.23% of taxable payroll
A-5 Prohibit opting out of coverage of employees of State and local
governments and employees of nonprofit organizations by not permitting
withdrawal notices to be filed after 1983.
Cost (in billions of dollars)***
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B, OASDI
0
+.5
+4.0
+9.6
+11.2
+12.1
+13.1
+50.5
III, OASDI
0
+.5
+4.0
+9.8
+11.6
+12.6
+14.1
+52.6
*** It is estimated that such a provision would result in increased costs
over the short run, because the actuarial cost estimates assume that
many more entries would feel constrained to withdraw at once, before
they would no longer have the opportunity to do so. Long-term cost data
are not available, due to the diverse effects possible.
Appendix K, page 6
A-4 Extend coverage to all new State and local employees, effective 1984.**
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A-6 Prohibit opting out of coverage of employees of State and local
governments and employees of nonprofit organizations by providing that
any notice of termination filed after September 30, 1982 is
invalid.****
A-7 Eliminate "windfall" old-age and disability benefits for persons with
pensions from noncovered employment, effective for those becoming first
eligible after 1983 (in the absence of changes which would result in
universal coverage being applicable).
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-.0
-.0
-.0
-.0
-.1
-.1
-.2
III
0
-.0
-.0
-.0
-.0
-.1
-.1
-.2
25-Year Cost: -.00% of taxable payroll
50-Year Cost: -.03% of taxable payroll
Long-Term Cost: -.09% of taxable payroll
A-8 Extend coverage to all employees of nonprofit organizations*, to all
new Federal employees, and to all present Federal employees with less
than 5 years of service, as of January 1, 1984.
Cost (in billions of dollars)
Estimate
1983
1984
98~ 5
1986
1987
1988
1989
-1983-89
II-6
0
2.4
3.2
4.0
4.7
5.5
6.3
26.2
III
0
2.5
3.5
4.3
5.3
6.2
7.3
29.0
25-Year Cost: -.25% of taxable payroll
50-Year Cost: -.36% of taxable payroll
Long-Term cost: -.31% of taxable payroll
Cost estimates for the savings involved are not available, because the
actuarial cost estimates for the present program assume that no
withdrawals will occur. Obviously, this proposal will have significant
cost savings if it is enacted.
Appendix K, page 7
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SUMMARY OF SECTION B - TAX RATES
Option No. Description
B-1 Accelerate the 1990 OASDI tax
to 1984.
B-2 Accelerate the 1985 OASDI tax
to 1984.
B-3 Accelerate the 1985 and 1986
OASDI-HI tax rates to 1984.
B-4 Increase the OASDI-HI tax rate for
self-employed persons to the
combined employer-employee rate.
B-5 Reduce the 1990 OASDI tax rate
from 6.2% to 6.0% for 1990-2009.
B-6 Move the 1985 OASDI tax rate to
1984; for 1985-87, such rate would
be mid-way between the 1985 and
1990 tax rates in present law; for
1988 and after, such rate would be
the 1990 rate in present law.
B-7 Increase the OASDI tax rate on
employers and employees each by
1% in 2020.
B-8 Increase the OASDI tax rate on
employers and employees each by
1.25% in 2030.
B-9 Remove the taxable earnings base
for employers only.
B-10 Set a limit of 25% of total
compensation as to the amount
of fringe benefits not subject
to payroll tax. Tax-exempt
fringes in excess of such limit
would be subject to OASDI-HI tax
on only the employer and would
not be counted as creditable wages
for benefit purposes.
B-11 Maintain a constant OASDI tax
rate on total compensation,
effective 1990.
B-12 Make wages deferred under
Section 401(k) (salary reduction
plans) be subject to OASDI-HI tax.
n.a. = Not available.
OASDI
Cost 1983-89
(billions)
Long-
Term
II-B
III
Cost
-$133
-$135
-.09%
-10
-10
-.01
-19
-18
-.02
-18
-17
-.19
0
0
+.11
-86
-89
-.05
0
0
-.99
0
0
-.90
-41
-42
-.56
n.a.
n.a.
-.73
0
0
-1.56
n.a.
n.a.
n.a.
Appendix K, page 8
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B. TAX RATES
Present law. See Table 2 for schedule of OASDI-HI tax rates under present
law.
Options.
B-1
Accelerate the 1990 OASDI tax rate to 1984.*
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-25.1
-18.7
-19.7
-21.3
-23.1
-24.9
-132.8
III
0
-24.3
-18.4
-19.8
-21.8
-24.1
-26.4
-134.8
25-Year Cost: -.26% of taxable payroll
50-Year Cost: -.13% of taxable payroll
Long-Term Cost: -.09% of taxable payroll
B-2
Accelerate the 1985 OASDI tax rate to 1984.
Cost On billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-9.4
-.6
0
0
0
0
-10.0
III
0
-9.1
-.6
0
0
0
0
-9.7
25-Year Cost: -.02% of taxable payroll
50-Year Cost: -.01% of taxable payroll
Long-Term Cost: -.01% of taxable payroll
* In conjunction with this proposal, a portion of the OASDI-HI tax could be
made deductible for income-tax purposes or a tax credit provided -- the
portion would be such that the reduction in personal income taxes would
equal the additional OASDI-HI taxes paid by workers and employers. Thus,
there would be no effect on the overall Federal budget deficit.
Appendix K, page 9
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B-3 Accelerate the 1985 and 1986 OASDI-HI tax rates to 1984.**
Cost (in billions of dollars)
Estimate
1983
1
1985
1986
1987
1988
1989
1983-89
II-B, OASDI
0
-9.4
-.6
0
0
0
0
-10.0
III, OASDI
0
-9.1
-.6
0
0
0
0
-9.7
II-B, HI
0
-4.9
-3.8
-.2
0
0
0
-8.8
III, HI
0
-4.7
-3.8
-.2
0
0
0
-8.7
25-Year Cost, OASDI: -.02% of taxable payroll
50-Year Cost, OASDI: -.01% of taxable payroll
Long-Term Cost, OASDI: -.01% of taxable payroll
25-Year Cost, HI: -.02% of taxable payroll
B-4 Increase the OASDI-HI tax rate for self-employed persons to the
combined employer-employee rate, effective in 1984.***
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
i 9
II-B, OASDI
0
-.9
-2.8
-3.1
-3.4
-3.6
-3.8
-17.5
III, OASDI
0
-.8
-2.6
-3.0
-3.3
-3.6
-3.9
-17.3
II-B, HI
0
-.4
-1.3
-1.5
-1.7
-1.8
-2.0
-8.7
III, HI
0
-.4
-1.2
-1.5
-1.7
-1.8
-2.0
-8.6
25-Year Cost, OASDI: -.15% of taxable payroll
50-Year Cost, OASDI: -.17% of taxable payroll
Long-Term Cost, OASDI: -.19% of taxable payroll
25-Year Cost, HI: -.14% of taxable payroll
The figures shown assume that the taxes resulting from the 1986 increase in
the HI portion of the tax rate would go into the HI Trust Fund. It would be
possible to keep the HI tax rate under the proposal at the same level in
1984-85 as under present law and to reallocate the increase in the OASDI-HI
rate entirely to the OASDI Trust Funds; then, the cost effect for the OASDI
Trust Funds would be approximately the sum of the figures shown for OASDI
and HI.
*** In conjunction with this proposal, a refundable tax credit for the self-
employed equal to 25% of the self-employment tax could be provided.
Alternatively, 50% of the payroll tax paid by the self-employed could be
made tax deductible as a business expense.
Appendix K, page 10
396-938 0 - 83 - 14
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B-5 Reduce the 1990 OASDI tax rate from 6.2% on the employer and employee,
each, to 6.0% for 1990-2009. Return to the 6.2% rate in 2010.
25-Year Cost: +.27% of taxable payroll
50-Year Cost: +.16% of taxable payroll
Long-Term Cost: +.11% of taxable payroll
B-6 Move the 1985 OASDI tax rate to 1984; increase the 1985-87 OASDI tax
rate to mid-way between the 1985 and 1990 tax rates in present law; and
for 1988 and after, increase the OASDI tax rate to the tax rate for
1990 in present law.
Cost (in billions of dollars)
Estimate 1983 1984 1~1~19871988 1~-1983-89
II-B 0 -9.4 -9.1 -9.8 -10.7 -22.5 -24.9 -86.4
III 0 -9.1 -9.0 -9.9 -10.9 -23.4 -26.4 -88.7
25-Year Cost: -.16% of taxable payroll
50-Year Cost: -.08% of taxable payroll
Long-Term Cost: -.05% of taxable payroll
B-7 Increase OASDI tax by 1% on employers and employees each, effective in
2020.
Long-Term Cost: -.99% of taxable payroll
B-8 Increase OASDI tax rate by 1.25% on employers and employees each,
effective in 2030.
Long-Term Cost: -.90% of taxable payroll
Appendix K, page 11
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B-9 Remove the taxable earnings base for employers only, effective in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
19 7
1988
1989
1983-89'
II-B, OASDI
0
-5.9
-6.7
-6.8
-7.0
-7.2
-7.3
-40.9
III, OASDI
0
-5.8
-6.7
-6.8
-7.2
-7.5
-7.6
-41.6
II-B, HI
0
-1.5
-1.6
-1.8
-1.8
-1.9
-1.9
-10.5
III, HI
0
-1.5
-1.6
-1.8
-1.8
-2.0
-2.0
-10.7
25-Year Cost, OASDI: -.43% of taxable payroll
50-Year Cost, OASDI: -.50% of taxable payroll
Long-Term Cost, OASDI: -.56% of taxable payroll
25-Year Cost, HI:
B-10 Set a limit of 25% of total compensation as the amount of non-taxable
fringe-benefit compensation that can be provided without being subject
to the payroll tax. Tax-exempt fringes in excess of the 25% limit
would become subject to OASDI-HI tax only for the employer and would
not be counted as creditable wages for benefit purposes, effective in
19-85.
Cost (in billions of dollars)
Estimate 1983 1984 i 1986 1987 1988 1989
II-B, OASDI
III, OASDI
II-B, HI
III, HI
25-Year Cost, OASDI: -.07% of taxable payroll
50-Year Cost, OASDI: -.32% of taxable payroll
Long-Term Cost, OASDI: -.73% of taxable payroll
25-Year Cost, HI:
Appendix K, page 12
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B-11 Maintain, in effect, constant OASDI tax rate on total compensation,
effective in 1990. If the "cash earnings plus taxable fringe benefits"
portion of total compensation decreases, the tax rate on covered wages
would increase so as to maintain a constant tax rate on total
compensation, using 1990 as the base year.
25-Year Cost: -.25% of taxable payroll
50-Year Cost: -.87% of taxable payroll
Long-Term Cost: -1.56% of taxable payroll
B-12 Make wages deferred under Section 401(k) of the Internal Revenue Code
(salary reduction plans) be subject to the OASDI-HI tax.
Long-Term Cost: Cannot be estimated, because no experience data are
available. However, the loss of revenues to the OASDI and HI
Trust Funds, without this change, may become substantial in
future years.
Appendix K, page 13
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SUMMARY OF SECTION C - ALTERNATIVE
SOURCES OF REVENUES
Option No. Description
C-1 Reallocate 50% of HI tax rate
to the OASDI Trust Funds.
C-2 Same as C-1, except that
effective date is 1990.
C-3 Allow OASDI Trust Funds to borrow
from General Fund whenever the
combined fund ratio is below 15%.
C-4 Impose a new inheritance tax
earmarked for OASI Trust Fund.
C-5 Impose a surtax on gasoline,
earmarked for OASI Trust Fund.
C-6 Impose a 5% surcharge on
individual income tax, earmarked
for OASI Trust Fund.
C-7 Increase excise tax on alcohol
and tobacco, earmarked for DI
or HI Trust Funds.
C-8 Credit OASDI Trust Funds with
total unreimbursed cost for
military-service wage credits
based on service before 1957.
C-9 Credit OASDI Trust Funds with
excess of past benefit payments
over past reimbursements for
military-service wage credits
based on service before 1957.
C-10 Pay OASDI taxes for current
military-service gratuitous
wage credits.
C-11 Credit OASDI Trust Funds for
OASDI checks that have gone
uncashed for 1 or more years,
effective.in 1983.
C-12 Provide that OASDI administrative
expenses be paid from general
revenues.
C-13 Provide a general-revenue con-
tribution, in a given month, equal
to excess of the unemployment rate
over 6%, times total OASDI taxes.
* Amount borrowed from General Fund in period.
** Less than $500 million.
n.a. = Not available.
OASDI
Cost 1983-89
(billions)
Long-
Term
II-
III
Cost
-$174
-$177
-1.42%
0
0
-1.30
75*
201*
n.a.
-22
-22
n.a.
-23
-23
-.02
-134
-134
-.09
-14
-14
-.01
-3
n.a.
.00
-2
-2
-.01
-1
-1
.00
-19
-19
-.15
-16
-30
-.05
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C. ALTERNATIVE SOURCES OF REVENUES
Present law. Income to the OASDI and HI Trust Funds comes from the payroll
tax which is paid by employers, employees, and the self-employed. (In
addition, there are certain payments to the trust funds from the General
Fund of the Treasury to cover the cost of certain transitional benefits for
closed groups of persons and military-service wage credits.)
Options.
C-1 Reallocate 50% of the employer-employee HI tax rates to the OASDI Trust
Funds, and make up this loss to the HI Trust Fund by payments from the
General Fund of the Treasury, effective in 1984 (with corresponding
treatment for the self-employed rate).
OASDI Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-20.4
-24.4
-28.5
-30.9
-33.5
-36.1
-173.8
III
0
-19.7
-24.1
-28.6
-31.7
-34.9
-38.3
-177.3
25-Year Cost: -1.33% of taxable payroll
50-Year Cost: -1.39% of taxable payroll
Long-Term Cost: -1.42% of taxable payroll
C-2 Same as Option C-1, except effective in 1990.
25-Year Cost: -.99% of taxable payroll
50-Year Cost: -1.23% of taxable payroll
Long-Term Cost: -1.30% of taxable payroll
C-3 Allow the OASDI Trust Funds to borrow from the General Fund of the
Treasury whenever their combined balance (assuming interfund borrowing
between them) is lower than 15% of the next year's outgo, effective in
1983. The amounts would be paid back to the General Fund, with
interest, when the combined OASDI Trust Fund ratios reach 50%. If
necessary, the OASDI tax rate would be increased to assure pay-back.
Amount Borrowed from General Fund in Year (in billions of dollars)*
Estimate 198x1984 1985 1986 1997 1988 1989 1983-89
II-B 22 15 7 8 8 8 7 75
III 26 26 20 25 30 34 ,40 201
Appendix K, page 15
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C-4 Impose a new inheritance tax, which would apply only if there is no
surviving spouse. It would exclude the first $100,000 in the estate.
The next $100,000 would be taxed at a 10% rate, and the third $100,000
would be taxed at a 15% rate, effective for 1985. After 1989, the
thresholds for taxation would be indexed by the CPI increases. The
proceeds of the tax would be earmarked for the OASI Trust Fund.
Cos n billions of dollars)
Estimate 1983 1984 1985 1986 1987 9 8 1989 -
0 0 -3.6 -3.9 -4.3 -4.7 -5.1 -21.6
Long-Term Cost: Cannot be determined.
C-5 Impose a surcharge of 3 cents a gallon on gasoline, which would be
earmarked for the OASI Trust Fund, effective for 1983-89.
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1871988 1989
-3.3 -3.3 -3.3 -3.3 -3.3 -3.3 -3.3 -23.1
Long-Term Cost: -.02% of taxable payroll
C-6 Impose a 5% surcharge on individual income taxes in 1983-89, the
proceeds from which would be earmarked for the OASI Trust Fund.
Cost (in billions of dollars)
Estimate 1983 1984 1985 1989 1983-89
-14.9 -15.8 -17.3 -18.8 -20.6 -22.4 -24.4 -134.2
Long-Term Cost: -.09% of taxable payroll
Interest that would a accumu ating on the amounts borrowed is not shown.
Only one estimate is available. It is based on data provided by the Joint
Committee on Taxation and the Congressional Budget Office.
Appendix K, page 16
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C-7 Impose increased excise taxes on alcohol and tobacco in 1983-89 --
increases of 25% over present rates. The proceeds would be earmarked
for either the DI or HI Trust Fund.
Cost (in billions of dollars
Estimate 1983 I9-84--1985 1986 1987 1988 1989 1983-89
-2.0
Long-Term Cost: -.01% of taxable payroll
C-8 Credit to the OASDI Trust Funds, as a lump sum, the present value of
the additional cost of OASDI benefits for those military-service wage
credits based on service before 1957, effective in 1983.
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1987 1988 1989 1983-89
II-B -5.8 +.6 +.5 +.5 +.5 +.5 +.5 -2.6
Long-Term Cost: Negligible
C-9 Credit to the OASDI Trust Funds, as a lump sum, the excess of past
benefit payments over past reimbursement payments (including interest)
for the cost of additional OASDI benefits for those military-service
wage credits based on service before 1957.
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1987 1988 1989 98~ 3-89
I I -B -.9 +.r_ +.1 +.T_ T_
-.9 +.1 +.1 +.1 +.1 +.1 +.1 -.3
Long-Term cost: Negligible
*** Only one estimate is available. Any such estimate is subject to a wide
variation, because it depends greatly on future conditions.
Appendix K, page 17
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C-10 Pay OASDI taxes for current military-service gratuitous wage credits as
the service is rendered, effective in 1984.
Cost (in billions of dollars
Estimate 1983 19841985 1986 1987 1988 1989 1983-89
II-B
III
-.3
-.3
Long-Term Cost: Negligible
-.3 -.3 -.3
-.3 -.3 -.3
C-11 Credit to the OASDI Trust Funds the OASDI checks which have not been
cashed for at least 1 year, effective in 1983.
Cost (in billions of dollars)
Estimate 1983 19861987 1988 1989 -- fig
II-B -.3 -.0 -.0 -.0 -.0 -.0 -.0 -.5
III -.3 -.0 -.0 -.0 -.0 -.0 -.0 -.5
Long-Term Cost: Negligible
Estimate _1W 1985 19861987
1983 II-B -2.2 -2.3 -2.5 -2.6 -2.8
III -2.2 -2.3 -2.5 -2.7 -2.9
25-Year Cost: -.13% of taxable payroll
50-Year Cost: -.14% of taxable payroll
Long-Term Cost: -.15% of taxable payroll
Appendix K, page 18
C-12 Provide that the administrative expenses of the OASDI program be paid
from the General Fund of the Treasury.
Cost (in billions of dollars)
1988
1989
1983-89
-2.9
-3.1
-18.5
-3.1
-3.3
-18.9
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C-13 Provide a payment from the General Fund of the Treasury equal, for each
month, to (a) the excess (if any) of the unemployment rate over 6%,
multiplied by (b) the total OASDI tax receipts, effective in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
1985
79-86---7987
1988
198
1983-89
II-B
0
-2.8
-3.5
-3.2 -2.8
-2.2
-1.5
-16.1
III
0
-5.0
-5.7
-5.4 -5.2
-4.7
-4.1
-30.1
25-Year Cost: -.07% of taxable payroll
50-Year Cost: -.06% of taxable payroll
Long-Term Cost: -.05% of taxable payroll
Appendix K, page 19
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SUMMARY OF SECTION D - COST-OF-LIVING OASDI
ADJUSTMENTS Cost 1983-89 Long-
(billions) Term
Option No. Description II-B III Cost
D-1 Delay COLA by one month per -$20
year for 3 years.
D-2 Delay the effective date for -23
the cost-of-living adjustment
for 3 months.
D-3 Provide for no COLA for 1983. -94
Resume present procedure
thereafter.
D-4 Provide guaranteed COLA of 4% -100
for 1983 and 1984; thereafter,
the COLA would equal the annual
increase in wages, minus 12
percentage points.
D-5 Provide guaranteed benefit -96
increase of 4% or $14 (whichever
is higher) for 1983 and 1984;
Thereafter, the COLA would equal
the annual increase in wages,
minus 12 percentage points.
D-6 Provide COLAs equal to 75% of -88
what the benefit increases would
be under present law.
D-7 Provide COLAS equal to increase -103
in the CPI, minus 2 percentage
points.
