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CRS Updates Social Security Trust Fund Projections

AUG. 4, 2016

RL33028

DATED AUG. 4, 2016
DOCUMENT ATTRIBUTES
Citations: RL33028

 

Dawn Nuschler

 

Specialist in Income Security

 

 

August 4, 2016

 

 

Congressional Research Service

 

7-5700

 

www.crs.gov

 

RL33028

 

 

Summary

The Social Security program pays monthly cash benefits to retired or disabled workers and their family members, and to the family members of deceased workers. Program income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund. Projections show that the OASI fund will remain solvent until 2035, whereas the DI fund will remain solvent until 2023, meaning that each trust fund can pay benefits scheduled under current law in full and on time up to that point. Following the depletion of trust fund reserves (2023 for DI and 2035 for OASI), continuing income to each fund is projected to cover 89% of DI scheduled benefits and 77% of OASI scheduled benefits. The two trust funds are legally distinct and do not have authority to borrow from each other. However, Congress has authorized the shifting of funds between OASI and DI in the past to address shortfalls in a particular fund. Therefore, this CRS report discusses the operations of the OASI and DI trust funds on a combined basis, referring to them collectively as the Social Security trust funds. On a combined basis, the trust funds are projected to remain solvent until 2034. Following depletion of combined trust fund reserves at that point, continuing income is projected to cover 79% of scheduled benefits.

Social Security is financed by payroll taxes paid by covered workers and their employers, federal income taxes paid by some beneficiaries on a portion of their benefits, and interest income from the Social Security trust fund investments. Social Security tax revenues are invested in U.S. government securities (special issues) held by the trust funds, and these securities earn interest. The tax revenues exchanged for the U.S. government securities are deposited into the General Fund of the Treasury and are indistinguishable from revenues in the General Fund that come from other sources. Because the assets held by the trust funds are U.S. government securities, the trust fund balance represents the amount of money owed to the Social Security trust funds by the General Fund of the Treasury. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of U.S. government securities held by the trust funds.

The Social Security trust funds represent funds dedicated to pay current and future Social Security benefits. However, it is useful to view the trust funds in two ways: (1) as an internal federal accounting concept and (2) as the accumulated holdings of the Social Security program.

For internal accounting purposes, certain accounts within the U.S. Treasury are designated by law as trust funds to track revenues dedicated for specific purposes (as well as expenditures). There are a number of trust funds in the U.S. Treasury, including those for Social Security, Medicare, unemployment compensation, and federal employee retirement.

By law, Social Security tax revenues must be invested in U.S. government obligations (debt instruments of the U.S. government). The accumulated holdings of U.S. government obligations are often viewed as being similar to assets held by any other trust on behalf of the beneficiaries. However, the holdings of the Social Security trust funds differ from those of private trusts because (1) the types of investments the trust funds may hold are limited and (2) the U.S. government is both the buyer and seller of the investments.

This report covers how the Social Security program is financed and how the Social Security trust funds work. It will be updated annually to reflect current projections of the financial status of the Social Security trust funds.

                                Contents

 

 

 Introduction

 

 

 How the Social Security Program Is Financed

 

 

 The Social Security Trust Funds as Designated Accounts

 

 

      Social Security Trust Fund Revenues

 

 

      Social Security Trust Fund Costs

 

 

      Social Security Trust Fund Operations

 

 

      Investment of the Social Security Trust Funds

 

 

      Off-Budget Status of the Social Security Trust Funds

 

 

 The Social Security Trust Funds as Accumulated Holdings

 

 

      The Social Security Trust Funds and the Level of Federal Debt

 

 

      The Social Security Trust Funds and Benefit Payments

 

 

 Figures

 

 

 Figure 1.  Ratio of Current Non-Interest Income to Cost for the Social

 

            Security Trust Funds, 1957-2033

 

 

 Tables

 

 

 Table 1.   Operations of the Social Security Trust Funds, Historical

 

            Period 1957-2015

 

 

 Table 2.   Projected Operations of the Social Security Trust Funds,

 

            2016-2033

 

 

 Table 3.   Accumulated Holdings of the Social Security Trust Funds,

 

            Historical Period 1957-2015

 

 