D-8 Provide COLA equal to present-law -66
increase, minus 2 percentage
points for 1983 and 1984; thereafter
present-law procedure would resume.
D-9 Same as D-8 for 1983 and 1984; -75
thereafter, COLAS would be equal
to the annual increase in wages,
minus 1/ percentage points.
D-10 Provide COLAs equal to annual *
percentage increase in wages, minus
"X" percentage points. The value
of "X" could be 1, 1/, or 2.
D-11 Provide COLAs based on lesser of -1
increase in wages or prices, with
a "catch-up" provision.
D-12 Provide COLAs based on lesser of -4
increase in wages or prices, with
no "catch-up" provision.
-$31
-.14%
-35
-.14
-119
-.13
-180
-.16
-176
-.15
-128
-1.45
-113
-2.58
-72
-.07
-97
-.11
*
*
-60
-.06
-66
-.43
Various alternatives are considered (see subsequent pages for details).
Appendix K, page 20
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D. COST-OF-LIVING ADJUSTMENTS FOR BENEFITS IN PAYMENT STATUS
Present law. Benefits are increased each year when the annual increase in
the Consumer Price Index (CPI) is 3% or more. The amount of the benefit
increase is equal to the increase in the CPI from the first quarter of one
year to the first quarter of the next year. The benefit increase is
effective for June, and is first reflected in the check sent in early July.
Options.
D-1 Delay the cost-of-living adjustment by one month per year for 3 years,
effective in 1983, so that, in 1985 and after, the benefit increase
would be effective at the beginning of the fiscal year.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
98~ 9
983 89
II-B
-1.0
-2.3
-3.4
-3.3
-3.3
-3.4
-3.5
-20.2
III
-1.2
-2.9
-4.8
-5.1
-5.5
-5.8
-6.1
-31.4
25-Year Cost: -.12% of taxable payroll
50-Year Cost: -.13% of taxable payroll
Long-Term Cost: -.14% of taxable payroll
D-2 Delay the effective date for the cost-of-living adjustment for 3
months, effective in 1983.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986 1987
1988
1989
1983-89
II-B
-3.0
-3.4
-3.4
-3.3 -3.3
-3.4
-3.5
-23.3
III
-3.6
-4.4
-4.8
-5.1 -5.5
-5.8
-6.1
-35.3
25-Year Cost: -.12% of taxable payroll
50-Year Cost: -.13% of taxable payroll
Long-Term Cost: -.14% of taxable payroll
Appendix K, page 21
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D-3 Provide no cost-of-living adjustment for 1983.* Resume present-law
benefit increases in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-13
-6.2
-12.9
-13.8
-14.5
-15.0
-15.4
-15.7
-93.5
III
-7.3
-15.4
-16.8
-18.1
-19.3
-20.5
-21.5
-118.9
Long-Term Cost: -.13% of taxable payroll
D-4 Provide a guaranteed benefit increase of 4% for 1983 and 1984,
regardless of the change in the CPI.* In 1985 and thereafter, the
annual benefit increase would equal the annual percentage increase in
wages, minus 1/ percentage points.
Cost (in billions of dollars)
Estimate
1983
198419851986 1987 1988
191983-89
II-B
-2.9
-9.3 -14.0 -16.2 -18.1 -19.5
-20.4 -100.4
III
-4.0
-13.4 -22.1 -27.8 -32.8 -37.7
-42.3 -180.1
Long-Term Cost: -.16% of taxable payroll
D-5 Same as Option D-4, except that the benefit increase in 1983-84 would
not be less than that resulting from an increase of $14 in the PIA.**
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
91 838
II-13
-2.7
-8.8
-13.3
-15.5
-17.4
-18.8
-19.7
-96.2
III
-3.8
-12.9
-21.4
-27.1
-32.1
-37.0
-41.5
-175.8
Long-Term cost: -.15% of taxable payroll
* A parallel change could be made in the indexing of the bend points in the PIA
benefit formula (which is based on wage changes). This would be done so as
to prevent "notch" situations from occurring as between persons first
becoming eligible in the year of the revised benefit increase and those first
becoming eligible in the next year. Such a change would have relatively
little cost effect in the short run, but would have a significant effect over
the long run.
** The $14 increase would not be applicable for very low PIAs, which instead
would have a 10% increase be applicable.
Appendix K, page 22
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D-6 Provide benefit increases equal to 75% of what the benefit increases
would be under present law (i.e., 75% of the CPI increase), effective
in 1983.*
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1987 1988 1989 1983-89
II-B -1.6 -5.0 -8.7 -12.5 -16.3 -20.1 -24.0 -88.2
III -1.8 -6.0 -11.2 -17.1 -23.6 -30.5 -38.0 -128.2
Long-Term Cost: -1.45% of taxable payroll
D-7 Provide benefit increases equal to the increase in the CPI, minus 2
percentage points, effective in 1983.*
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1987 1988 1989 1983-89
II-B -1.7 -5.2 -9.3 -13.9 -18.9 -24.2 -30.0 -103.2
III -1.7 -5.3 -9.6 -14.7 -20.5 -27.1 -34.4 -113.3
Long-Term Cost: -2.58% of taxable payroll
D-8 Same as option D-7, except effective only for 1983-84.*
Cost (in billions of dollars)
Estimate 1983 1984 1985 159F --1987 1988 1989 198383
II-B -1.7 -5.2 -9.3 -11.8 -12.3 -12.7 -13.0 -66.1
III -1.7 -5.3 -9.6 -12.5 -13.4 -14.3 -15.1 -72.0
Long-Term Cost: -.07% of taxable payroll
D-9 Same as Option D-8, except that benefit increases after 1984 would be
based on annual percentage increases in wages, minus 1/ percentage
points (instead of on annual CPI increases).*
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1987 1988 1989 1983-89
II-B -1.7 -5.2 -9.3 -12.5 -14.3 -15.6 -16.5 -75.2
III -1.7 -5.3 -9.6 -14.0 -18.2 -22.2 -26.3 -97.3
Long-Term Cost: -.11% of taxable payroll
Appendix K, page 23
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D-10 Provide benefit increases equal to the annual percentage increase in
wages, minus "X" percentage points, beginning in 1983.
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1987 1988 8~ 9 1983-89
Based on X Being 1%
II-B -1.1 -2.8 - IT- - 4. 5 -4.8 -4.6 -3.9 -25.5
III -2.6 -8.3 -13.9 -18.1 -21.3 -24.2 -26.8 -115.2
Long-Term Cost: +.68% of taxable payroll
Based on X Being 111%
II-B -1.5 -4.1 -6. -8.0 -9.6 -10.7 -11.5 -51.5
III -3.0 -9.6 -16.3 -21.6 -26.2 -30.7 -35.1 -142.5
Long-Term Cost: -.09% of taxable payroll
Based on X Being 2%
II-B -1.9 -5.4 -8.5 -11.4 -14.2 -16.8 -19.0 -77.2
III -3.4 -10.9 -18.6 -25.1 -31.0 -37.0 -43.1 -169.1
Long-Term Cost: -.80% of taxable payroll
Based on X Being .3% in 1983-85, 1% in 1986-88
and Thereafter***
II-B -.5 -.9 -.5 -.4 -.5 -.1 +.1 -2.8
III -1.9 -6.4 -10.6 -13.9 -16.8 -19.5 -22.6 -91.7
Long-Term Cost: Negligible
Based on X Being .3% in 1983-85 1% in 1986-88,
in 1989-2019, and Thereafter
II-B -.5 -.9 -.5 -.4 +.1 -2.8
III -1.9 -6.4 -10.6 -13.9 -16.8 -19.5 -22.6 -91.7
Long-Term Cost: -.38%.of taxable payroll
* These values of "X" approximate the real-wage differentials in the
Alternative II-B estimate in the 1982 Trustees Report.
Appendix K, page 24
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D-11 Provide benefit increases based on the lesser of the annual percentage
increase in wages or the.annual percentage increase in prices,
beginning in 1983. Include a "catch-up" provision, so that in times of
a healthy economy (when wages rise faster than prices), benefits will
be increased by wages if they had previously been increased by less
than the full CPI -- until any deficit relative to CPI rises is made up
(so as to bring benefit levels up to the point where they are actually
keeping up with inflation).****
--
-
Cost (in billions of dollars)
Estimate
1983
F97
19 5
98~ 6
1987
1988
98~ 9
1983-89
II-B
-.2
-.3
-.0
-.0
-.0
-.0
-.0
-.6
III
-1.7
-5.7
-9.2
-10.9
-11.2
-11.0
-10.2
-59.9
Long-Term Cost: -.06% of taxable payroll
D-12 Same as Option D-11, except that there would be no "catch-up"
provision.****
Cost (in billions of dollars)
Estimate
1983
1984
1985
1961987
198
1989-1 -89
II-B
-.2
-.5
-.6
-.6 -.6
-.6
-.7 -3.8
III
-1.7
-5.7
-9.2
-11.0 -11.8
-12.6
-13.7 -65.7
Long-Term Cost: -.43% of taxable payroll
**** To further stabilize the financing of the program, this proposal could be
combined with an automatic-adjustment mechanism for the payroll tax rate
and/or payments (or loans) from the General Fund of the Treasury based on
either the combined OASDI Trust Fund or the level of unemployment.
Appendix K, page 25
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SUMMARY OF SECTION E - LEVEL OF PRIMARY BENEFITS
OASDI
Cost 1983-89
(billions)
Long-
Term
II-B
III
Cost
-$3
-$3
-1.08%
*
*
-1.01
0
0
-.80
0
0
-.60
0
0
-.37
-1/4
-1/4
-.22
-3
-3
-.25
-3
-3
-1.08
0
0
-.95
0
0
-.50
0
0
-.95
Option No. Description
E-1 Increase "bend points" by
75% of the increase in wages
until they are 80% of what they
would have been under 100% wage
indexing, effective 1984.
E-2 Same as E-1, except effective
date is 1987.
E-3 Same as E-1, except effective
date is 2000.
E-4 Same as E-1, except effective
date is 2010.
E-5 Same as E-1, except effective
date is 2020.
E-6 Index "bend points" by 75% of
increase in wages for 3 years,
beginning 1987.
E-7 Change computation point for
determining Average Indexed
Monthly Earnings from age 62
to age 65.
E-8 Reduce percentages in PIA
benefit formula gradually over
time, by 10% relatively, effective
in 1984.
E-9 Same as E-8, except effective
in 1990.
E-10 Same as E-9, except 5% reduction.
E-11 Same as E-9, except no reduction
on first percentage and larger
reductions on other two percentages.
* Savings of less than million.-
Appendix K, page 26
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E. LEVEL OF PRIMARY BENEFITS
Present law. The Primary Insurance Amount, which is the benefit payable to
a worker retiring at age 65 (and also to a disabled worker) is determined
from a formula based on Average Indexed Monthly Earnings. This formula
involves three different percentages which are applied to different levels
of the AIME (as separated by the "bend points"), so as to give relatively
higher benefits to lower-earnings persons than to higher-earnings persons.
Options.
E-1 Increase the "bend points" in the PIA benefit formula by 75% of the
increase in wages (rather than by 100% as under present law) for "X"
years (until such bend points are 80% of what they would have been
under 100% wage indexing), effective in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
.0
-.1
-.2
-.5
-.8
-1.3
-2.9
III
0
.0
-.1
-.2
-.6
-.9
-1.4
-3.2
25-Year Cost: -.28% of taxable payroll
50-Year Cost: -.79% of taxable payroll
Long-Term Cost: -1.08% of taxable payroll
E-2
Same as Option E-1, except effective in 1987.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
9883899
II-B
0
0
0
0
-.0
-.1
-.2
-.3
III
0
0
0
0
-.0
-.1
-.3
-.4
Long-Term Cost: -1.01% of taxable payroll
E-3 Same as Option E-1, except effective in 2000.
25-Year Cost: -.01% of taxable payroll
50-Year Cost: -.40% of taxable payroll
Long-Term Cost: -.80% of taxable payroll
Appendix K, page 27
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E-4 Same as Option E-1, except effective in 2010.
25-Year Cost: None
50-Year Cost: -.17% of taxable payroll
Long-Term Cost: -.60% of taxable payroll
E-5 Same as Option E-1, except effective in 2020.
25-Year Cost: None
50-Year Cost: -.03% of taxable payroll
Long-Term Cost: -.37% of taxable payroll
E-6 Index the "bend points" by 75% of the increase in wages for 3 years,
effective in 1987.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
0
0
0
-.0
-.1
-.2
-.3
III
0
0
0
0
-.0
-.1
-.3
-.4
Long-Term Cost: -.22% of taxable payroll
E-7 Change computation point for determining Average Indexed Monthly
Earnings from age 62 to age 65 (so that, for retirement cases, 3 more
computation years would be required in determining the AIME), phased in
beginning with workers who attain age 62 in 1984.
Cost in billions of dollars)
-
Estimate
1983
1984
1985
1
6
198
19881989
1983-89
II-B
0
.0
-.2
-.4
-.6
-.8 -1.0
-3.0
III
0
.0
-.2
-.4
-.7
-.9 -1.1
-3.3
Long-Term Cost: -.25% of taxable payroll
Appendix K, page 28
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E-8 Reduce the percentages in the PIA benefit formula -- 90%, 32%, and
15% -- by 10% relatively, over a 15-year period (1984-98), so that
they would ultimately be 81.0%, 28.8%, and 13.5%. This would have the
effect ultimately of reducing benefits in all cases (regardless of
earnings history) by 10%.
Cost (in billions of dollars)
Estimate 1983 1984 1985 1986 1987 1988 1989 1983-89
II-B 0 -.0 -.1 -.2 -.4 -.8 -1.2 -2.8
III 0 -.0 -.1 -.2 -.5 -.9 -1.3 -3.0
Long-Term Cost: -1.08% of taxable payroll
E-9 Same as Option E-8, except begin the reductions in 1990 (instead of
1984).
Long-Term Cost: .95% of taxable payroll
E-10 Same as Option E-9, except reduce the percentage factors by 5%
relatively over an 8-year period.
Long-Term Cost: .50% of taxable payroll
E-11 Same as Option E-9, except that the 90% factor would not be reduced,
and the 32% factor would be lowered to 25%, and the 15% factor would be
lowered to 13%.
Long-Term Cost: .95% of taxable payroll
Appendix K, page 29
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Option No. Description
F-1 Increase "normal" retirement
age to 66 in 1999, beginning
phase-in in 1990.
F-2 Increase "normal" retirement
age to 66 in 2014, beginning
phase-in in 2005.
F-3 Increase "normal" retirement
age to 66 in 2024, beginning
phase-in in 2015.
F-4 Increase "normal" retirement
age to 67 in 2012, beginning
phase-in in 2000.
F-5 Increase "normal" retirement
age to 67 in 2022, beginning
phase-in in 2010.
F-6 Increase "normal" retirement
age to 67 in 2032, beginning
phase-in in 2020.
F-7 Increase "normal" retirement
age to 68 in 2017, beginning
phase-in in 2000.
F-8 Increase "normal" retirement
age to 68 in 2027, beginning
phase-in in 2010.
F-9 Increase "normal" retirement
age to 68 in 2037, beginning
phase-in in 2020.
F-10 Increase "normal" retirement
age to 69 in 2022, beginning
phase-in in 2000.
F-11 Increase "normal" retirement
age to 69 in 2054, beginning
phase-in in 2000.
F-12 Increase "normal" retirement
age to 66 in 2002, beginning
phase-in in 1995, and thereafter,
adjust according to changes in
longevity.
OASDI
Cost 1983-89
(billions)
Long-
Term
II-B
III
Cost
$0
$0
-.52%
0
0
-.86
0
0
-.69
0
0
-.48
0
0
-1.22
0
0
-.95
0
0
-.63
0
0
-1.53
0
0
-.96
0
0
-1.68
Appendix K, page 30
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F. RETIREMENT AGE
Present law. Unreduced retirement benefits are available to insured
workers, spouses, and widows and widowers at age 65 (the "normal" retirement
age). Actuarially reduced benefits are available at age 62 for insured
workers and spouses and at age 60 for widows and widowers (age 50 if
disabled). For insured workers who delay receipt of benefits beyond age 65,
retirement benefits are increased by 3% for each year of delay (for persons
attaining age 65 after 1981). See table at bottom of this page for
actuarial benefit factors under present law and under each option as to
normal retirement age.
Options.
F-1 Gradually increase the "normal" retirement age to 66 in 1999, beginning
the phase-in with those who attain age 62 in 1990.*
25-Year Cost: -.14% of taxable payroll
50-Year Cost: -.38% of taxable payroll
Long-Term Cost: -.52% of taxable payroll
F-2 Gradually increase the "normal" retirement age to 66 in 2014, beginning
the phase-in with those who attain age 62 in 2005.*
25-Year Cost: -.00% of taxable payroll
50-Year Cost: -.23% of taxable payroll
Long-Term Cost: -.41% of taxable payroll
* Early-retirement benefits would continue to be available beginning at age 62
for insured workers and spouses and at age 60 for widows and widowers, but
the actuarial benefit factors would be made smaller. The minimum age for
eligibility for Medicare benefits would continue to be the "normal"
retirement age for OASDI benefits. Disability benefits would be available
to those disabled between age 65 and the increased "normal" retirement age,
under the more lenient definition now applicable at ages 60-64. The age at
which the earnings test no longer applies would be left at age 70 (if such
age were increased in tandem with the increase in the normal retirement age,
the reduction in cost would be somewhat larger).
Normal
Actuarial
Benefit Factors
Retirement
Worker,
Spouse,
Widow,
Disabled Ti ow,
Age
Age 62
Age 62
Age 60
Age 50
65
80.0%
75.0%
71.5%
50.0%
66
75.0
70.0
66.5
50.0
67
70.0
65.0
61.5
50.0
68
65.0
60.0
56.5
50.0
69
60.0
55.0
51.5
50.0
Appendix K, page 31
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F-3 Gradually increase the normal retirement age to 66 in 2024, beginning
the phase-in with those who attain age 62 in 2015.*
25-Year Cost: None
50-Year Cost: -.12% of taxable payroll
Long-Term Cost: -.31% of taxable payroll
F-4 Gradually increase the "normal" retirement age to 67 in 2012, beginning
the phase-in with those who attain age 62 in 2000.*
25-Year Cost: -.03% of taxable payroll
50-Year Cost: -.54% of taxable payroll
Long-Term Cost: -.86% of taxable payroll
F-5 Gradually increase the "normal" retirement age to 67 in 2022, beginning
the phase-in with those who attain age 62 in 2010.*
25-Year Cost: None
50-Year Cost: -.32% of taxable payroll
Long-Term Cost: -.69% of taxable payroll
F-6 Gradually increase the "normal" retirement age to 67 in 2032, beginning
the phase-in with those who attain age 62 in 2020.*
25-Year Cost: None
50-Year Cost: -.09% of taxable payroll
Long-Term Cost: -.48% of taxable payroll
F-7 Gradually increase the "normal" retirement age to 68 in 2017, beginning
the phase-in with those who attain age 62 in 2000.*
25-Year Cost: -.03% of taxable payroll
50-Year Cost: -.72% of taxable payroll
Long-Term Cost: -1.22% of taxable payroll
Appendix K, page 32
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F-8 Gradually increase the "normal" retirement age to 68 in 2027, beginning
the phase-in with those who attain age 62 in 2010.*
25-Year Cost: None
50-Year Cost: -.40% of taxable payroll
Long-Term Cost: -.95% of taxable payroll
F-9 Gradually increase the "normal" retirement age to 68 in 2037, beginning
the phase-in with those who attain age 62 in 2020.*
25-Year Cost: None
50-Year Cost: -.09% of taxable payroll
Long-Term Cost: -.63% of taxable payroll
F-10 Gradually increase the "normal" retirement age to 69 in 2022, beginning
the phase-in with those who attain age 62 in 2000.*
25-Year Cost: -.03% of taxable payroll
50-Year Cost: -.88% of taxable payroll
Long-Term Cost: -1.53% of taxable payroll
F-11 Gradually increase the "normal" retirement age to 69 in 2054, beginning
the phase-in with those who attain age 62 in 2000.*
25-Year Cost: -.01% of taxable payroll
50-Year Cost: -.36% of taxable payroll
Long-Term Cost: -.96% of taxable payroll
F-12 Gradually increase the "normal" retirement age to 66 in 2002, beginning
the phase-in with those who attain age 62 in 1995. Beginning with
those who attain age 62 in 2002, automatically adjust such age (on a
phased-in basis) so that the ratio of the retirement-life expectancy to
the potential working-lifetime (from age 20 to the "normal" retirement
age) remains the same over the years. The age at which early-
retirement benefits are first payable and the age at which the earnings
test no longer applies would be increased in tandem with the increase
in the normal retirement age.
Long-Term Cost: -1.68% of taxable payroll
Appendix K, page 33
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SUMMARY OF SECTION G - DISABILITY BENEFITS
Option No. Description
G-1 Use medical-only definition
of disability.
G-2 Apply disability eligibility
criteria under present law
for persons aged 60-64, to
persons aged 55 and over.
G-3 Increase disability waiting
period from 5 months to
6 months.
G-4 Require prognosis of 24 months
of disability.
G-5 Change requirement for
disability-insured status by
increasing recency-of-work test
to 30 quarters of coverage in
last 40 quarters (rather than 20
out of 40).
G-6 Change requirement for
disability-insured status by
eliminating the test of 20
quarters of coverage out of the
last 40 quarters.
OASDI
Cost 1983-89
(billions)
Long-
Term
II-B
III
Cost
-$10
-$11
-.06%
+1
+2
+.04
-2
-2
-.03
-4
-5
-.06
Appendix K, page 34
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G. DISABILITY BENEFITS
Present law. Benefits are available to insured workers who meet the
statutory definition of disability, with a waiting period of 5 full calendar
months before the first month of eligibility.
Options.
G-1 Establish a medical-only definition of disability (so that non-medical
factors -- such as age, education, and work experience -- would no
longer be considered in determining disability), effective for benefits
for months after 1983 based on disabilities which begin after June
1983.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-.2
-.6
-1.3
-2.0
-2.7
-3.4
-10.2
III
0
-.2
-.7
-1.4
-2.2
-3.1
-3.8
-11.4
Long-Term Cost: -.06% of taxable payroll
G-2 Apply disability eligibility criteria under present law for persons
aged 60-64, to persons aged 55 and over, effective in 1985.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
0
+.1
+.2
+.3
+.4
+.4
+1.4
III
0
0
+.1
+.2
+.3
+.4
+.5
+1.5
25-Year Cost: +.03% of taxable payroll
50-Year Cost: +.04% of taxable payroll
Long-Term Cost: +.04% of taxable payroll
G-3 Increase waiting period to 6 months (instead of 5 months, as at
present), effective for benefits for months after 1983 based on
disabilities which begin after June 1983.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-.1
-.3
-.3
-.3
-.3
-.4
-1.6
III
0
-.1
-.2
-.3
-.3
-.4
-.4
-1.8
Long-Term Cost: -.03% of taxable payroll
Appendix K, page 35
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G-4 Require prognosis of at least 24 months of disability (instead of 12
months, as at present), effective for benefits for months after 1983
based on disabilities which begin after June 1983.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-.1
-.4
-.6
-.8
-.9
-1.0
-3.8
III
0
-.1
-.5
-.7
-1.0
-1.1
-1.2
-4.6
Long-Term Cost: -.06% of taxable payroll
G-5 Increase requirement for disability-insured status by requiring 30
Quarters of Coverage in the last 40 Quarters (instead of 20 QC out of
40), effective for benefits for months after 1983, based on
disabilities which begin after June 1983.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
-.1
-.3
-.7
-1.0
-1.4
-1.7
-5.2
III
0
-.1
-.3
-.7
-1.1
-1.6
-2.0
-5.8
Long-Term Cost: -.25% of taxable payroll
G-6 Change the requirement for disability-insured status by eliminating the
test of 20 QC out of the last 40 quarters, effective in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
988
1989
1983-89
II-B
0
+2.0
+3.3
+3.5
+3.6
+3.7
+3.9
+20.0
III
0
+2.0
+3.5
+3.7
+3.9
+4.2
+4.5
+21.8
Long-Term Cost: +.24% of taxable payroll
Appendix K, page 36
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SUMMARY OF SECTION H - PROPOSALS AFFECTING PRIMARILY WOMEN
OASDI
Cost 1983-89 Long-
(billions) Term
Option No. Description II-B III Cost
H-1 Divorced and disabled
widow(er)'s benefits not to be
terminated upon remarriage.
H-2 Provide benefits of 71.5% of +$1 +$1 +.01%
deceased worker's PIA to
disabled widow(er)s claiming
benefits at ages 50-59.
H-3 Provide benefits of 100% of +6 +6 +.03
the deceased worker's PIA
to disabled widow(er)s
claiming benefits at ages 50-64.
H-4 Permit widow(er)s to rescind
an early-retirement decision
in certain cases by counting
the reduction in the widow(er)'s
benefit as "repayment" of the
early-retirement benefits paid.
H-5 Provide indexing of earnings
records for purposes of deferred
survivor benefits by wages
instead of by prices.
H-6 Permit a divorced spouse to
receive benefits regardless
of whether the insured former
spouse has retired.
* Less than $/ billion or less than .005% of payroll (as the case may
be).
The costs of each of these alternatives are shown on subsequent pages.
Appendix K, page 37
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SUMMARY OF SECTION H - CONTINUED
Option No. Description
H-7 Change special-minimum benefit
to allow credit for 10
childcare years; increase number
of years countable toward the
special-minimum benefit from
30 to 35 years.
H-8 Allow up to 3, 5, or 10
childcare drop-out years in
computing the average earnings.
H-9 Adopt comprehensive earnings
sharing, with 80% inheritance
of earnings credits.
H-10 Adopt earnings sharing with
100% inheritance of
earnings credits.
H-11 Adopt limited earnings sharing
at divorce, and inheritance
of earnings credits.
H-12 Adopt the HHS development of
the recommendations of the
1979 Advisory Council
regarding earnings sharing.
Appendix K, page 38
OASDI
Cost 1983-89
(billions)
Long-
Term
II-B
III
Cost
+15
+16
+.14
n.a.
n.a.
n.a.
-.06
n.a.
n.a.
+.35
n.a.
n.a.
+.07
n.a.
n.a.
+.12
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H. PROPOSALS AFFECTING PRIMARILY WOMEN
Widow(er)'s Benefits
Present law. Benefits for widow(er)s who are divorced spouses and for
disabled widow(er)s terminate when the beneficiary remarries.
Option.
H-1 Do not terminate such benefits upon remarriage, effective in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
98~ 5
1986
1987
1988
1989
1983-89
II-B
0
+.0
+.0
+.0
+.0
+.0
+.0
+.1
III
0
+.0
+.0
+.0
+.0
+.0
+.0
+.1
Long-Term Cost: Negligible
Disabled Widow(er)'s Benefits
Present law. Reduced benefits for widow(er)s without dependent children are
available at ages 60-64 (712% of PIA at age 60), and 100% of the PIA is
available at an 65. Disabled widow(er)s are eligible for reduced benefits
at ages 50-59 0% of PIA at age 50).
Option.
H-2 Provide benefit of 71.5% of PIA (same as widow(er)'s benefits at age
60) to disabled widow(er)s claiming benefits at ages 50-59, effective
in 1984.
Cost (in billions of dollars
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
+.2
+.2
+.2
+.2
+.3
+.3
+1.4
III
0
+.2
+.2
+.2
+.2
+.3
+.3
+1.4
Long-Term Cost: +.01% of taxable payroll
Appendix K, page 39
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H-3 Provide benefit of 100% of PIA to disabled widow(er)s aged 50-64,
effective in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
198
1983-99
II-B
0
+.8
+.8
+.9
+1.0
+1.0
+1.1
+5.6
III
0
+.8
+.8
+.9
+1.0
+1.1
+1.2
+5.8
Long-Term Cost: +.03% of taxable payroll
Limit on Widow(er)'s Benefits
Present law. There is an over-riding limit which is only applicable when
the deceased worker had received early-retirement benefits; then, the
widow's benefit cannot exceed the larger of the early-retirement benefit or
82.5% of the PIA. This maximum is applicable only when the widow is at
least age 62 and has the most effect when the woman was older than her
husband.
Option.
H-4 When such limit on widow(er)'s benefits is applicable, and the retired
worker dies before age 65, the widow(er) may "rescind" the early-
retirement decision by counting the reduction in the widow(er)'s
benefit resulting from such limit as "repayment" of the early-
retirement benefits paid (including any auxiliary benefits). The
period of repayment should be determined from the amounts payable to
the beneficiaries who are eligible as of the date of the worker's
death.
Long-Term Cost: Negligible
Computation of Deferred Widow(er)'s Benefits
Present law. If a worker dies before reaching age 62, benefits for the
widow(er) are based on the worker's earnings, as indexed to average wage
levels in the second year preceding death; the benefit is indexed in and
after the year of death to reflect changes in the CPI.
Appendix K, page 40
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Option.
H-5 Index earnings records for purposes of deferred survivor benefits
(e.g., a woman widowed at age 55 is first eligible for widow's benefits
at age 60) through the earlier of (1) the year that the worker would
have reached age 60, or (2) two years before the survivor becomes
eligible for aged widow's benefits at age 60, effective in 1985.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1982-89
II-B
0
0
+.0
+.0
+.0
+.1
+.1
+.2
III
0
0
+.0
+.0
+.0
+.1
+.1
+.2
Long-Term Cost: +.05% of taxable payroll
Divorced Persons
Present law. A divorced spouse cannot receive spouse's benefits until the
former spouse begins to receive benefits.
Option.
H-6 A divorced spouse (divorced at least 3 years) would be able to receive
benefits if he or she meets the age requirements for eligibility,
regardless of whether or not the insured former spouse, aged 62 or
over, has retired (the earnings test would apply to each
independently), effective in 1984.*
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
+.0
+.0
+.0
+.0
+.0
+.0
+.1
III
0
+.0
+.0
+.0
+.0
+.0
+.0
+.1
Long-Term Cost: Negligible
As an alternative, the option could provide for a 1-year divorce
requirement, instead of a 3-year requirement.
Appendix K, page 41
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Childcare Credits
Present law. To compute the Average Indexed Monthly Earnings of retired
workers, the 5 lowest years of indexed earnings are dropped from the
appropriate averaging period. For workers attaining age 62 in 1991 or
later, retirement benefits will be based on the highest 35 years of indexed
earnings. Present law also provides a special minimum benefit as an
alternative computation based on the worker's "years of coverage", which is
designed for long-service workers with earnings at approximately the
Federal minimum-wage level.
Options.
H-7 Change provisions for special-minimum benefit so as to allow credit
for up to 10 childcare years (in which the worker had a child age 6 or
under and did not earn enough to gain a year of coverage). Increase
the number of years countable toward the special minimum benefit from
30 to 35, effective in 1984.
Cost (in billions of dollars)
Estimate 19831984-198b198619871988 1989 -5
II-B 0 +1.8 +2.1 +2.4 +2.6 +2.9 +3.2 +15.0
III 0 +1.8 +2.2 +2.5 +2.8 +3.2 +3.6 +16.1
Long-Term Cost: +.14% of taxable payroll
H-8 Allow up to (alternatively) 3, 5, or 10 childcare drop-out years in
computing Average Indexed Monthly Earnings for the purpose of
calculating benefits under the regular benefit formula for each year
the worker had a child under age 7 and did not earn more than half of
the average wage of all covered workers during the year, effective in
1984.**
Long-Term Cost for Allowing up to 3 Years: +.21% of taxable payroll
Long-Term Cost for Allowing up to 5 Years: +.36% of taxable payroll
Long-Term Cost for Allowing up to 10 Years: +.60% of taxable payroll
Cost data for the short-term period are not available, but relatively little
increase in cost would be involved during 1983-89.
Appendix K, page 42
396-938 0 - 83 - 16
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Earnings Sharing Proposals
H-9 Comprehensive "No-Cost" Plan. The DREW report, "Social Security and
the Changing o es of en and Women", presented a comprehensive
earnings-sharing proposal, within a "no cost" framework. Under the
proposal, a person's Social Security protection would be based on her
or his earnings when unmarried and, when married, on one-half of the
total earnings credits of the married couple. A couple's annual
earnings would be divided equally during years of marrriage. The
earnings would be split equally on divorce or when one spouse reaches
age 62. Such split would not apply under certain conditions: (1) on
death of a spouse, 80% of total earnings would be inherited, but not
less than 100% of the earnings of the higher earner; (2) for purposes
of benefits for young survivors, earnings would not be transferred
between spouses with regard to a marriage in effect at time of death;
and (3) for purposes of disability benefits, earnings would not be
shared with regard to a marriage in effect at time of disability. The
proposal did not include any transitional proposals.
Long-Term Cost: -.06% of taxable payroll
H-10 Plan for Earnings Sharing and Inheritance of Earnings Credits
considered but not recommended by 1979 Adv-sory Council). Credits
earned during years of marriage would be divided equally between
spouses. Benefits for each person would be based upon earnings before
and after the marriage, plus half the couple's earnings during the
marriage. Earnings would be shared only for years after 1980. If the
higher-earner retired or became disabled before the lower-earner, he or
she would receive benefits based on the higher-earner's full earnings,
rather than half of the couple's combined earnings. Under a
transitional provision (phased out by 2020), couples would receive the
higher of the benefit calculated under earnings sharing or the benefit
calculated under a transitional formula assuring the same purchasing
power as under present law. A survivor would inherit the earnings
credits of a deceased spouse acquired during the marriage. The
survivor would receive 100% of the couple's combined earnings credits,
plus any credits which the survivor had earned before or after the
marriage.
Long-Term cost: +.35% of taxable payroll
Appendix K, page 43
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H-11 1979 Advisory Council Recommendation for Inheritance of Earnings
Credits at Death of Spouse and Limited Earnings Sharing at Divorce.
A survivor could inherit the earnings credits of a deceased spouse from
work that occurred during their marriage. At ages 60-61, reduced
widow(er)'s benefits would be calculated only from inherited earnings
credits. At age 62, the individual would be eligible for retired
worker's benefits based on inherited earnings credits combined with own
earnings credits. Inheritance would also eliminate disabled
widow(er)'s benefits, because eligibility for DI could be established
through inheritance.
Upon request by either partner in a marriage of at least 10 years that
ended in divorce, earnings credits would be split, for purposes of
calculating retirement benefits only.
Long-Term Cost: +.07% of taxable payroll, without hold-harmless provision*
H-12 HHS Development of the Recommendations of the 1979 Advisory Council.
Either partner, at time of divorce, could apply to have earnings
credits shared for years during a marriage. Disability benefits would
be calculated based on shared earnings, but entitlement to disability
could not be gained therefrom. Credits acquired during years of
marriage would be credited to the earnings record of the surviving
spouse. Inherited credits would substitute for all present-law
benefits payable to aged and disabled widow(er)s. Benefits for
surviving children, widowed mothers and fathers, and children of
retired or disabled workers would not be affected. Under the
transition provision, those reaching age 62 before 2010 would be
eligible for the new basis, but would continue to be eligible for
auxiliary and survivor benefits if higher.
Long-Term cost: +.12% of taxable payroll
* The Advisory Council did not recommend a hold-harmless provision, which
would provide present benefits for aged and disabled widow(er)s forever,
if higher. With such a provision, the estimated long-term cost of this
proposal is +.22% of taxable payroll.
Appendix K, page 44
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SUMMARY OF SECTION I - OTHER OPTIONS FOR BENEFIT CHANGES
Option No. Description
I-1 Eliminate child's benefits
for early-retirement cases.
1-2 Eliminate all auxiliary
benefits for early-retirement
cases.
1-3 Apply same Maximum Family
Benefit for OASI cases as
currently used for DI cases.
1-4 Phase out retirement earnings
test for persons aged 65 and
over in 1988, with annual
exempt amount increasing in
1985-87.
I-5 Maintain age 72 as age at which
earnings test does not apply.
1-6 Increase delayed-retirement
credit from 3% to 6% for each
year that retirement is
postponed past age 65.
I-7 Provide partial refundable
income tax credit at ages 65
and over when benefits are
withheld under the earnings
test.
1-8 Provide 10% benefit increase
for beneficiaries when they
reach age 80, gradually
phased in.
Appendix K, page 45
OASDI
Cost 1983-89
(billions)
II-B
III
Long-
Term
Cost
-$3
-$3
-.02%
-6
-7
-.02
-4
-4
-.10
+15
+17
+.14
-5
-6
-.03
+1
+1
+.07
0
0
0
+6
+7
+.25
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I. OTHER OPTIONS REGARDING BENEFIT CHANGES
I-1 Eliminate benefits for children of retired workers who have not
attained age 65, effective for persons attaining age 62 in 1984.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1988 89
II-B
0
-.1
-.2
-.4
-.6
-.7
-.8
-2.8
III
0
-.1
-.2
-.4
-.7
-.8
-.9
-3.1
Long-Term Cost: -.02% of taxable payroll
1-2 Eliminate all auxiliary benefits for early-retirement cases, effective
for persons attaining age 62 in 1984.
Cost (in billions of dollars)
Estimate 1983 1984 1985 198619871988 1989 -198'3
II-B 0 -.1 -.4 -.8 -1.4 -1.7 -1.8 -6.2
III 0 -.1 -.4 -.9 -1.6 -1.9 -2.0 -6.9
Long-Term Cost: -.02% of taxable payroll
1-3 Apply same Maximum Family Benefit for OASI cases as is currently used
for DI cases, effective for persons attainin age 62 after 1983 and for
deaths before age 62 occurring after 1983. (In DI cases, family
benefits are limited to the lesser of 85% of AIME or 150% of PIA, but
never less than 100% of PIA.)
Cost (in billions of dollars)
Estimate
1983
1984
1985
98~ 6
1987
981 8
1989
1983-89
II-B
0
-.1
-.3
-.5
-.7
-1.0
-1.3
-3.9
III
0
-.1
-.3
-.5
-.8
-1.1
-1.4
-4.2
Long-Term Cost: -.10% of taxable payroll
Appendix K, page 46
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1-4 Phase out retirement earnings test for beneficiaries aged 65 and over,
with annual exempt amount increasing to $10,000 in 1985, $15,000 in
1986, and $20,000 in 1987, and with elimination of test in 1988.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
0
+.8
+1.6
+2.4
+5.1
+5.5
+15.4
III
0
0
+.8
+1.7
+2.7
+5.8
+6.4
+17.4
Long-Term Cost: +.14% of taxable payroll
1-5 Maintain age 72 as age at which earnings test no longer applies.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
-.6
-.6
-.7
-.7
-.8
-.9
-.9
-5.2
III
-.6
-.6
-.7
-.8
-.9
-1.0
-1.1
-5.7
25-Year Cost: -.02% of taxable payroll
50-Year Cost: -.03% of taxable payroll
Long-Term Cost: -.03% of taxable payroll
1-6 Increase the delayed-retirement credit from 3% to 6% for each year that
receipt of benefits is postponed past age 65 up until age 70, beginning
in 1983.
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
198
988
1989
1983-89
II-B
+.0
+.0
+.0
+.1
+.2
+.4
+.6
+1.3
III
+.0
+.0
+.0
+.1
+.2
+.4
+.7
+1.4
25-Year Cost: +.02% of taxable payroll
50-Year Cost: +.05% of taxable payroll
Long-Term Cost: +.07% of taxable payroll
Appendix K, page 47
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1-7 Provide a partial refundable income tax credit for persons aged 65 and
over who do not receive benefits because of the earnings test
(recommendation of 1981 National Commission on Social Security),
effective in 1983.
No short-term or long-term cost to trust funds
1-8 Provide a 10% increase in benefit amounts for beneficiaries when they
attain age 80, phased in over a 10-year period (i.e., a 1% increase
during 1984, rising to 10% during 1993 and after).
Cost (in billions of dollars)
Estimate
1983
1984
1985
1986
1987
1988
1989
1983-89
II-B
0
+.2
+.5
+.9
+1.3
+1.6
+2.0
+6.5
III
0
+.2
+.5
+1.0
+1.5
+1.8
+2.3
+7.3
Long-Term Cost: +.25% of taxable payroll
Appendix K, page 48
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SUMMARY OF SECTION J - TAXATION OF BENEFITS
Option No. Description
J-1 Include 50% of OASDI benefits in adjusted gross income for
income-tax purposes, with the proceeds credited to the OASDI
Trust Funds.