 Table 4.   Projected Accumulated Holdings of the Social Security Trust

 

            Funds, 2016-2033

 

 

 Table A-1. Key Dates Projected for the Social Security Trust Funds as

 

            Shown Under the Intermediate Assumptions in Trustees

 

            Reports from 1983 to 2016

 

 

 Appendixes

 

 

 Appendix.  Projected Trust Fund Dates, 1983-2016

 

 

 Contacts

 

 

 Author Contact Information

 

 

Introduction

The Social Security program pays benefits to retired or disabled workers and their family members, and to the family members of deceased workers.1 As of May 2016, there were 60.5 million Social Security beneficiaries. Approximately 67% of those beneficiaries were retired workers and 15% were disabled workers. The remaining beneficiaries were the survivors of deceased insured workers or the spouses and children of retired or disabled workers.2

Social Security is financed primarily by payroll taxes paid by covered workers and their employers. The program is also credited with federal income taxes paid by some beneficiaries on a portion of their benefits, reimbursements from the General Fund of the Treasury for various purposes, and interest income from investments held by the Social Security trust funds. Social Security tax revenues are invested in U.S. government securities (special issues) held by the trust funds, and these securities earn interest. The tax revenues exchanged for the U.S. government securities are deposited into the General Fund of the Treasury and are indistinguishable from revenues in the General Fund that come from other sources. Because the assets held by the trust funds are U.S. government securities, the trust fund balance represents the amount of money owed to the Social Security trust funds by the General Fund of the Treasury. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of U.S. government securities held by the trust funds.3

The Secretary of the Treasury (the Managing Trustee of the Social Security trust funds) is required by law to invest Social Security revenues in securities backed by the U.S. government.4 The purchase of U.S. government securities allows any surplus Social Security revenues to be used by the federal government for other non-Social Security) spending needs at the time. This trust fund financing mechanism allows the General Fund of the Treasury to borrow from the Social Security trust funds. In turn, the General Fund pays back the trust funds (with interest) when the trust funds redeem the securities. The process of investing Social Security revenues in securities and redeeming the securities as needed to pay benefits is ongoing.

The Social Security trust funds are both designated accounts within the U.S. Treasury and the accumulated holdings of special U.S. government obligations. Both represent the funds designated to pay current and future Social Security benefits.

How the Social Security Program Is Financed

The Social Security program is financed primarily by revenues from Federal Insurance Contributions Act (FICA) taxes and Self-Employment Contributions Act (SECA) taxes. FICA taxes are paid by both employers and employees, but it is employers who remit the taxes to the U.S. Treasury. Employers remit FICA taxes on a regular basis throughout the year (e.g., weekly, monthly, quarterly or annually), depending on the employer's level of total employment taxes (including FICA and federal personal income tax withholding). The FICA tax rate of 7.65% each for employers and employees has two components: 6.2% for Social Security and 1.45% for Medicare Hospital Insurance. The SECA tax rate is 15.3% for self-employed individuals, with 12.4% for Social Security and 2.9% for Medicare Hospital Insurance. The respective Social Security contribution rates are levied on covered wages and net self-employment income up to $118,500 in 2016.5 Self-employed individuals may deduct one-half of the SECA taxes for federal income tax purposes.6 SECA taxes are normally paid once a year as part of filing an annual individual income tax return. In 2015, Social Security payroll taxes totaled $794.9 billion and accounted for 86% of the program's total income.7

In addition to payroll taxes, the Social Security program receives income from other sources. First, certain Social Security beneficiaries must include a portion of their Social Security benefits in taxable income for the federal income tax, and the Social Security program receives a portion of those taxes.8 In 2015, revenue from the taxation of benefits totaled $31.6 billion, accounting for 3% of the program's total income. Second, the program receives reimbursements from the General Fund of the Treasury for a variety of purposes.9 General Fund reimbursements totaled $0.3 billion, accounting for 0.03% of the program's total income.10 Finally, the Social Security program receives interest income from the U.S. Treasury on its investments in special U.S. government obligations. Interest income totaled $93.3 billion, accounting for 10% of the program's total income.11

The Internal Revenue Service (IRS) processes the tax returns and tax payments for federal employment taxes and federal individual income taxes. All of the tax payments are deposited in the U.S. Treasury along with all other receipts from the public for the federal government.