J-2 Same as Option J-1, except that 100% of OASDI benefits would
be included in adjusted gross income.
J-3 Include OASDI benefits in adjusted gross income for purposes
of the income tax in the same manner as are unemployment
benefits, with the proceeds being credited to the OASDI
Trust Funds.
J-4 Include all OASDI benefits in adjusted gross income as soon as
such benefits first exceed the total employee OASDI taxes paid,
with the proceeds being credited to the OASDI Trust Funds.
J-5 Consider OASDI benefits as "income" for purposes of determining
marginal income tax rates applicable to other income (OASDI
benefits would not be taxable), with the proceeds being credited
to the OASDI Trust Funds.
J-6 Include 50% of OASDI benefits in adjusted gross income, phased-in
over 40 years, with the proceeds being credited to the OASDI
Trust Funds. Also, there would be a phased-in exclusion of the
employee OASDI taxes from such gross income.
J-7 Same as Option J-6 except that 100% of benefits would be included
in adjusted gross income.
Note: See subsequent pages for cost data, which are not summarized here
because of the diverse nature of the estimates for the various proposals.
Note: The short-range cost estimates presented here were prepared by the staff
of the Assistant Secretary for Planning and Evaluation, Department of
Health and Human Services. The staff of the Joint Committee on Taxation,
U.S. Congress, has also made estimates of this type, and these tend to be
higher than those shown in this Section (e.g., for Option J-3, the total
savings for 1983-89 shown here as $29 billion are $46 billion according
to the Joint Committee estimate).
Appendix K, page 49
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J. TAXATION OF BENEFITS*
Present law. OASDI benefits are not subject to income tax.
Options.
J-1 Include 50% of OASDI benefits in adjusted gross income for Federal
income-tax purposes, with the proceeds credited to the OASDI Trust
Funds, effective in 1984.
Cost (in billions of dollars)
1989 1983-89
1983 1984 1985 1986 1987 1988
Long-Term Cost: -.6% of taxable payroll
J-2
Same as Option J-1, except that 100% of OASDI benefits would be
included in adjusted gross income.
Cost (in billions of dollars)
1983
1984
1985
1986
1987
1988
1989
1983-89
0
-17.7
-19.5
-21.4
-23.3
-25.3
-27.4
-134.6
Long-Term Cost: -1.4% of taxable payroll
All proposals in this section assume that the tax credit for persons aged
and over is eliminated. Such elimination provides most of the additional
revenue in the early years for proposals J-3, J-4, J-6, and J-7.
Appendix K, page 50
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
J-3 If benefits plus other income exceed $12,000 for single persons or
$18,000 for married couples, then include $1 of OASDI benefits for each
$2 of income above the respective thresholds in adjusted gross income
for Federal income tax purposes, up to a maximum of 50% of OASDI
benefits. (Unemployment benefits are currently treated somewhat in
this manner.) The proceeds would be credited to the OASDI Trust Funds,
effective in 1984.
Cost (in billions of dollars)
1983 1984 1985 1986 1987 1988 1989 1983-89
0 -3.4 -3.9 -4.5 -5.1 -5.7 -6.4 -29.0
Long-Term Cost: .5% of taxable payroll if dollar figures remain unchanged over
the long-range (or .3% of taxable payroll if they are indexed
to wage changes).
J-4 Include the amount of OASDI benefits paid after 1983, after recovery of
employee contributions, in adjusted gross income for Federal income tax
purposes. The proceeds would be credited to the OASDI Trust Funds,
effective in 1984.
Short-Term Cost: Little effect in the first few years. Ultimately, the
effect would be similar to Option J-2.
Long-Term Cost: -1.2% of taxable payroll
J-5 Consider OASDI benefits as "income" for purposes of determining the
marginal Federal income tax rates applicable to other income, but
continue to exclude OASDI benefits from such taxation. The additional
proceeds resulting from such changed procedure would be credited to the
OASDI Trust Funds, effective in 1984.
Cost (in billions of dollars)
1983 1984 1985 1986 1987 1988 1989 1983-89
0 -13.1 -14.4 -15.7 -17.0 -18.3 -19.7 -98.1
Long-Term Cost: n.a.
n.a. = not available
Appendix K, page 51
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
J-6 Include 50% of OASDI benefits in adjusted gross income for Federal
income-tax purposes, phased in over 40 years, with the proceeds being
credited to the OASDI Trust Funds, effective in 1984. At the same
time, there would be a phased-in exclusion of the employee OASDI taxes
from such gross income (the resulting loss in tax revenues would not be
taken from the OASDI Trust Funds).
Short-Term Cost: Little effect in the early years.
Long-Term Cost: -.4% of taxable payroll
J-7 Same as Option J-6, except that 50% of OASDI benefits would be included
in such adjusted gross income in 1984, with increases over 40 years so
that ultimately 100% would be so included.
Short-Term Cost: Little effect in the early years.
Long-Term Cost: -1.20% of taxable payroll
Appendix K, page 52
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
SUMMARY OF SECTION K - OTHER ISSUES
Option No. Description
K-1 Trust-fund investment procedures.
K-2 Social Security and the unified budget.
K-3 Social Security Administration to become an independent agency.
K-4 Benefits to certain overseas beneficiaries.
K-5 Eliminate mandatory retirement.
K-6 Require continued accrual of pensions.
K-7 Encourage employment of low-income older workers.
Appendix K, page 53
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
K. OTHER ISSUES
K-1 Trust-Fund Investment Procedures
Present law. The OASI, DI, HI, and SMI Trust Funds are invested in
U.S. Government obligations, primarily in special issues, but also in
publicly available obligations of the Federal government or certain
Federal agencies. Maturity dates for the special issues are intended
generally to be spread in equal amounts over the next 15 years. The
interest rate for new special issues is equal to the average market-
yield rate on all marketable government obligations that are not due or
callable for at least 4 years.
Option. Revise the investment procedures of the four trust funds in
the following manner -- (1) in the future, all special issues would be
invested on a month-to-month basis, at an interest rate based on the
average market rate of all public-debt obligations outstanding,
exclusive of "flower" bonds; (2) all present special issues would be
redeemed; (3) all "flower" bonds would be redeemed at their current
market values (not their face or maturity values); and (4) all other
current holdings would be held until maturity.
K-2 Social Security and the Unified Budget
Present law. The operations of the OASI, DI, HI, and SMI Trust Funds
are included in the Unified Budget.
Option. Remove the operations of the four trust funds from the Unified
Budget.
K-3 Social Security Administration to Become Independent Agency
Present law. The Social Security Administration is under the
jurisdiction of the Department of Health and Human Services.
Option. Establish an independent Social Security agency, removed from
the Department of Health and Human Services, and reporting directly to
the President. This agency would be headed by a board, which might
consist of three members appointed by the President, with Senate
confirmation (e.g., the Chairman would have a term corresponding with
that of the President, while the other two members would have to be of
different political parties, with 4-year terms expiring at the end of
1986, 1990, etc.).
Appendix K, page 54
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
K-4 Benefits to Certain Overseas Beneficiaries
Present law. OASDI benefits are payable outside of the United
States -- whether to citizens or non-citizens -- on exactly the same
basis as in the United States, except when the individual is a non-
citizen and had only a short period of coverage, or when the individual
is a citizen of a country which does not pay benefits to U.S. citizens
under parallel circumstances, or when the individual is residing in a
country where there is no reasonable assurance that checks can be
cashed at full value.
Option. Prohibit benefit eligibility for auxiliary benefits for
spouses and children of beneficiaries living abroad when such auxiliary
beneficiary had not resided in the U.S. for at least 5 years and when
such auxiliary beneficiary continues to reside abroad.
Long-Term Cost: -.01% of taxable payroll
K-5 Eliminate Mandatory Retirement
Amend the Age Discrimination in Employment Act to remove the upper age
limit of 70, thereby eliminating mandatory retirement at any age.
Long-Term Cost: -.03% of taxable payroll
K-6 Require Continued Accrual of Pensions
Amend the Employee Retirement Income Security Act to require employers
to continue accruing pensions for workers after age 65.
Long-Term Cost: n.a.
K-7 Encourage Employment of Low Income Older Workers
Amend the Targeted Jobs Tax Credit to include low income older workers
(age 62+).
Long-Term Cost: n.a.
Appendix K, page 55
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
LIST OF TABLES
1. Summary of current Social Security information.
2. Past and future OASDI-HI tax rates and taxable earnings bases (Table A --
employer and employee, each; Table B -- employer and employee combined;
Table C -- self-employed).
3. Growth of OASDI-HI programs, selected years 1940-81 and estimated future
operations during CY 1982-86 under Alternatives II-A and II-B. (Tables A-C
refer to OASDI and Table D refers to HI.)
4. Historical trust-fund ratio levels for OASDI, DI, and HI Trust Funds, 1950
to present.
5. Estimated operations of the OASI, DI, and HI Trust Funds in the short
range, Alternatives I, II-A, II-B, and III.
6. Long-range status of the OASDI-HI Trust Funds under Alternatives I, II-A,
II-B, and III.
7. Estimated cost rates of the OASDI-HI system under Alternatives II-A, II-B,
and III and comparison with tax rates, 1982-2060. (Tables A, B, and C)
8. Estimated OASI and DI Trust Fund ratios under Alternatives I, II-A, II-B,
and III, 1982-2060.
9. Estimated cost of OASDI and HI systems as percent of Gross National
Product, 1982-2060. (Tables A and B)
10. Additional resources required under present law in near term to bring OASDI
reserves up to certain levels (trust fund ratios of 15%, 25%, 50%, and 75%)
under Alternatives II-B and III. (Tables A-D)
11. Comparison of OASDI beneficiaries and covered workers; includes worker to
beneficiary ratios, historical and projected under Alternatives I, II-A,
II-B, and III, 1945-2060.
12. Demographic data -- historical and assumptions under Alternatives I, II-A,
II-B, and III regarding total fertility rate and life expectancy (at birth
and at age 65), 1940-2060.
13. Economic data -- historical and assumptions under Alternatives I, II-A,
II-B, and III, 1960-2060.
14. Comparison of estimated and actual key economic indicators -- 1972 and 1977
forecasts.
15. Social Security coverage (includes information on percentage of workers
covered, percentage of earnings covered and taxable payroll).
16. Social Security taxes paid by workers at Federal minimum, average, and
maximum wage levels, 1937-90 (employees and the self-employed).
17. Historical comparison of average wage increases and increase in the CPI to
Social Security benefit increases. (Tables A and B)
Appendix K, page 56
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Table 1
SUMMARY OF CURRENT SOCIAL SECURITY INFORMATION
1. Retirement Test (Annual Exempt Amounts in 1982): Age 65 and over - $6,000
Under age 65 - $4,440
2. SMI Premium: $12.20 per month (eff. 7/82)
3. SSI Payment Standard: $284.30 individual, $426.40 couple (eff. 7/82)
4.
5.
Benefit Formulas for 1982 Cohort
PIA
Maximum Family Benefit
90% of first $230 of AIME, plus
32% of AIME over $230 thru $1,388, plus
15% of AIME over $1,388
Average Benefits in Current Pay Status: 1 /
150% of first 294 of PIA, plus
272% of PIA over $294 thru $425, plus
134% of PIA over $425 thru $554, plus
175% of PIA over $554
12/81
5/82
6/82
Retired worker alone
3 7
$378
0-6
Retired couple
643
647
695
Aged widow or widower
349
351
377
Young survivor family
858
851
914
Disabled worker alone
397
398
428
Disabled worker and family
Benefit Examples:
802
793
851
Long-Range Constant Replacement
Retired Worker Age 65 in 1983 Rate Under Decoupled System
1/83 PIA
Fed. min. wage earner
$368.70
Fed. minimum wage earner 55%
Average earner
552.50
Average earner
42
Maximum earner
709.50
Maximum earner
28
7.
Poverty Level:
1980
1981
1982
(actual)
(preliminary)
(projected)
Aged individual
$3,949
$4,360
4,680
Couple, aged head
4,983
5,500
5,900
Family of four
8,414
9,290
9,970
Office of the Actuary, Social Security Administration
2/ Office of Research and Statistics, Social Security Administration
Appendix K, page 57
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Table 2A
PAST AND FUTURE TAX RATES FOR EMPLOYERS,
EMPLOYEES, AND SELF-EMPLOYED PERSON
OASDI
HI
OASDI-HI
Employers and Employees, Each
1977
4.95%
.90%
5.85%
1978
5.05
1.00
6.05
1979-80
5.08
1.05
6.13
1981
5.35
1.30
6.65
1982-84
5.40
1.30
6.70
1985
5.70
1.35
7.05
1986-89
5.70
1.45
7.15
1990 and after
6.20
1.45
7.65
Self-Employed Persons
1977
7.00%
.90%
7.90%
1978
7.10
1.00
8.10
1979-80
7.05
1.05
8.10
1981
8.00
1.30
9.30
1982-84
8.05
1.30
9.35
1985
8.55
1.35
9.90
1986-89
8.55
1.45
10.00
1990 and after
9.30
1.45
10.75
Appendix K, page 58
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Table 2B
PAST AND FUTURE TAX RATES AND TAXABLE EARNINGS BASES
FOR EMPLOYER AND EMPLOYEE COMBINED
Taxable
Tax R ate
Maximum
Period
Earnings
Base
OASDI a/
HI
Total
Employee
Annual Tax
1937-49
$ 3,000
2.05
2.0%
$ 30.00
1950
3,000
3.0
3.0
45.00
1951-53
3,600
3.0
3.0
54.00
1954
3,600
4.0
4.0
72.00
1955-56
4,200
4.0
4.0
84.00
1957-58
4,200
4.5(.5)
4.5
94.50
1959
4,800
5.0(.5)
5.0
120.00
1960-61
4,800
6.0(.5)
6.0
144.00
1962
4,800
6.25(.5)
6.25
150.00
1963-65
4 , 800
7.25(.5)
7.25
174.00
1966
6,600
7.7(.7)
.75
8.4
277.20
1967
6,600
7.8(.7)
1.0
8.8
290.40
1968
7,800
7.6(.95)
1.2
8.8
343.20
1969
7,800
8.4(.95)
1.2
9.6
374.40
1970
7,800
8.4(1.1)
1.2
9.6
374.40
1971
7,800
9.2(1.1)
1.2
10.4
405.60
1972
9,000
9.2(1.1)
1.2
10.4
468.00
1973
10,800
9.7(1.1)
2.0
11.7
631.80
1974
13,200
9.9(1.15)
1.8
11.7
772.20
1975
14,100
9.9(1.15)
1.8
11.7
824.85
1976
15,300
9.9,(1.15)
1.8
11.7
895.05
1977
16,500
9.9(1.15)
1.8
11.7
965.25
1978
17 , 700
10.1(1.55)
2.0
12.1
1,070.85
1979
22,900
10.16(1.50)
2.1
12.26
1,403.77
1980
25,900
10.16(1.12)
2.1
12.26
1,587.67
1981
29,700
10.7(1.30)
2.6
13.3
1,975.05
1982
32.400
10.8(1.65)
2.6
13.4
2.170.80
1983
35,700
10.8(1.65)
2.6
13.4
2,391.90
1984
38,100 b/
10.8(1.65)
2.6
13.4
2,552.70
1985
41,100 b/
11.4(1.90)
2.7
14.1
2,897.55
1986-89
b/
11.4(1.90)
2.9
14.3
b/
1990 and after
12.4(2.20)
2.9
15.3
b/
a/ Figures in parentheses are
portion of total OASDI tax which is allocated to DI.
b/ Base is subject to automatic adjustment after 1981. Figures for 1984-85 are
based on the 1982 Trustees Report (intermediate assumptions -- Alternative II-B).
Note: Cumulative employee taxes at maximum wages are $14,765.69 for 1937-81 and
$14,330.69 for 1951-81.
Appendix K, page 59
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Table 2C
PAST AND FUTURE TAX RATES AND TAXABLE EARNINGS BASES
FOR SELF-EMPLOYED
Taxable
Tax Rate
Earnings
Base
OASDIa/
HI
Total
Maximum
Annual Tax
1951-53
$ 3,600
2.25%
2.25%
$ 81.00
1954
3,600
3.00
3.00
108.00
1955-56
4,200
3.00
3.00
126.00
1957-58
4,200
3.375(.375)
3.375
141.75
1959
4,800
3.75(.375)
3.75
180.00
1960-61
4,800
4.50(.375)
4.50
216.00
1962
4,800
4.70(.375)
4.70
225.60
1963-65
4,800
5.40(.375)
5.40
259.20
1966
6,600
5.80(.525)
.35
6.15
405.90
1967
6,600
5.90(.525)
.50
6.40
422.40
1968
7,800
5.80(.7125)
.60
6.40
499.20
1969
7,800
6.30(.7125)
.60
6.90
538.20
1970
7,800
6.30(.825)
.60
6.90
538.20
1971
7,800
6.90(.825)
.60
7.50
585.00
1972
9,000
6.90(.825)
.60
7.50
675.00
1973
10,800
7.00(.795)
1.00
8.00
854.00
1974
13,200
7.00(.815)
.90
7.90
1,042.80
1975
14,100
7.00(.815)
.90
7.90
1,113.90
1976
15,300
7.00(.815)
.90
7.90
1,208.70
1977
16, 500
7.00(.815)
.90
7.90
1,303.50
1978
179700
7.10(1.0900)
1.00
8.10
1,433.70
1979
22,900
7.05 (1.0400)
1.05
8.10
1,854.90
1980
25,900
7.05(.7775)
1.05
8.10
2,097.90
1981
29,700
8.00(.9750)
1.30
9.30
2,762.10
1982
32,400
8.05(1.2375)
1.30
9.35
3,029.40
1983
35,700
8.05(1.2375)
1.30
9.35
3,337.95
1984
38,100 b/
8.05(1.2375)
1.30
9.35
3,562.35
1985
41,100 b/
8.55(1.4250)
1.35
9.90
4,068.90
1986-89
b/
8.55(1.4250)
1.45
10.00
b/
1990 and after b/
9.30(1.6500)
1.45
10.75
F1
a/
Figures in parentheses are portion of total OASDI tax which is allocated to DI.
b/ Base is subject to automatic adjustment after 1981. Figures for'1984-85 are
based on 1982 Trustees Report (intermediate assumptions -- Alternative II-B).
Note: Cumulative self-employed taxes at maximum earnings are $19,847.10 for
1951-81
Appendix K, paqe 60
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
OPERATIONS OF THE OASI AND DI TRUST FUNDS, COMBINED, DURING SELECTED CALENDAR YEARS 1960-81 AND ESTIMATED FUTURE
OPERATIONS DURING CALENDAR YEARS 1982-86 UNDER THE INTERMEDIATE SETS OF ASSUMPTIONS
[In millions]
Payments
to non-
Noncon- insured
tributory persons
Contribu- credits for aged 72 Interest on
Lions, less military and invest-
Calendar year Total refunds service over manta
Reimbursements from the
general fund of Treasury
for costs of-
Pant
1 ......................... $12,445 $11,876 - - $569
1965 ......................... 17,857 17,205 - - 651
1970 ......................... 36,993 34,737 $94 $371 1,791
1975 ......................... 67,640 64,259 247 268 2,866
1976 ......................... 75,034 71,595 481 236 2,722
1977 ......................... 81,982 78,710 513 228 2.531
1978 ......................... 91,904 88,883 526 230 2,264
1979 ......................... 105,864 103,034 511 164 2,155
1980 ......................... 119,712 116,711 521 150 2,330
1981 ......................... 142,438 139,364 703 140 2,231
Estimated future
experience:
Alternative II-A:
1982 ................. -152976 976 149528 716 139 1,814
1983 ................. 165, 754 183, 924 727 125 978
1984 ................. 178,896 178,195 735 109 -143
1985 ................. 205,535 205,329 743 92 -629
1986 ................. 225,099 224,744 521 78 -243
Alternative II-B:
1982 ................. 1154,093 146,300
1983 ................. 163,129 161,969
1984 ................. 178,640 178,861
1985 ................. 204,476 205,702
1986 ................. 222,467 224.449
716 139 1,625
727 126 308
736 108 -1,065
747 92 -2.065
608 78 -2,888
'Adjusted to exclude benefits for December 1981 that were paid on December 31, 1981 rather
than January 3, 1982 which was a Sunday. These benefits are included in the 1982 figure so that
amounts for 1981 and 1982 each reflect 12 months of benefit payments and are comparable to
figures for other calendar years.
'Less than $500,000.
'Includes $779 million assumed to be borrowed from the HI Trust Fund under the interfund
borrowing provisions.
Payments
for
vocational Transfers
rehabili- Admirrstra- to Railroad Net Funds at
Benefit tation five Retirement increase and of
Total payments services expenses Account in funds period
$11,798 $11,245 - $240 $314 $647 $22,613
19,187 18,311 - 418 459 -1,331 19,841
33,108 31,863 $20 635 589 3,886 38,068
69,184 66,923 99 1,152 1,010 -1,544 44,342
78,242 75.665 95 1,244 1,239 -3.209 41,133
87,254 84,576 92 1,379 1,208 -5,272 35,861
96,018 92,865 95 1.439 1,618 -4,115 31,746
107,320 104,263 96 1,483 1,477 -1,456 30,291
123,550 120,512 86 1,522 1,430 -3,838 26,453
144,352 '140.996 (1) 1,742 1,614 -1,914 24,539
160,287 156,135 167 1,984 2,001 -7,311 17,228
174,633 170,175 12 2,232 2,214 -8,879 8,349
188,942 184,268 14 2.276 2,384 -10,046 -1,697
203,146 198,273 12 2,383 2,479 2,389 691
217,743 212,735 10 2,542 2,456 7,357 8,048
180,279 156,127 167 1,984 2,001 -6,186 18,353
175,465 170,983 12 2,232 2,238 -12,336 6.017
193,282 188,537 14 2,317 2.414 -14,642 -8,624
212,518 207,478 12 2,486 2,542 -8,042 -16,667
231.387 226,125 10 2,623 2,630 -8,920 -25,587
'Includes $5,313 million assumed to be borrowed from the HI Trust Fund under the interfund
borrowing provisions.
DOTE: Projections do mt reflect the effects of the Tax Equity and Fiscal Responsibility Act
of 1982 (P.L.97-248) --see Table 5 for summarized cost estimates including such effects.
SOURCE: Table 24 in 1982 OASDI Trustees Report
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
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Appendix K, page 62
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
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~.. N ."."N.. -C .4-S d ddd 0 000 000
0 V. Y .".~.~.".4 N NNN NNN
,4 00 ^ e ? V)
Y
06 P.
4)
0 Y ?
W w M 0
Nw1n O.NM.D00N nd O
.... .+.-4 N NMd
H
0 0 .O .4 N n Cl Cl .I ." .4 ... 0 Cl 00ODd P. o.
M?? NO N.".0000 N n N 0 M O. M
^ 0 0 N Cl c lc 00 Cl M d d .0 00 .0 4- .0 .0
0 i 0 Y N ./
N
W M
4 M
0.
M
?
d N
0 0 000 1. 40 Q
a a I.
""1
40 O14
1
'
. M O M C ?
%4 00 14
0
?
00 ? O /+ '.~ Y
O 1.yi u0 On
O 0 Y 'O N vs 4.4
Y W Y Y w 0 .0 Y O
01 Y S. 0 41
0 0 Y Y v u? r'
Y M Y 1.
Y 0 '."1 '0 Y W
Y 0 ~ 0 0 ~ ii 14 0^ W 14
M1 r W
N l?1 dd O' Y.4 Y Y 14 YY ? .1) a"
M w1 . ? 00 410 P. a 0)
O bC :u Y. 0LY S"" O nUI1 0 U)
W u y V '0 Y 0% m0 e
o
44 0
14 A ? r ~. ~' X. n S; .. a [7S N
Ob 00n 0b 03n ? " y.~
a 4j 11 0) D., ~4
'0 0 0 0~ Y Y i 0 N
FA cq
Y n a nw '.?1w M ,1 4 r
.i ? rl i N ? w a Id MM ? '9 V 404
M
-e C4 go WN eq MMM /d?1MM O. '.4.14 ti 0~C0 "Oa O N.2.1 U) N
Go 40 0 .
Y b 0 'O '.?. O~ 0 ?.~i O N lO
.1 M w u
O / y~ ~
? ?? m N M 0 Y 0. H r-'1
d?f w1 00 NM10 M '4 yq '4 ? 0^~ 0 ? 2 -2
~^1''
u d O. N n d 10 r. d u Y? Y N N va O~ O Y! H
.On0D M
0. 0.1 N Md w1 'O n 000. 0 .1 Y NMd w NMd H r y0 u M 4 0 0?
.D .O '0 .O n n n n n r n r' n 00 00 "-1 Y 00 CO 00 Y 00 00 co
01 O. 0. O. 0. 0. 0. O. 0. 0. 0. 0. O. 0. O. 0. 0 N O. 0. 0. u 0. 0. 0.
.+ ." ." .w ." ." .r ." ." .+ ." .~ .~ .~ .1 .1 -. .~ .~ .1 .1 .a .~ .ti
?i -41 NI NI ~1 +I
Appendix K, page 64
.Odd d .0.O Cl 0. N 0 M 0 d- 10
."d .1.0.0.0.00. M Md .40..4 n
.1 .-..-. N .?. N N
01
00 N .O M .1 ." .. d d N P, ?Q d 0D 00 0.
? 31 w1 .-IP40pNMd?00N.. N.O..00 w%
vy 00 .".-1d 00 o.na ao wln." MnaDO.
Cf .i . .iaaa wi 0~0I N 4 . n "N N
14 N'1
g:
Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Table 4
HISTORICAL LEVELS OF TRUST-FUND RATIOS FOR
OASI, DI, AND HI TRUST FUNDS
ASSETS AT THE BEGINNING OF THE YEAR AS A PERCENTAGE OF EXPENDITURES
DURING THE YEAR, FOR THE OASDI PROGRAM, BY TRUST FUND, FOR SELECTED CALENDAR
YEARS 1950-81
OASI and DI Trust Funds,
combined
OASI Trust Fund
DI Trust Fund
1950
........................................................
1,156
1,156
1955
...........................................................
405
405
1960
...........................................................
186
180
304
1965
...........................................................
110
109
121
1970
....................................................
.
103
101
126
1975
.....
.
...........................................................
66
63
92
1976
...........................................................
57
54
71
1977
...........................................................
47
47
48
1978
...........................................................
37
39
26
1979
...........................................................
30
30
30
1980
...........................................................
25
23
35
1981
...........................................................
18
18
21
RATIO OF ASSETS IN THE FUND AT THE BEGINNING OF
THE YEAR TO DISBURSEMENTS DURING THE YEAR FOR
THE HOSPITAL INSURANCE TRUST FUND
(In percent)
Calendar Year
Ratio
1967
28%
1968
25
1969
43
1970
47
1971
54
1972
47
1973
40
1974
69
1975
79
1976
77
1977
66
1978
57
1979
54
1980
52
1981
45
SOURCE: Table 16 in 1982 OASDI Trustees Report
and Table 7 in 1982 HI Trustees Report
Appendix K, page 65
Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Estimated operations of the OASI, DI, and HI Trust Funds index the program as modified by the
Tax Equity and Fiscal Responsibility Act of 1982, an the basis of the 1982 Trustees Report
alternative II-B assumptions, calendar years 1981-91
year QASI DI O MI HI Total QASI DI Q4SDI HI Total
1981 $125.4 $17.1 $142.4 $35.7 $178.2 $126.7 $17.7 $144.4 $30.7 $175.1
1982 137.7 16.6 154.3 32.6 187.0 141.9 18.1 160.0 35.6 195.6
1983 136.5 26.1 162.6 44.0 206.6 156.5 19.0 175.5 40.8 216.3
1984 149.2 29.6 178.8 48.4 227.2 173.0 19.9 192.9 46.3 239.2
1985 167.3 37.5 204.8 54.5 259.3 190.9 21.3 212.2 51.9 264.1
1986 180.9 42.0 222.9 63.2 286.1 208.5 22.7 231.2 58.8 290.0
1987 194.5 46.5 241.0 68.5 309.5 226.3 24.2 250.6 66.9 317.5
1988 209.1 51.3 260.4 73.8 334.2 244.5 25.8 270.3 76.0 346.4
1989 223.9 56.5 280.4 78.9 359.3 263.2 27.6 290.8 86.1 376.9
1990 257.0 69.6 326.7 83.8 410.5 282.2 29.4 311.6 %.8 408.4
1991 275.7 76.7 352.4 88.5 440.9 300.8 31.4 332.1 108.7 440.8
Net increase Finds at end Assets at beginning of year as a
in funds of year percentage of outgo during year
QASI DI QASDI HI Total OAST DI (14S)I HI Total Q4SI DI QASDI HI Total
1981 -$1.3 -$).6 -$1.9 $5.0 $3.1 $21.5 $3.0 $24.5 $18.7 $43.3 18% 21% 18% 45% 23%
1982 -4.2 -1.5 -5.7 -3.0 -8.6 17.3 1.6 18.9 15.8 34.6 15 17 15 53 22
1983 -20.0 7.1 -12.8 3.2 -9.6 -2.6 8.7 6.1 19.0 25.0 11 8 11 39 16
1984 -23.8 9.7 -14.1 2.1 -12.0 -26.4 18.4 -8.0 21.0 13.0 -2 44 3 41 10
1985 -23.6 16.2 -7.4 2.6 -4.8 -50.0 34.6 -15.4 23.6 8.2 -14 86 -4 41 5
1986 -27.6 19.2 -8.4 4.4 -3.9 -77.6 53.8 -23.8 28.0 4.3 -24 152 -7 40 3
1987 -31.8 22.2 -9.6 1.6 -7.9 -109.4 76.1 -33.4 29.7 -3.7 -34 222 -9 42 1
1988 -35.4 25.5 -9.9 -2.3 -12.2 -144.9 101.6 -43.3 27.4 -15.9 -45 294 -12 39 -1
1989 -39.3 28.9 -10.4 -7.2 -17.7 -184.2 130.4 -53.7 20.2 -33.6 -55 368 -15 32 -4
1990 -25.1 40.2 15.1 -13.0 2.1 -209.3 170.6 -38.7 7.2 -31.5 -65 443 -17 21 -8
1991 -25.1 45.4 20.3 -20.2 .1 -234.4 216.0 -18.4 -13.0 -31.4 -70 544 -12 7 -7
Notes: 1. The income figures for 1982, and the end-of-year asset figures for 1982 ad later, reflect the transfer of
funds from the DI and HI Trust Funds to the OASI Trust Fund under the interfuzd borrowing authority
provided by Public Law 97-123. ihder this set of assumptions, a total of $11.6 billion would be
transferred to QGSI in 1982, $6.2 billion from DI and $5.5 billion from HI.
2. The estimated operations for OASI, Q4SDI, and OASDI and HI combined in 1983 and later are theoretical
since, following the expiration of the present law interfund borrowing authority, the OASI Trust F1nd
would became depleted in July 1983 when assets would became insufficient to pay benefits when due.
Similarly, the HI Trust Fund operations in 1991 are theoretical, since the fund would be depleted in
1991 under this set of assumptions.
Appendix K, page 66
Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Estimated operations of the QASI, DI, and HI Trust Funds under the program as modified by the
Tat Equity and Fiscal Responsibility Act of 1982, an the basis of the 1982 Trustees Report
alternative III assumptions, calendar years 1981-91
1982
138.4
16.6
155.1
31.8
186.9
141.9
18.1
160.0
35.6
195.6
1983
133.3
25.6
158.9
43.0
201.9
157.7
19.1
176.8
40.8
217.6
1984
142.9
28.7
171.6
47.0
218.6
177.2
20.3
197.5
46.7
244.2
1985
.162.3
37.1
199.4
53.7
253.2
199.8
22.2
222.0
54.2
276.3
1986
177.3
42.4
219.7
63.1
282.8
224.0
24.3
248.3
63.7
312.0
1987
192.6
48.0
240.6
69.3
309.9
250.2
26.5
276.6
75.2
351.9
1988
208.8
54.0
262.8
75.3
338.2
277.7
28.9
306.6
88.7
395.3
1989
225.6
60.6
286.2
81.1
367.3
306.8
31.6
338.4
104.2
442.6
1990
262.5
76.1
338.5
86.5
425.0
337.5
34.4
372.0
121.7
493.6
1991
285.0
85.6
370.5
91.5
462.0
369.4
37.6
406.9
142.0
548.9
Net increase
Funds at end
Assets at beginning of year as a
in funds
of year
percentage of outgo during year
OASI
DI
OASDI
HI
Total
QQSI
DI QASDI HI
Total
QASI
DI
QkSDI
HI
Total
1982
-3.5
-1.5
-5.0
-3.8
-8.7
18.0
1.6 19.6 15.0
34.5
15
17
15
53
22
1983
-24.4
6.5
-17.9
2.2
-15.6
-6.4
8.1 1.7 17.2
18.9
11
8
11
37
16
1984
-34.3
8.4
-25.9
.2
-25.7
-40.7
16.4 -24.3 17.5
-6.8
-4
40
1
37
8
1985
-37.5
14.9
-22.6
-.5
-23.1
-78.2
31.4 -,46.8 17.0
-29.9
-20
74
-11
32
-2
1986
-46.7
18.2
-28.5
-.6
-29.1
-124.9
49.5 -75.4 16.4
-59.0
-35
129
-19
27
-10
1987
-57.6
21.5
-36.1
-5.9
-42.0
-182.5
71.0 -111.4 10.5
-101.0
-50
187
-27
22
-17
1988
-68.9
25.1
-43.8
-13.3
-57.1
-251.3
%.1 -155.2 -2.9
-158.1
-66
246
-36
12
-26
1989
-81.2
29.0
-52.2
-23.1
-75.3
-332.6
125.1 -207.4 -26.0
-233.4
-82
305
-46
-3
-36
1990
-75.1
41.6
-33.5
-35.2
-668.6
-407.6
166.8 -240.9 -61.1
-302.0
-99
363
-56
-21
-47
1991
-84.4
48.0
-36.4
-50.5
-87.0
-492.0
214.8 -277.3 -111.7
-389.0
-110
444
-59
-43
-55
Notes: 1. The income figures for 1982, and the end-of-year asset figures for 1982 and later, reflect the transfer of
funds from the DI and HI Trust Funds to the OASI Trust Fund under the interfund borrowing authority
provided by Public lap 97-123. Under this set of assumptions, a total of $12.4 billion would be
transferred to OASI in 1982, $6.1 billion from DI and $6.3 billion from HI.
2. The estimated operations for QA.SI, QASDI, and QASDI and HI combined in 1983 and later are theoretical
since, following the expiration of the present law interfurd borrowing authority, the OASI Trust Find
would become depleted in July 1983 when assets would become insufficient to pay benefits when due.
Similarly, the HI Trust Fund operations in 1988 and later are theoretical, since the fund would be
depleted in 1988 under this set of assumptions.
Appendix K, page 67
Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
-Estimated operations of the OASI and DI Trust Funds under the
program as modified by the Tax Equity and Fiscal Responsibility Act of 1982,
on the basis of the 1982 Trustees Report alternative I assumptions,
calendar years 1981-91
Income
year OASI DI OASDI
1981 $125.4 $17.1 $142.4
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
136.2 16.6 152.9
140.1 26.6 166.7
154.5 30.2 184.8
175.4 38.4 213.8
191.2 43.0 234.2
207.6 47.6 255.2
224.4 52.4 276.8
241.4 57.3 298.7
274.9 69.7 344.6
296.7 76.5 373.2
Net increase Funds at end
in funds of year
OASI DI OASDI OASI DI
OASI DI OASDI
$126.7 $17.7 $144.4
141.8 18.1 160.0
155.2 18.8 174.1
168.3 19.4 187.6
181.1 20.3 201.4
193.5 21.3 214.7
206.0 22.3 228.4
218.2 23.5 241.7
227.1 24.4 251.5
238.8 25.7 264.6
250.9 27.3 278.2
Assets at beginning of
year as a percentage
of outgo during year
OASDI OAS I DI OASDI
1981 -$1.3 -$0.6 -$1.9 $21.5 $3.0 $24.5 18%
1982 -5.6 -1.5 -7.1 15.1
1983 -15.1 7.8 -7.3 .8
1984 -13.7 10.9 -2.9 -13.0
1985 -5.7 18.2 12.5 -18.6
1986 -2.2 21.7 19.5 -20.9
1987 1.6 25.3 26.9 -19.3
1988 6.2 28.9 35.0 -13.1
1989 14.3 32.9 47.2 1.2
1990 36.1 44.0 80.0 37.3
1991 45.8 49.2 95.0 83.1
1.6 17.5 15 17 15
9.4 10.1 10 8 10
20.2 7.3 (1/) 48 5
38.4 19.8 -7 100 4
60.1 39.2 -10 180 9
85.4 66.1 -10 269 17
114.2 101.1 -9 363 27
147.1 148.3 -6 468 40
191.1 228.4 1 572 56
240.3 323.4 15 701 82
1/ Between 0.0 percent and 0.5 percent.
Notes: 1. The income figures for 1982, and the end-of-year asset figures for
1982 and later, reflect the transfer of funds from the DI and HI
Trust Funds to the OASI Trust Fund under the interfund borrowing
authority provided by Public Law 97-123. Under this set of
assumptions, a total of $9.6 billion would be transferred to OASI in
1982, $6.2 billion from DI and $3.4 billion from HI.
2. The estimated operations for OASI and OASI and DI combined in 1983
and later are theoretical since, following the expiration of the
present law interfund borrowing authority, the OASI Trust Fund
would become depleted in July 1983 when assets would become
insufficient to pay benefits when due.
Note: Health ('are Financing A%?ministxation ,.na'-le to supply L?I cost estinatPs.
Appendix K, page 68
Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Table 5D
--Estimated operations of the OASI and DI Trust Funds under the
program as modified by the Tax Equity and Fiscal Responsibility Act of 1982,
on the basis of the 1982 Trustees Report alternative II-A assumptions,
calendar years 1981-91
year
OASI
DI
OASDI
OASI
DI
OASDI
1981
$125.4
$17.1
$142.4
$126.7
$17.7
$144.4
1982
136.6
16.7
153.2
141.9
18.1
160.0
1983
138.3
26.5
164.9
155.7
18.9
174.6
1984
148.9
29.8
178.7
169.1
19.5
188.6
1985
167.4
38.0
205.4
182.4
20.4
202.9
1986
182.0
43.0
225.0
196.1
21.5
217.6
1987
198.0
48.0
246.1
210.6
22.8
233.3
1988
215.2
53.2
268.3
225.6
24.2
249.8
1989
232.4
58.5
290.9
241.2
25.8
267.0
1990
268.3
71.9
340.2
256.8
27.5
284.3
1991
289.0
78.9
367.9
271.9
29.3
301.2
Net increase Funds at end
Assets at beginning of
year as a percentage
in funds
of year
of outgo during year
OASI
DI
OASDI
OASI DI
OASDI
OASI DI OASDI
19b2
-5.3
-1.5
-6.8
16.2
1.6
17.8
15
17
15
1983
-17.4
7.7
-9.8
-1.2
9.2
8.0
10
8
10
1984
-20.3
10.3
-10.0
-21.5
19.5
-2.0
-1
47
4
1985
-15.1
17.6
2.5
-36.5
37.1
.6
-12
96
-1
1986
-14.1
21.5
7.4
-50.6
58.6
8.0
-19
172
(1/)
1987
-12.5
25.3
12.7
-63.2
83.9
20.7
-24
258
3
1988
-10.5
29.0
18.5
-73.6
112.8
39.2
-28
347
8
1989
-8.8
32.7
23.9
-82.4
145.5
63.1
-31
438
15
1990
11.6
44.4
56.0
-70.9
189.9
119.1
-32
529
22
1991
17.1
49.6
66.6
-53.8
239.5
185.7
-26
647
40
l/ Between 0.0 percent and 0.5 percent.
Notes: 1. The income figures for 1982, and the end-of-year asset figures for
1982 and later, reflect the transfer of funds from the DI and HI
Trust Funds to the OASI Trust Fund under the interfund borrowing
authority provided by Public Law 97-123. Under this set of
assumptions, a total of $10.0 billion would be transferred to OASI
in 1982, $6.2 billion from DI and $3.7 billion from HI.
2. The estimated operations for OASI and OASI and DI combined in 1983
and later are theoretical since, following the expiration of the
present law interfund borrowing authority, the OASI Trust Fund
would become depleted in July 1983 when assets would become
insufficient to pay benefits when due.
Note: Health Care Financing Administration was unable to supply HI cost estimates.
Appendix K, page 69
Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
LONG-RANGE STATUS OF OASDI-HI TRUST FUNDS
COMPARISON OF ESTIMATED AVERAGE COST RATE WITH AVERAGE TAX RATE
BY ALTERNATIVE AND TRUST FUND
IAs percent of taxable wry
Esam1W awra9s Cost rote by
$lt.rnstne Utterance by allemsew
OASI:
1992.2006..-.
9.93
8.64
9.31
10.14
11.37
1.29
0.63
-021
-1.44
2007-31.-._..
1020
9.64
11.55
12.43
15.63
.36
-1.36
-223
-5.63
2032.56.........
10.20
10.56
14.11
1520
23.60
-.36
-3.91
?5.00
-13.40
Dl:
1962.2056.....
10.11
9.69
11.66
12.59
16.93
.42
-1.55
?2.46
-6.92
1962.2006._.
2.07
1.11
1.16
123
1.36
.97
.92
.65
.72
2607.31.... ..
220
1.45
1.57
1.65
2.00
.76
.63
.5S
20
2032.56....._.
9
2.20
1.30
1.54
1.61
2.07
.90
.66
.59
.13
62.2056-_
Total: 1
2.16
129
1.42
1.50
1.61
.87
.73
.66
.35
1962.2006.._
12.01
9.75
10.46
11.37
12.73
2.26
1.55
.64
?.72
2007.31..._.
12.40
11.30
13.15
14.06
17.64
1.10
-.7S
?1.66
?5.44
2032.56.....
12.40
11.66
15.65
16.61
25.66
.52
-325
-4.41
?1326
1962-2056..-.
12.27
10.96
13.09
14.09
18.74
129
-.62
?1.62
-047
Note: The ditionc of ahernativet 1. 11-A. II-H, and 111. Cost rate. tax rate, and usable payroll a presented a the
tau Tomb do= semrrily equal the clan of rounded oompooents,
ACTUARIAL BALANCE OF THE HOSPITAL INSURANCE PROGRAM,
UNDER ALTERNATIVE SETS OF ASSUMPTIONS a/
(Percent of Taxable Payroll)
Alternative
I
II-A
I-B
I
Average contribution rate, scheduled
under present law b/
2.86%
2.86%
2.86%
2.86%
Average cost of the program, for
expenditures and for trust fund
maintenance c/
3.72 a/
4.49 a/
4.93 a/
6.59 a/
Actuarial balance
-0.86
-1.63
-2.07
-3.73
a/ Does not reflect the effect of the Tax Equity and Fiscal Responsibility Act of
1982 (P.L. 97-248). When the effect of this legislation is taken into account,
the average 25-year cost exclusive of trust-fund building and maintenance under
Alternative II-B is 4.34% of taxable payroll (as contrasted with the comparable
figure of 4.83% before enactment of such legislation).
b/ Average for the 25-year period, 1982-2006.
c/ Average for the 25-year period, 1982-2006, expressed as a percentage of taxable
payroll.
NOTE: Taxable payroll is adjusted to take into account the lower contribution
rates on self-employment income, on tips, and on multiple-employer "excess
wages" as compared with the combined employer-employee rate.
SOURCE: 1982 OASDI-HI Trustees Report.
Appendix K, page 70
Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Table 7A
ESTIMATED COST RATES OF THE OASDI SYSTEM UNDER ALTERNATIVES II-A AND
II-B AND COMPARISON WITH TAX RATES, CALENDAR YEARS 1982-2060
[As percent of taxable payroll]
Alternative 11-A:
1982 ...................................................
1983 ...................................................
1984 ...................................................
1985 ...................................................
1986 ...................................................
1987 ...................................................
1988 ...................................................
1989 ...................................................
1990 ...................................................
1991 ...................................................
1992 ...................................................
1993 ...................................................
1994 ...................................................
1995 ...................................................
1996 ...................................................
1,997 ...................................................
1998 ...................................................
1999 ...................................................
2000 ...................................................
2001 ...................................................
2002 ...................................................
2003 ...................................................
2004 ...................................................
2005 ...................................................
2006 ...................................................
2010 ...................................................
2015 ...................................................
2020 ...................................................
2025 ...................................................
2030 ...................................................
2035 ...................................................
2040 ...................................................
2045 ...................................................
2050 ...................................................
2055 ...................................................
2060 ...................................................
25-year averages:
10.18
10.21
10.22
10.07
9.91
9.75
9.63
9.53
9.45
9.38
9.35
9.33
9.29
9.25
9.15
9.07
9.00
8.92
8.82
8.73
8.68
8.66
8.65
8.68
8.72
9.17
10.35
11.88
13.36
14.22
14.39
14.12
13.93
13.98
14.10
14.12
1.33
1.25
1.19
1.13
1.09
1.06
1.03
1.02
1.01
1.01
1.03
1.04
1.05
1.07
1.10
1.13
1.16
1.18
1.20
1.23
1.25
1.28
1.32
1.37
1.39
1.52
1.61
1.65
1.61
1.53
1.50
1.52
1.56
1.55
1.53
1.52
11.51
11.46
11.41
11.20
11.00
10.81
10.66
10.55
10.47
10.39
10.37
10.37
10.35
10.32
10.25
10.20
10.15
10.10
10.03
9.96
9.93
9.94
9.97
10.06
10.11
10.69
11.96
13.53
14.96
15.75
15.89
15.64
15.48
15.53
15.63
15.63
10.80
10.80
10.80
11.40
11.40
11.40
11.40
11.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
12.40
-0.71
-.66
-.61
.20
.40
.59
.74
.85
1.93
2.01
2.03
2.03
2.05
2.08
2.15
2.20
2.25
2.30
2.37
2.44
2.47
2.46
2.43
2.34
2.29
1.71
.44
-1.13
-2.56
-3.35
-3.49
-3.24
-3.08
-3.13
-3.23
-3.23
1982-2006 .................................. 9.31
2007-2031 .................................. 11.58
2032-2056 .................................. 14.11
1.16
1.57
1.54
10.46
13.15
15.65
12.01
12.40
12.40
1.55
-.75
-3.25
75-year average:
1982-2056 ..................................
11.66
1.42
13.09
12.27
-.82
Alternative II-B:
1982 ...................................................
10.42
1.36
11.78
10.80
-0.98
1983 ...................................................
10.38
1.27
11.65
10.80
-.85
1984 ...................................................
10.42
1.21
11.63
10.80
-.83
1985 ...................................................
10.52
1.18
11.70
11.40
-.30
1986 ...................................................
10.55
1.16
11.71
11.40
-.31
1987 ...................................................
10.57
1.14
11.71
11.40
-.31
1988 ...................................................
10.56
1.12
11.68
11.40
-.28
1989 ...................................................
10.55
1.11
11.66
11.40
-.26
1990 ...................................................
10.54
1.10
11.64
12.40
.76
1991 ...................................................
10.49
1.10
11.59
12.40
.81
1992 ...................................................
10.43
1.11
11.54
12.40
.86
1993 ...................................................
10.39
1.12
11.51
12.40
.89
1994 ...................................................
10.33
1.13
11.46
12.40
.94
1995 ...................................................
10.27
1.14
11.42
12.40
.98
1996 ...................................................
10.18
1.17
11.35
12.40
1.05
1997 ...................................................
10.07
1.20
11.27
12.40
1.13
1998 ...................................................
9.96
1.23
11.19
12.40
1.21
1999 ...................................................
9.85
1.25
11.10
12.40
1.30
2000 ...................................................
9.75
1.28
11.03
12.40
1.37
2001 ...................................................
9.66
1.30
10.96
12.40
1.44
2002 ...................................................
9.58
1.32
10.90
12.40
1.50
2003 ...................................................
9.52
1.35
10.87
12.40
1.53
2004 ...................................................
9.48
1.39
10.87
12.40
1.53
2005 ...................................................
9.50
1.44
10.95
12.40
1.45
2006 ...................................................
9.53
1.46
10.99
12.40
1.41
2010 ...................................................
9.94
1.59
11.53
12.40
.87
2015 ...................................................
11.12
1.69
12.82
12.40
-.42
2020 ...................................................
12.72
1.73
14.44
12.40
-2.04
2025 ...................................................
14.29
1.68
15.97
12.40
-3.57
2030 ...................................................
15.23
1.60
16.83
12.40
-4.43
2035 ...................................................
15.45
1.57
17.02
12.40
-4.62
2040 ...................................................
15.20
1.59
16.80
12.40
-4.40
2045 ...................................................
15.03
1.63
16.66
12.40
-4.26
2050 ...................................................
15.09
1.63
16.72
12.40
-4.32
2055 ...................................................
15.21
1.60
16.81
12.40
-4.41
2060 ...................................................
15.22
1.59
18.81
12.40
-4.41
25-yearaverages:
1982-2006 ..................................
2007-2031 ..................................
10.14
12.43
1.23
1.65
11.37
14.08
12.01
12.40
.64
-1.68
2032-2056 ..................................
15.20
1.61
16.81
12.40
-4.41
75-year average:
1982-2056 ..................................
12.59
1.50
14.09
12.27
-1.82
'The tax rate minus the OASDI cost rate. Positive differences are referred to as surpluses, and negative differences, as
deficits.
NOTE: These estimates do not take into account the effect
of the Tax Equity and Fiscal Responsibility Act of
1982 (P.L. 97-248). If this had been done, the
cost rates would have been slightly lower.
SOURCE: Table 27 of 1982 OASDI Trustees Report
Appendix K, page 71
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Calendar
Year
1982
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
Averages
1982-2006
2007-31
2032-56
1982-2056
ESTIMATED COST RATES OF HI AND OASDI-HI PROGRAMS UNDER
ALTERNATIVE II-B AND COMPARISON WITH
TAX RATES, 1986-2055
(as percent of taxable payroll)
HI Program
OASDI-HI
Program
Cost
Rate!/
Tax
Rate./
Differences/
Cost
Rate
Tax
Rateb/
Differences/
2.97%
2.60%
-.37%
14.75%
13.40%
-1.35%
2.74
2.70
-.04
14.44
14.10
-.34
3.51
2.90
-.61
15.15
15.30
+.15
4.47
2.90
-1.57
15.89
15.30
-.59
5.38
2.90
-2.48
16.41
15.30
-1.11
6.29
2.90
-3.39
17.24
15.30
-1.94
7.20
2.90
-4.30
18.73
15.30
-3.43
7.94
2.90
-5.04
20.76
15.30
-5.46
8.89
2.90
-5.99
23.33
15.30
-8.03
9.93
2.90
-7.03
25.90
15.30
-10.60
10.76
2.90
-7.86
27.59
15.30
-12.29
11.17
2.90
-8.27
28.19
15.30
-12.89
11.29
2.90
-8.39
28.09
15.30
-12.79
11.21
2.90
-8.31
27.87
15.30
-12.57
11.19
2.90
-8.29
27.91
15.30
-12.61
11.17
2.90
-8.27
27.98
15.30
-12.68
4.34
2.86
-1.48
15.71
14.87
-.84
8.78
2.90
-5.88
22.86
15.30
-7.56
11.19
2.90
-8.29
28.00
15.30
-12.70
8.10
2.89
-5.21
22.19
15.16
-7.03
a/ These cost rates do not include any allowance for building up and maintaining
the trust-fund ratio at 50% (which would require an additional .10% of taxable
b/ payroll in 1982-2006)..
For employer and employee combined.
Tax rate minus cost rate. Positive differences are referred to as cash-flow
surpluses, and negative differences as deficits.
NOTE: These estimates for OASDI do not take into account the effect of the Tax
Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248), but those for
HI do take this legislation into account. If this had been done, the
cost rates for OASDI-HI would have been slightly lower.
SOURCE: Table 27 of the 1982 OASDI Trustees Report and Table 8 of the 1982 HI
Trustees Report (extended beyond 2005 by Health Care Financing
Administration under assumption that, then, hospital costs rise at the
same rate as wages), in all cases reduced to allow for the effect of P.L.
97-248 (a reduction of about 102% in all years after 1982).
Appendix K, page 72
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Table 7C
ESTIMATED COST RATES OF OASDI PROGRAM UNDER ALTERNATIVES II-B
AND III AND COMPARISON WITH TAX RATES,
1982-2055
(as percent of taxable payroll)
OASDI
Alternative II-B
Alternative III
Calendar
Tax
Cost
Cost
Year
Ratea/
Rate
Differenceb/
Rate
Difference/
1982
10.80%
11.78%
-.98%
11.83%
-1.03%
1985
11.40
11.70
-.30
12.40
-1.00
1990
12.40
11.64
+.76
12.85
-.45
1995
12.40
11.42
+.98
12.97
-.57
2000
12.40
11.03
+1.37
12.82
-.42
2005
12.40
10.95
+1.45
12.97
-.57
2010
12.40
11.53
+.87
13.92
-1.52
2015
12.40
12.82
-.42
15.76
-3.36
2020
12.40
14.44
-2.04
18.17
-5.77
2025
12.40
15.97
-3.57
20.70
-8.30
2030
12.40
16.83
-4.43
22.63
-10.23
2035
12.40
17.02
-4.62
23.94
-11.54
2040
12.40
16.80
-4.40
24.80
-12.40
2045
12.40
16.66
-4.26
25.80
-13.40
2050
12.40
16.72
-4.32
26.93
-14.53
2055
12.40
16.81
-4.41
27.87
-15.47
Averages
1982-2006 12.01
11.37
+.64
12.73
-.72
2007-31 12.40
14.08
-1.68
17.84
-5.44
2032-56 12.40
16.81
-4.41
25.66
-13.26
1982-2056 12.27
14.09
-1.82
18.74
-6.47
a/ For employer and employee combined.
b/ Tax rate minus cost rate. Positive differences are referred to as
cash-flow surpluses, and negative differences as deficits.
NOTE: These estimates do not take into account the effect of the Tax
Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248). If
this had been done, the cost rates would have been slightly lower.
SOURCE: Tables 27 and 29 of the 1982 OASDI Trustees Report.
Appendix K, page 73
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
ESTIMATED TRUST FUND RATIOS BY ALTERNATIVE AND TRUST FUND, CALEN-
DAR YEARS 1982-2060
1982 ....................
15
16
15
15
16
15
15
1983 ....................
10
8
10
10
8
10
11
1984 ....................
1
48
6
(')
47
4
V)
1985 ....................
-7
98
4
-11
93
( )
V)
1986 ....................
-10
178
9
-18
169
(')
()
1987 ....................
-10
265
17
-24
253
3
(')
1988 ...................
-9
359
27
-28
342
8
()
1989 ....................
-6
464
40
-30
432
15
(2)
1990 ....................
(')
567
56
-32
524
22
(')
1991 ....................
15
696
82
-26
642
39
(9
1992 ....................
31
811
110
-18
753
58
1993 ....................
47
934
138
-10
859
77
(1)
1994 ....................
1995
65
1,041
167
(')
961
97
(')
....................
1996 ....................
84
104
1,137
1,208
197
228
8
18
1,054
1,122
116
136
(;)
1997 ....................
127
1,278
260
29
1,187
157
1998 ....................
150
1,345
293
41
1,247
178
(')
1999 ....................
175
1,411
326
52
1,317
200
(')
2000 ...................
202
1,468
362
67
1,369
223
2001 ....................
232
1,532
400
82
1,421
247
(1)
2002 ....................
262
1,589
438
99
1,467
271
()
2003 ....................
293
1,630
474
116
1,502
295
()
2004 ....................
324
1,656
510
133
1,526
317
()
2005 ....................
354
1,656
542
149
1,531
338
()
2006 ....................
384
1,702
576
165
1,568
358
()
2010 ...................
485
1,797
684
216
1,645
419
()
2015 ....................
539
1,967
745
224
1,779
434
()
2020 ....................
520
2,198
739
168
1,962
387
()
2025 ....................
457
2,549
698
67
2,240
300
()
2030 ....................
386
3,000
662
(1)
2,595
196
()
2035 ....................
332
3,410
651
()
2,902
89
(1)
2040 ....................
304
3,735
675
()
3,123
()
()
2045 ....................
298
4,031
719
()
3,295
(1)
()
2050 ....................
301
4,443
766
()
3,558
(1)
(')
2055 ....................
305
4,942
811
(1)
3,873
(1)
()
2060 ....................
311
5,435
860
()
4,168
()
()
Trust fund is
projected to
be first ex-
hausted in:......
1983
(1)
1983
1983
(4)
1983
1983
'Between -0.5 percent and zero.
'The fund is projected to be exhausted and not to recover before the end of the projection period.
'Between zero and 0.5 percent.
'The fund is not projected to be exhausted within the projection period.
Note: The definitions of alternatives I, II-A, II-B, and III, and trust fund ratio are presented in the text. The ratios
shown after the year a given fund is projected to be exhausted are theoretical and are shown for informational purposes
only; see the section on "Estimated Operations and Status of the Trust Funds during the Period October 1, 1981 to
December 31, 1986" for further discussion. In addition, the ratios for the total of the OASI and DI Trust Funds after
1982 are theoretical, also because under the current law, after 1982, the assets of one fund cannot be borrowed by another
fund. The money assumed to be borrowed by the OASI Trust Fund in December 1982 is assumed to be repaid in 1992
under alternative 1, in 1998 under alternative II-A, and not at any time in the long-range projection period under
alternatives 11-B and 111.
NOTE: These estimates do not take into account the
effect of the Tax Equity and Fiscal Responsibility
Act of 1982 (P.L. 97-248). If this had been done,
the fund ratios would have been slightly higher.
SOURCE: Table 32 in 1982 OASDI Trustees Report
Appendix K, page 74
16 15 15 16 15
8 10 11 8 11
43 3
84 (') 39 1
71 M
148 -7 (1) 125 ()
217 -10
' 181 (')
288 -13
361 -16 (') 2239 97 (1)
436 -19
536 -13 (') 4356 36 (')
-7
631
723 (') () 577 (1)
812 7 () 643 ()
895 15 () 705 (')
959 23 () 755 (1)
1,019 32 799 (1)
1,076 42
1,130 53 (') 871 ()
1.178 64
1,227 76 (1) 927 900 (1)
1,270 89 () 951 ()
1,303 102 () 967 ()
1,327 115 (') 977 ()
1,332 128 (9 976
1,366 140 () 991 (1)
1,435 177 () 1,005 (1)
1,549 177 () 1,033 ()
1,703 125 () 1,076 (1)
1,938 31 () 1,162
2.241 (?) () 1,287 (1)
2,504 (1) (') 1,390 (1)
2,693 () () 1,456 ()
2,837 () () 1,515 (1)
3,061 () () 1,619
3,330 (') () 1,758 (1)
3,582 () () 1,910 ()
(') 1983 1983 () 1983
396-938 0 - 83 - 18
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
Table 9A
ESTIMATED COST OF THE OASDI SYSTEM AS PERCENT OF GNP BY ALTERNA-
TIVE, CALENDAR YEARS 1982-2060
1982
.....................................................................
5.07
5.08
5.16
5.19
1983
.....................................................................
4.93
4.97
5.05
5.26
1984
.....................................................................
4.82
4.87
5.03
5.28
1985
.....................................................................
4.72
4.78
5.05
5.28
1986
.....................................................................
4.63
4.69
5.04
5.31
1987
.....................................................................
4.55
4.62
5.03
5.34
1988
.....................................................................
4.48
4.55
5.00
5.37
1989
.....................................................................
4.35
4.51
4.97
5.38
1990
.....................................................................
4.31
4.47
4.94
5.38
1991
.....................................................................
4.27
4.44
4.91
5.38
1992
.....................................................................
4.24
4.41
4.87
5.35
1993
.....................................................................
4.25
4.39
4.84
5.34
1994
.....................................................................
4.21
4.36
4.80
5.32
1995
.....................................................................
4.17
4.33
4.76
5.32
1996
.....................................................................
4.11
4.29
4.70
5.31
1997
.....................................................................
4.07
4.25
4.65
5.27
1998
.....................................................................
4.04
4.21
4.59
5.22
1999
.....................................................................
4.00
4.17
4.53
5.17
2000
.....................................................................
3.94
4.13
4.48
5.15
2001
.....................................................................
3.89
4.08
4.44
5.12
2002
.....................................................................
3.86
4.06
4.40
5.08
2003
.....................................................................
3.84
4.05
4.37
5.07
2004
.....................................................................
3.84
4.05
4.35
5.06
2005
.....................................................................
3.86
4.08
4.36
5.09
2006
.....................................................................
3.86
4.09
4.37
5.11
2010
.....................................................................
4.00
4.27
4.51
5.33
2015
.....................................................................
4.38
4.71
4.92
5.89
2020
.....................................................................
4.83
5.25
5.44
6.63
2025
.....................................................................
5.18
5.73
5.90
7.37
2030
.....................................................................
5.26
5.94
6.10
7.87
2035
.....................................................................
5.10
5.91
6.05
8.13
2040
.....................................................................
4.82
5.74
5.86
8.23
2045
.....................................................................
4.58
5.60
5.70
8.36
2050
.....................................................................
4.45
5.54
5.62
8.52
2055
.....................................................................
4.37
5.49
5.54
8.61
2060
.....................................................................
4.28
5.42
5.44
8.60
25-year averages:
4
75
5
25
1982.2006 ..................................................
2007-2031 ..................................................
4.25
4.67
4.40
5.11
.
5.30
.
6.50
2032-2056 ..................................................
4.70
5.67
5.78
8.34
75-year average:
1982-2056 og ..................................................
4.54
5.06
5.28
6.70
SOURCE: Table 30 in 1982 OASDI Trustees Report
Appendix K, page 75
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
ESTIMATED COST OF OASDI AND HI SYSTEMS AS PERCENT OF
GNP UNDER ALTERNATIVE II-B, 1982-2050
Calendar
Year
OASDI
HI
OASDI-HI
1982
5.16%
1.30%
6.46%
1985
5.05
1.18
6.23
1990
4.94
1.49
6.43
1995
4.76
1.90
6.66
2000
4.48
2.19
6.67
2005
4.36
2.50
6.86
2010
4.51
2.82
7.33
2015
4.92
3.05
7.97
2020
5.44
3.35
8.79
2025
5.90
3.67
9.57
2030
6.10
3.90
10.00
2035
6.05
3.97
10.02
2040
5.86
3.94
9.80
2045
5.70
3.84
9.54
2050
5.62
3.76
9.38
2055
5.54
3.68
9.22
Averages
1982-2006 4.75
1.81
6.56
2007-31 5.30
3.30
8.60
2032-56 5.78
3.85
9.63
1982-2056 5.28
3.04
8.32
NOTE: These estimates for OASDI do not take into account the effect of
the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248).
If this had been done, the figures for the OASDI-HI system would have
been slightly lower.
SOURCE: Derived from Tables 7A, 7B, and 9A.
Appendix K, page 76
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Trust
Fund
ESTIMATED TOTAL INCREASE IN SOCIAL SECURITY TAX INCOME
REQUIRED -DURIlQG CALENDAR YEARS 1983-87 TO REACH ALTERNATIVE
TARGET LEVELS OF TRUST FUND ASSETS BY BEGINNING OF 1988, UNDER
ALTERNATIVES II -B AND III OF 1982 TRUSTEES REPORT
(In billions)
Asset Goal at Beginning of 1988 as
Percentage of Expenditures in 1988
OASI $121 $140 $192 $244
DI -- -- -- --
HI -- -- 7 23
OASDI 59 81 138 196
OASDI-HI 46 74 150 222
OASI
DI
HI
Alternative III
204 266 324
11 29 48
OASDI 126 152 217 280
OASDI-HI 133 166 245 328
Notes: 1. The above estimates are based on the assumption that the target
trust fund ratio would be approached in even steps between 1983
and 1988. Other patterns are possible and would lead to somewhat
different estimates of the required tax increases.
2. The effects of the Tax Equity and Fiscal Responsibility Act of
1982 (P.L. 97-248) are reflected in these estimates.
3. Where no estimate is shown, it indicates that the asset goal is
exceeded under present law.
Appendix K, page 77
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 Approved For Release 2008/10/02 : CIA-RDP85-00003R000200100001-4
ESTIMATED TOTAL REDUCTION IN SOCIAL SECURC'TY BENEFITS
REQUIRED DURING CALENDAR YEARS 1983-87 TO REACH ALTERNATIVE:
TARGET LEVELS OF TRUST FUND ASSETS BY THE BEGINNING OF 1988,
UNDER ALTERNATIVES II -B AND III OF THE 1982 TRUSTEES REPORT
(In billions)
Asset Goal at Beginning of 1988 as
Percentage of Lcpenditures in 1988 1/
Trust
Fund
15%
25%
50%
75%
OASI
$116
$134
$175
$210
DI
--
--
--
--
HI
--
--
6
19
OASDI
59
79
128
172
OASDI-HI
44
72
134
190
Alternative III
OAS I
193
234
271
DI
HI
9
24
37
OASDI
123
144
194
239
OaASDI-HI
128
154
218
275
1/ Expenditures in 1988 are assumed to be reduced by about the same
percentage as in 1983-87; the amount of the 1988 reduction is not
included in the total reductions shown for 1983-87.
Notes: 1. The above estimates are based on the assumption that the
target trust fund ratio would be approached in even steps
between 1983 and 1988. Other patterns are possible and
would lead to somewhat different estimates of the required
benefit reductions.
2. The effects of the Tax Equity and Fiscal Responsibility
Act of 1982 (P.L. 97-248) are reflected in these estimates.
3. Where no estimate is shown, it indicates that the asset
goal is exceeded under present law.
Appendix K, page 78
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ESTIMATED TOTAL INCREASE IN OASDI TAX INCOME
REQUIRED DURING 1983-89 TO REACH ALTERNATIVE
TARGET LEVELS OF TRUST-FUND RATIOS BY BEGINNING
OF 1988, UNDER ALTERNATIVES II-B AND III
(IN BILLIONS)
1988 Trust-Fund Ratio of 15%
1988 Trust-Fund Ratio of 25%
Calendar
Year
Alternative II-B
Assumptions
Alternative III
Assumptions
Alternative II-B
Assumptions
Alternative 17T
Assumptions
-
1983
$22
$26
$24
$27
1984
15
26
20
32
1985
7
20
11
25
1986
8
25
13
30
1987
8
30
14
39
0
1988
8
34
8
35
1989
7
40
8
40
1983-89
75
201
98
228
NOTE: The "trust-fund ratio" is the ratio of the balance in the OASDI Trust Funds on a
particular date to the outgo in the next 12 months.
NOTE: The figures in this table do not include the repayment of the loan from the
HI Trust Fund to the OASI Trust Fund in 1982 (about $5 billion).
NOTE: The figures do take into account the effect of the Tax Equity and Fiscal
Responsibility Act of 1982 (P.L. 97-248).
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Table 10D
ESTIMATED TOTAL REDUCTION IN OASDI BENEFIT OUTGO
REQUIRED DURING 1983-89 TO REACH ALTERNATIVE
TARGET LEVELS OF TRUST-FUND RATIOS BY BEGINNING
OF 1988, UNDER ALTERNATIVES II-B AND III
(IN BILLIONS)
1988 Trust-Fund Ratio of 15%
1988 Trust-Fund Ratio of 25%
Calendar
Year
Alternative II-B
Assumptions
Alternative III
Assumptions
Alternative II-B
Assumptions
Alternative III
Assumptions
1983
$20
$23
$20
$23
1984
17
26
20
30
1985
7
22
13
26
1986
8
24
13
29
1987
8
29
14
37
1988
8
34
9
35
1989
9
44
10
46
1983-89
77
202
99
226
NOTE: The "trust-fund ratio" is the ratio of the balance in the OASDI Trust Funds on
a particular date to the outgo in the next 12 months.
NOTE: The figures in this table do not include the repayment of the loan from the HI
Trust Fund to the OASI Trust Fund in 1982 (about $5 billion).
NOTE: The figures do take into account the effect of the Tax Equity and Fiscal
Responsibility Act of 1982 (P.L. 97-248).
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Table 11
COMPARISON OF OASDI BENEFICIARIES AND COVERED WORKERS BY ALTERNA-
TIVE, CALENDAR YEARS 1945-2060
Covered
workers' (in
Calendar year thousands)
Beneficia-
Covered vies
workers per per 100
OASDI ben- covered
eficiary workers
1945 ............................................ 46,390 1,106 - 1,106 41.9 2
1950 ............................................ 48,280 2,930 - 2,930 16.5 6
1955 ............................................ 65,200 7,563 - 7,563 8.6 12
1960 ............................................ 72,530 13,740 522 14,262 5.1 20
1965 ............................................ 80,680 18,509 1,648 20,157 4.0 25
1970 ............................................ 93,090 22,618 2,568 25,186 3.6 28
1975_ ......................................... 100,200 26,998 4,125 31,123 3.2 31
1980 ............................................ '114,300 30,384 4,734 35,118 '3.3 '31
Alternative I:
1982 ................................... 116,004 31,476 4,370 35,845 3.2 31
1985 ................................... 126,557 33,028 4,047 37,075 3.4 29
1990 ................................... 137,093 36,069 4,053 40,122 3.4 29
1995 ................................... 141,637 37,609 4,249 41,858 3.4 30
2000 ................................... 146,513 38,585 4,803 43,388 3.4 30
2005 ................................... 151,749 40,066 5,506 45,572 3.3 30
2010 ................................... 155,761 43,234 6,140 49,374 3.2 32
2015 ................................... 158,066 48,449 6,552 55,001 2.9 35
2020 ................................... 159,891 54,608 6,722 61,330 2.6 38
2025- ................................. 162,842 60,782 6,612 67,394 2.4 41
2030 ................................... 167,424 64,647 6,404 71,051 2.4 42
2035 ................................... 173,020 66,058 6,419 72,477 2.4 42
2040 ................................... 178,967 65,587 6,679 72,266 2.5 40
2045 ................................... 184,936 65,452 7,045 72,497 2.6 39
2050 ................................... 191,223 66,554 7,289 73,843 2.6 39
2055 ................................... 198,021 68,258 7,451 75,709 2.6 38
2060 ................................... 205,183 69,974 7,676 77,650 2.6 38
Alternative II-A:
1982 ................................... 115,955 31,482 4,375 35,857 3.2 31
1985 ................................... 124,328 33,106 4,060 37,166 3.3 30
1990 ................................... 133,921 36,431 4,126 40,557 3.3 30
1995 ................................... 138,773 38,410 4,487 42,897 3.2 31
2000 ................................... 144,133 39,823 5,193 45,016 3.2 31
2C05 ................................... 148,771 41,745 6,031 47,776 3.1 32
2010 ................................... 151,577 45,376 6,753 52,129 2.9 34
2015 ................................... 152,296 51,070 7,205 58,275 2.6 38
2020 ................................... 152,100 57,789 7,372 65,161 2.3 43
2025 ................................... 152,505 64,578 7,218 71,796 2.1 47
2030 ................................... 154,100 69,188 6,946 76,134 2.0 49
2035 ................................... 156,276 71,317 6,894 78,211 2.0 50
2040 ................................... 158,430 71,497 7,073 78,570 2.0 50
2045 ................................... 160,219 71,893 7,316 79,209 2.0 49
2050 ................................... 162,023 73,079 7,392 80,471 2.0 50
2055 ................................... 164,080 74,378 7,377 81,755 2.0 50
2060 ................................... 166,318 75,258 7,422 82,680 2.0 50
Alternative II-B:
1982 ................................... 115,308 31,483 4,374 35,857 3.2 31
1985 ................................... 123,300 33,106 4,061 37,167 3.3 30
1990 ................................... 132,410 36,428 4,138 40,566 3.3 31
1995 ................................... 137,644 38,408 4,486 42,894 3.2 31
2000 ................................... 142,248 39,814 5,191 45,005 3.2 32
2005 ................................... 146,798 41,725 6,028 47,753 3.1 33
2010 ................................... 149,515 45,359 6,748 52,107 2.9 35
2015 ................................... 150,148 51,048 7,198 58,246 2.6 39
2020 ................................... 149,873 57,753 7,361 65,114 2.3 43
2025 ................................... 150,205 64,542 7,207 71,749 2.1 48
2030 ................................... 151,750 69,138 6,934 76,072 2.0 50
2035 ................................... 153,889 71,277 6,882 78,159 2.0 51
2040 ................................... 156,015 71,440 7,061 78,501 2.0 50
2045 ................................... 157,777 71.824 7,304 79,128 2.0 50
2050 ................................... 159,545 73,034 7,380 80,414 2.0 50
2055 ................................... 161,573 74,313 7,364 81,677 2.0 51
2060 ................................... 163,778 75,215 7,410 82.625 2.0 50
Alternative III:
1982 ................................... 115,178 31,496 4,376 35,872 3.2 31
1985 ................................... 121,330 33,255 4,079 37,334 3.2 31
1990 ................................... 130,300 37,125 4,246 41,371 3.1 32
1995 ................................... 135,944 40,013 4,714 44,727 3.0 33
2000 ................................... 140,370 42,415 5,560 47,975 2.9 34
2005 ................................... 144,254 45,360 6,510 51,870 2.8 36
2010 ................................... 145,600 50,080 7,293 57,373 2.5 39
2015 ................................... 144,295 56,934 7,759 64,693 2.2 45
2020 ................................... 141,475 64,913 7,898 72,811 1.9 51
2025 ................................... 138,631 73,154 7,683 80,837 1.7 58
2030 ................................... 136,560 79,327 7,324 86,651 1.6 63
2035 ................................... 134,724 83,133 7,172 90,305 1.5 67
2040.................................. . 132,593 84,945 7,214 92,159 1.4 70
2045 ................................... 129,844 86,866 7,252 94,118 1.4 72
2050 ................................... 126,971 89,022 7,071 96,093 1.3 76
2055 ................................... 124,339 90,398 6,796 97,194 1.3 78
2060 ................................... 121,968 90,672 6,587 97,259 1.3 80
'Workers with taxable earnings at some time during the year.
'Beneficiaries with monthly benefits in current-payment status as of June 30.
'Preliminary.
Note: The definitions of alternatives 1, II-A, II-B, and 111 are presented in the text. The numbers of beneficiaries do not
include certain noninsured persons aged 72 and over with less than 3 quarters of coverage, the costs for whom are
reimbursable to the OAS1 Trust Fund by the general fund of the Treasury. The number of such persons is estimated to be
69,500 as of June 30, 1982, and less than 1,000 by the turn of the century.
SOURCE: Table 28 in 1982 OASDI Trustees Report
Appendix K, page 81
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Table 12
SELECTED DEMOGRAPHIC ASSUMPTIONS BY ALTERNATIVE, CALE;4DAR YEARS
1940 - 2060
Past experience:
1940 .......... 2.23 61.1 65.6 12.0 13.7
1945 .......... 2.42 62.7 68.5 12.7 14.7
1950 .......... 3.03 65.5 71.2 12.9 15.4
1955 .......... 3.50 66.7 73.0 13.2 15.9
1960 ............................. 3.61 66.7 73.4 13.0 16.1
1965 ............................. 2.88 66.8 74.1 13.0 16.6
1970 ............................. 2.43 67.1 74.9 13.2 17.2
1975 ............................. 1.77 68.7 76.5 13.7 18.1
1976 ............................. 1.74 69.0 76.7 13.8 18.1
1977 ............................. 1.79 69.3 77.1 13.9 18.4
1978 ............................. 1.76 69.5 77.2 14.0 18.4
1979 ............................. 1.81 69.8 77.7 14.3 18.7
19N. ............................ 1.84 69.8 77.7 14.3 18.7
Alternative I:
1981 ............................. 1.87 70.0 77.9 14.3 18.8
1982 ............................. 1.89 70.1 78.0 14.4 18.9
1983 ............................. 1.91 70.2 78.1 14.4 19.0
1984 ............................. 1.93 70.3 78.2 14.5 19.0
1985 ............................. 1.96 70.4 78.3 14.5 19.1
1990 ............................. 2.0, 70.9 78.9 14.8 19.4
1995 ............................. 2.18 71.2 79.2 14.9 19.7
2000 ............................. 2.29 71.4 79.4 15.0 19.8
2005 ............................. 2.40 71.5 79.5 15.1 19.9
2010 ............................. 2.40 71.6 79.6 15.2 20.0
2020 ............................. 2.40 71.8 79.9 15.3 20.2
2030 ............................. 2.40 72.0 80.1 15.5 20.4
2040 ............................. 2.40 72.2 80.3 15.6 20.6
2050 ............................. 2.40 72.4 80.6 15.7 20.8
2060 ............................ 2.40 72.6 80.8 15.9 21.0
Alternatives I
II-A and I-B:
1981 ............................. 1.86 70.1 78.0 14.4 18.9
1982 ............................. 1.87 70.4 78.3 14.5 19.1
1983 ............................. 1.88 70.6 78.5 14.6 19.3
1984 ............................. 1.89 70.8 78.7 14.7 19.4
1985 ............................. 1.90 71.0 78.9 14.8 19.5
1990 ............................. 1.95 71.9 80.0 15.3 20.3
1995 ............................. 2.00 72.6 80.8 15.6 20.8
2000 ............................. 2.05 72.9 81.1 15.8 21.1
2005 ............................. 2.10 73.2 81.4 16.0 21.4
2010 ............................. 2.10 73.4 81.6 16.1 21.6
2020 ............................. 2.10 73.8 82.1 16.4 22.0
2030 ............................. 2.10 74.2 82.6 16.7 22.4
2040 ............................. 2.10 74.6 83.1 17.0 22.8
2050 ............................. 2.10 75.0 63.6 17.3 23.2
2060 ............................. 2.10 75.4 84.1 17.6 23.6
Alternative III:
1981 ............................. 1.84 70.3 78.3 14.5 19.1
1982 ............................. 1.83 70.8 78.9 14.7 19.5
1983 ............................. 1.83 71.3 79.4 14.9 19.8
1984 ............................. 1.82 71.7 79.8 15.1 20.1
1985 ............................. 1.82 72.1 80.2 15.3 20.4
1990 ............................. 1.79 74.0 82.5 16.3 22.1
1995 ............................. 1.76 75.3 84.1 17.0 23.5
2000 ............................. 1.73 75.9 84.9 17.4 24.2
2005 ............................. 1.70 76.4 85.5 17.8 24.7
2010 ............................. 1.70 76.8 86.0 18.1 25.1
2020 ............................. 1.70 77.7 87.2 18.8 26.1
2030 ............................. 1.70 78.5 68.3 19.5 27.2
2040 ............................. 1.70 79.4 89.5 20.1 28.2
2050 ............................. 1.70 80.2 90.6 20.8 29.3
2060 ............................. 1.70 81.0 91.8 21.5 30.4
'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 child-bearing period.
'T'he life expectancy for any year is the average number of years of life remaining to a person if that person were to
experience the death rates by age assumed for the selected year.
SOURCE: Table 11, 1982 OASDI Trustees Report, and
Office of the Actuary, SSA
Appendix K, page 82
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Table 13
SELECTED ECONOMIC ASSUMPTIONS BY ALTERNATIVE, CALENDAR YEARS
1960-2060
Average annual percentage increase
in-
Average Average
wages in Average annual
covered Real-wage annual in- unemploy-
employ- Consumer differential' terest rate' ment rate'
Calendar year Real GNP' ment price index (percent) (percent) (percent)
Past experience:
1960-64 ............................. 4.0 3.4 1.3 2.1 3.7 5.7
1965-69 ............................. 4.4 5.4 3.4 2.0 5.2 3.8
1970 ................................... -.2 4.9 5.9 -1.0 7.3 4.9
1971 ................................... 3.4 4.9 4.3 .6 6.0 5.9
1972 ................................... 5.7 7.3 3.3 4.0 5.9 5.6
1973 ................................... 5.8 6.9 6.2 .7 6.6 4.9
1974_ ................................ -.6 7.4 11.0 -3.6 7.5 5.6
1975 ................................... -1.1 6.6 9.1 -2.5 7.4 8.5
1976 ................................... 5.4 '8.2 5.7 '2.5 7.1 7.7
1977 ................................... 5.5 '8.0 6.5 '1.5 7.1 7.0
1978 ................................... 4.8 8.2 7.6 '.6 8.2 6.0
1979 ................................... 3.2 '8.8 11.4 '-2.6 9.1 5.8
1980 ................................... -.2 '8.6 13.5 '-4.9 11.0 7.1
Alternative I:
1981 ................................... '2.1 8.8 10.3 -1.5 13.3 7.6
1982 ................................... 1.1 8.2 6.3 1.9 12.7 8.6
1983 ................................... 5.6 7.3 5.9 1.4 10.3 7.4
1984 ................................... 5.4 7.5 4.6 2.9 7.8 6.5
1985 ................................... 5.1 7.0 4.2 2.8 6.6 5.8
1986 ................................... 4.8 6.7 3.8 2.9 6.0 5.4
1987 ................................... 4.6 6.4 3.4 3.0 5.7 5.0
1988 ................................... 4.4 6.1 3.0 3.1 5.6 4.8
1989 ................................... 4.2 5.7 2.6 3.1 5.4 4.6
1990 ................................... 4.0 5.2 2.2 3.0 5.3 4.3
1995. .................................. 3.4 4.5 2.0 2.5 5.1 4.0
2000 8 later ...................... '3.5 4.5 2.0 2.5 5.1 4.0
Alternative II-A':
1981 ................................... '1.9 8.8 10.3 -1.5 13.3 7.6
1982 ................................... .3 8.6 6.8 1.8 13.4 8.9
1983 ................................... 5.2 6.3 6.0 .3 12.1 7.9
1984 ................................... 5.0 5.6 4.6 1.0 10.8 7.1
1985 ................................... 4.8 7.4 4.8 2.6 9.8 6.4
1986 ................................... 4.4 7.3 4.6 2.7 8.2 5.8
1987 ................................... 4.3 7.1 4.5 2.6 6.7 5.3
1988 ................................... 4.1 7.1 4.3 2.8 6.4 5.2
1989 ................................... 3.9 6.6 3.9 2.7 6.2 5.1
1990 ................................... 3.7 6.0 3.5 2.5 6.0 5.0
1995 ................................... 3.0 5.0 3.0 2.0 5.6 5.0
2000 & later ...................... '3.1 5.0 3.0 2.0 5.6 5.0
Alternative II-B:
1981 ................................... '1.8 8.6 10.3 -1.7 13.3 7.6
1982 ................................... -.8 6.6 6.9 -.3 13.0 9.1
1983 ................................... 4.2 8.1 7.9 .2 11.4 8.5
1984 ................................... 3.3 8.1 7.4 .7 9.3 8.0
1985 ................................... 3.0 6.9 6.6 .3 8.0 7.7
1986 ................................... 3.0 6.8 5.8 1.0 7.1 7.4
1987 ................................... 3.0 6.6 5.5 1.1 6.8 7.1
1988 ................................... 3.0 6.6 5.3 1.3 6.6 6.8
1989 ................................... 3.0 6.4 4.9 1.5 6.5 6.4
1990 ................................... 3.0 6.0 4.5 1.5 6.4 6.1
1995 ................................... 2.5 5.5 4.0 1.5 6.1 5.0
2000 & later. ..................... '2.6 5.5 4.0 1.5 6.1 5.0
Alternative Ill:
1981 ................................... '1.8 8.6 10.3 -1.7 13.3 7.6
1982 ................................... -1.5 6.3 7.2 -.9 13.1 9.3
1983 ................................... .6 7.3 9.6 -2.3 12.3 9.8
1984 ................................... 2.5 7.8 9.6 -1.8 10.5 9.6
1985 ................................... 3.8 9.2 9.2 .0 9.4 8.8
1986 ................................... 2.9 9.1 8.8 .3 8.8 8.4
1987 ................................... 2.7 8.7 8.4 .3 8.3 8.0
1988 ................................... 2.7 8.5 8.0 .5 8.1 7.7
1989 ................................... 2.7 8.3 7.6 .7 7.8 7.3
1990 ................................... 2.7 8.0 7.2 .8 7.6 6.9
1995 ................................... 1.8 6.2 5.2 1.0 6.7 6.0
2000 & later ...................... '2.1 6.0 5.0 1.0 6.6 6.0
'The real GNP (Gross National Product) is the total output of goods and services expressed in constant dollars.
'The difference between the percentage increase in average annual wages in covered employment and the percentage
increase in the average annual CPI.
'The average of the interest rates determined in each of the 12 months of the year for special public-debt obligations
issuable to the trust funds.
'The ultimate rates are adjusted by age and sex based on the total labor force aged 16 and over as of July 1, 1970. Rates
shown for earlier years are civilian unemployment rates for those years.
'Preliminary.
'The actual value of the 1981 increase in real GNP was 2.0 percent. This value was not available at the time the cost
estimates were prepared; the cost estimates were based on the assumed increases in real GNP shown under the four
alternatives.
'This value is for the year 2000. The annual percentage increase in real GNP is assumed to continue to change after
2000 under each alternative to reflect the dependence of labor force growth on the size and age-sex distribution of the
population. The percentage increases for 2060 are 3.4, 2.5, 2.1, and 1.0 for alternatives I, 11-A, II-B, and 111, respectively.
'The economic assumptions in alternative It-A for 1981-87 are identical to or derived from the assumptions underlying
the President's 1983 Budget, with the exception of the assumed 1981 increases in the nominal wage and the real wage as
well as the assumed 1982 increases in the real wage and the CPI, all of which have been adjusted to reflect actual
experience available since the Budget assumptions were released.
Source: Table 10 in 1982 OASDI Trustees Report.
Appendix K, page 83
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Table 14
COMPARISON OF ESTIMATED AND ACTUAL KEY ECONOMIC
INDICATORS, 1972-73 FORECASTS I
(In pereentl
Calendar year 1
In In In In
972 1973 Actual 19721 19731
In
Actual 1972
In
1973
Actual
1972........
3.3 ........
4.0
........
5.6
1974........
1 11.0 1
-3.5 1
5.6
5.6
1975........ 2
.75 3.3 9.1 2.25 2.9
-2.5 4.2
4.5
8.5
1976........
l 5.8
I
2.5
7.7
1977........
2.75 6.5
1
0.4
7.0
1978........
2.75 7.7
2.25
0.5
6.0
1979........
2.75 11.5
2.25
-3.1
5.8
1980........
2.75 13.5
2.25
-5.0
7.1
I There were a number of le islative changes made to the "automatic" provisions between
Jul! 1972 and December 1973.
1 Real wage: Defined as the Increase in average nominal wages over prices.
1 Actually, the long-range trust'fund projections had a safety margin of % of a percent built
Into the real wage differential. For trust fund projection purposes the average Increase In
real wagpesl{was assumed to be 1% percent per year (reflected by an annual Increase In the
CPI pf 3 percent).
COMPARISON OF ESTIMATED AND ACTUAL KEY ECONOMIC
INDICATORS, 1977 FORECAST I
Real wage
CPI Increase differential Unemployment rate
Calendar Esti- Esti? Esti?
year mated Actual mated Actual mated Actual
1977 .................... 6.0 6.5 2.4 0.4 7.1 7.0
1978 .................... 5.4 7.7 2.7 0.5 6.3 6.0
1979 .................... 5.3 11.5 2.5 -3.1 5.7 5.8
1980 .................... 4.7 13.5 2.4 -5.0 5.2 7.1
1981 .................... 4.1 ? 11.1 2.3 0-0.9 5.0 97.8
The 1977 forecast was based on the Intermediate set of assumptions In the 1977
trustees' report.
1 Estimates based on the economic assumptions under the II-e path in the 1981 trustees'
report.
In summary, what has occurred with respect to both the 1972-71
and 1977 Trust Fund forecasts is that the higher than projected in-
flation rate caused benefits to increase far beyond expectations. nnd
aggregate expenditures to do likewise, while lower real wage growth
and higher unemployment caused revenues to grow at an inadequate
rate.
SOURCE: Staff Data and Materials Related to Social
Security Financing, Senate Committee on
finance, September- 1982
Appendix K, page 84
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Page 1 of 2
SOCIAL SECURITY COVERAGE INFORMATION
A.
Workers Covered (Estimates for 1980):
Number of Persons (millions)
Type of Employment
Totala/
Covered-
Covered
Wage and Salary
108.9
97.5
89.5%
Private Sector
88.0
84.5
96.0
Industry and Commerce
77.0
76.8
99.7
Farm
2.0
1.5
74.6
Domestic
1.9
.5
28.1
Nonprofit
6.5
5.1
78.8
Railroad
.6
.6
100.0
Public Sector
20.9
12.9
62.0
Federal
3.7
.6
15.4
State and local
15.0
10.2
68.2
Military
2.1
2.1
100.0
Self-Employment
8.6
6.5
75.5
Total, all employment
117.4
103.9
88.5
a/ Data on total employment are based upon class of worker of longest job as reported
by the individual in the Current Population Survey and total employment covers the
non-nstitutionalized population age 14 and over in the 50 States and the District of
Columbia as well as members of the armed forces, at home and overseas.
b/ Data on covered employment are based upon class of worker of major job as
determined by the highest amount of taxable wages as reported to the Social Security
Administration by employers.
SOURCE: Current Population Reports, series P-60, No. 118, series P-25, No. 902, and
unpublished data for 1980 based upon March 1981 Current Population Survey; Railroad
Retirement Board; Continuous Work History Sample, 1977.
Appendix K, page 85
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Page 2 of 2
Table 15
SOCIAL SECURITY COVERAGE INFORMATION
B. Information on Total Earnings in Covered Employment, Taxable Payroll and Percent
Taxable of Total Earnings (Selected Years 1937-82)
Calendar
Earnings in Covered Employment (billions)
Percent
Year Total
Taxable
Taxable
1937
$ 32.2
$ 29.6
92.0 %
1940
35.7
33.0
92.4
1945
71.6
62.9
88.0
1950
109.8
87.5
79.7
1951 b/
148.9
120.8
81.1
1955
196.1
157.5
80.3
1959 b/
255.0
202.3
79.3
1960
265.2
207.0
78.0
1965
351.7
250.7
71.3
1966 b/
390.7
312.5
80.0
1968 b/
460.0
375.8
81.7
1970
531.6
415.6
78.2
1972 b/
617.9
484.1
78.3
19735/
686.7
561.8
81.8
1974 b/
746.8
636.8
85.3
1975
787.6
664.7
84.4
1976
874.7
737.7
84.3
1977
968.1
817.3
84.4
1978
1,087.9
915.8
84.2
1979 b/
1,217.4
1,070.7
88.0
1980 b/
1,321.1
1,175.3
89.0
19816/
1,448.0
1,300.8
89.8
1982E/
1,535.2
1,385.3
90.2
at Total earnings in covered employment represents the total earnings of persons in
those employments covered by the program, where such earnings are subject to the
Social Security taxes (or would be excepted for the effect of the maximum taxable
earnings base).
b/ Year of an ad hoc increase in the taxable earnings base.
c/ Estimate based on Alternative 11-B assumptions in 1982 OASDI Trustees Report.
The percent taxable for future years should remain relatively stable as the taxable
earnings base rises automatically based on increases in average wage levels.
SOURCE: Office of Research and Statistics, Social Security Administration.
Appendix K, page 86
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OASDI-H1 TAXES PAID BY WORKERS AT
FEDERAL MINIMUM, AVERAGE AND MAXIMUM WAGE LEVELS, 1937-90
Federal Minimum Wage Average Wages Masi ' '. T.xab/e E.rn nos $ase
Employee Employee Employee Self-Employed
Year Earnings Taxes Earnings Taxes Earnings Taxes Taxes
-----------------------------HISTORICAL -------------------------------
1937
at
$ 1,137.96
$ 11.38
$ 3,000.00
$ 30.00
J
1938 ~
87.00
I .87
1,053.24
10.53
3,000.00
30.00
1939
537.00
5.37
1,142.36
11.42
3,000.00
30.00
1940
624.00
6.24
1,195.00
11.95
3,000.00
30.00
4/
1941
624.00
6.24
1,276.04
12.76
3,000.00
30.00
1942
624.00
6.24
1,454.28
14.54
3,000.00
30.00
J
1943
624.00
6.24
1,713.52
17.14
3,000.00
30.00
J
1944
624.00
6.24
1,936.32
19.36
3,000.00
30.00
1945
659.00
6.59
2,021.40
20.21
3,000.00
30.00
J
1946
832.00
8.32
1,891.76
18.92
3,000.00
30.00
1947
832.00
8.32
2,175.32
21.75
3,000.00
30.00
4./
1948
832.00
8.32
2,361.64
23.62
3,000.00
30.00
!z/
1949
832.00
8.32
2,483.20
24.83
3,000.00
30.00
Al
1950
1,499.00
22.49
2,543.96
38.16
3,000.00
45.00
Al
1951
1,560.00
23.40
2,799.16
41.99
3,600.00
54.00 ~
81.00
1952
1,560.00
23.40
2,973.32
44.60
3,600.00
54.00
81.00
1953
1,560.00
23.40
3,139.44
47.09
3,600.00
54.00
81.00
1954
1,560.00
31.20
3,155.64
63.11
3,600.00
72.00
108.00
1955
1,560.00
31.20
3,301.44
66.03
4,200.00
84.00
126.00
1956
1,993.00
39.86
3,532.36
70.65
4,200.00
84.00
126.00
1957
2,080.00
46.80
3,641.72
81.94
4,200.00
94.50
141.75
1958
2,080.00
46.80
3,673.80
82.66
4,200.00
94.50
141.75
1959
2,080.00
52.00
3,855.80
96.39
4,800.00
120.00
180.00
1960
2,080.00
62.40
4,007.12
120.21
4,800.00
144.00
216.00
1961
2,184.00
65.52
4,086.76
122.60
4,800.00
144.00
216.00
1962
2,392.00
74.75
4,291.40
134.11
4,800.00
150.00
225.60
1963
2,461.00
89.21
4,396.64
159.38
4,800.00
174.00
259.20
1964
2,600.00
94.25
4,576.32
165.89
4,800.00
174.00
259.20
1965
2,600.00
94.25
4,658.72
168.88
4,800.00
174.00
259.20
1966
2,600.00
100.20
4,938.36
207.41
6,600.00
277.20
405.90
1967
2,886.00
126.98
5,213.44
229.39
6,600.00
290.40
422.40
1968
3,293.00
144.89
5,571.76
245.16
7,800.00
343.20
499.20
1969
3,328.00
159.74
5,893.76
282.90
7,800.00
374.40
538.20
1970
3,328.00
159.74
6,186.24
296.94
7,800.00
374.40
538.20
1971
3,328.00
173.06
6,497.08
337.85
7,800.00
405.60
585.00
1972
3,328.00
173.06
7,133.80
370.96
9,000.00
468.00
675.00
1973
3,328.00
194.69
7,580.16
443.44
10,800.00
631.80
864.00
1974
3,883.00
227.16
8,030.76
469.80
13,200.00
772.20
1,042.80
1975
4,368.00
255.53
8,630.92
504.91
14,100.00
824.85
1,113.90
1976
4,784.00
279.86
9,226.48
539.75
15,300.00
895.05
1,208.70
1977
4,784.00
279.86
9,776.44
572.10
16,500.00
965.25
1,303.50
1978
5,512.00
333.48
10,556.03
638.64
17,700.00
1,070.85
1,433.70
1979
6,032.00
369.76
11,479.46
703.69
22,900.00
1,403.77
1,854.90
1980
6,448.00
395.26
12,513.46
767.08
25,900.00
1,587.67
2,097.90
1981
6,968.00
463.37
13,594.27
904.02
29,700.00
1,975.05
2,762.10
1982
6,968.00
466.86
14,495.68
971.21
32,400.00
2,170.80
3,029.40
---------------------------- CUMULATIVE -------------------------------
1937-82
5,210.74
10,207.35
16,936.49
2 ;VZA.40 '
1951-82
5,110.94
9,950.78
16,501.49
22,876.50
--------------------------- FUTURE YEARS S/ - - - - - - - - - - - - - - - - - - - - - - - - - - - -
1983
7,530.00
504.51
15,663.97
1,049.49
35,100.00
2,351.70
3,281.85
1984
8,137.00
545.18
16,926.39
1,134.07
37,500.00
2,512.50
3,506.25
1985
8,700.00
613.35
18,099.11
1,275.99
40,500.00
2,855.25
4,009.50
1986
9,292.00
664.38
19,329.42
1,382.05
43,800.00
3,131.70
4,380.00
1987
9,907.00
708.35
20,609.56
1,473.58
46,800.00
3,346.20
4,680.00
1988
10,560.00
755.04
21,968.32
1,570.73
50,100.00
3,582.15
5,010.00
1989
11,231.00
803.02
23,363.63
1,670.50
53,400.00
3,818.10
5,340.00
1990
11,906.00
910.81
24,767.80
1,894.74
57,000.00
4,360.50
6,127.50
at Federal minimum wage first applicable in 1938.
S/ Self-employed first covered effective 1951.
C/ Earnings amounts after 1982 based on Alternative II-B assumptions used in 1982 OASDI Trustees Repot.
Appendix K, page 87
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Table 17A
CCtIPFRISON OF OPSDI ( RPZ BENEFIT INCREASES
WITH INL';F.PSES IN C ISUME_R PRICE INDEX
Month When
First Effective
(1)
Percentage
Benefit
Increased/
(2)
Increase in CPI
from Previous
Effective Date
(3)
Column (1) minus
Column (2)
September 1950
77i/
75.5SI`/
+11.5%
September 1952
15C7
9.3
+5.7
September 1954
13K/
0.5
+12.5
January 1959
7
7.9
-0.9
January 1965
7
7.9
-0.9
February 1968
13
9.3
+3.7
January 1970
15
10.8
+4.2
January 1971
10
5.2
+4.8
September 1972
20
5.9
+14.1
June 1974
l ld/
16.4
-5.4
June 1975
8.0e/
9.3
-1.3
June 1976
6.4e/
5.4
+1.0
June 1977
5.9e/
6.9
-1.0
June 1978
6.5e/
7.3
-0.8
June 1979
9.9e/
11.1
-1.2
June 1980
.
143!/
14.2
+ .1
June 1981
.2e/
11
9.5
+1
7
June 1992
7.4e/
6.9
.
+0.5
at All benefit increases, except those for September 1950, 1952, and 1954,
were uniform across-the-board percentage increases (at times, although not
for 1965 and later, with somewhat larger proportionate increases in the
minimum benefit).
b/ Measured from January 1940.
c/ Average increase in benefits for those then on the roll.
d/ Made in two steps, with 7% being effective for March 1974.
e/ Resulting from automatic-adjustment provisions.
f/ Increase from January 1940.
Appendix K, page 88
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COMPARISON OF OASDI GENERAL BENEFIT INCREASES
WITH INCREASES IN AVERAGE WAGE LEVELS
Period
(1)
OASDI
Benefit
Increases a/
(2)
Increase in
Average Wages bI
(3)
Column (1)
Minus
Column (2)
January 1940-September 1950
77%
121.8%
-44.8%
September 1950-September 1952
15
15.8
-.8
September 1952-September 1954
13
5.9
+7.1
September 1954-January 1959
7
18.4
-11.4
January 1959-January 1965
7
22.5
-15.5
January 1965-February 1968
13
17.7
-4.7
February 1968-January 1970
15
11.3
+3.7
January 1970-January 1971
10
5.0
+5.0
January 1971-September 1972
20
13.7
+6.3
September 1972-June 1974
11
10.9
+.1
June 1974-June 1975
8.0
7.4
+.6
June 1975-June 1976
6.4
6.9
-.5
June 1976-June 1977
5.9
6.0
-.1
June 1977-June 1978
6.5
7.9
-1.4
June 1978-June 1979
9.9
8.7
+1.2
June 1979-June 1980
14.3
9.0
+5.3
June 1980-June 1981
11.2
10.0
+1.2
June 1981-June 1982
7.4
6.6c/
+.8
a/ See Table 17A.
b/ Based on wages in covered employment in first quarter of year for
years up through 1977, and based on total nationwide wages (in both
covered and noncovered employment) for subsequent years.
(Average-wage amounts used are based on the wage-indexing series
developed by the Office of the Actuary, Social Security Admin-
istration.)
c/ Based on Alternative II-B assumptions in 1982 Trustees Report.
Appendix K, page 89
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