The Social Security Trust Funds as Designated Accounts

Within the U.S. Treasury, there are numerous accounts established for internal accounting purposes. Although all of the monies within the U.S. Treasury are federal monies, the designation of an account as a trust fund allows the government to track revenues dedicated for specific purposes (as well as expenditures). In addition, the government can affect the level of revenues and expenditures associated with a trust fund through changes in the law.12

Social Security program income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: (1) the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and (2) the Federal Disability Insurance (DI) Trust Fund.13 Under current law, the two trust funds are legally distinct and do not have authority to borrow from each other. This is important given projections showing that the asset reserves held by the OASI fund will be depleted in 2035, whereas the asset reserves held by the DI fund will be depleted in 2023. Following the depletion of trust fund reserves (2023 for DI and 2035 for OASI), continuing income is projected to cover 89% of DI scheduled benefits and 77% of OASI scheduled benefits. In the past, Congress has authorized temporary interfund borrowing and payroll tax reallocations between OASI and DI to address funding imbalances. This CRS report discusses the operations of the OASI and DI trust funds on a combined basis, referring to them collectively as the Social Security trust funds. On a combined basis, the trust funds are projected to remain solvent until 2034, at which point continuing income is projected to cover 79% of program costs. (For a discussion of the status of the DI trust fund, see CRS Report R43318, The Social Security Disability Insurance (DI) Trust Fund: Background and Current Status.)

Social Security Trust Fund Revenues

The Social Security trust funds receive a credit equal to the Social Security payroll taxes deposited in the U.S. Treasury by the IRS.14 The payroll taxes are allocated between the OASI and DI trust funds based on a proportion specified by law.15 A provision included in the Bipartisan Budget Act of 2015 (P.L. 114-74) temporarily directs a larger share of total payroll tax revenues to the DI fund. For 2016 to 2018, the 12.4% payroll tax rate is allocated as follows: 10.03% for the OASI fund and 2.37% for the DI fund. Beginning in 2019, the allocation reverts back to 10.6% for the OASI fund and 1.8% for the DI fund.16

Social Security Trust Fund Costs

The U.S. Treasury makes Social Security benefit payments to individuals on a monthly basis, as directed by the Social Security Administration (SSA) as to whom to pay and the amount of the payment. When benefit payments are made by the U.S. Treasury, the Social Security trust funds are debited for the payments. Periodically, the Social Security trust funds are also debited for the administrative costs of the Social Security program. These administrative costs are incurred by several government agencies, including SSA, the U.S. Treasury, and the IRS.

Social Security Trust Fund Operations

The annual revenues to the Social Security trust funds are used to pay current Social Security benefits and administrative expenses. If, in any year, revenues are greater than costs, the surplus Social Security revenues in the U.S. Treasury are available for spending by the federal government on other (non-Social Security) spending needs at the time. If, in any year, costs are greater than revenues, the cash flow deficit is offset by selling some of the accumulated holdings of the trust funds (U.S. government securities) to help pay benefits and administrative expenses.

There are two measures of Social Security trust fund operations: the annual cash flow operations and the accumulated holdings (or trust fund balance).17 The annual cash flow operations of the Social Security trust funds are a measure of current revenues and current costs. The cash flow operations are positive when current revenues exceed costs (a cash flow surplus) and negative when current costs exceed revenues (a cash flow deficit). In years with cash flow deficits, the Social Security program (unlike other federal programs that operate without a trust fund) may use the accumulated holdings of the Social Security trust funds from prior years to help pay benefits and administrative expenses.18

Although Social Security is a pay-as-you-go system, meaning that current revenues are used to pay current costs, changes made to the Social Security program in 1983 began a sustained period of annual cash flow surpluses through 2009.19 Since 2010, however, Social Security has had annual cash flow deficits (program costs have exceeded tax revenues). The 2016 annual report of the Social Security Board of Trustees projects that, under their intermediate assumptions, annual cash flow deficits will continue throughout the 75-year projection period (2016-2090).20

At the end of 2015, the Social Security trust funds had accumulated holdings (asset reserves) of more than $2.8 trillion. The 2016 annual report projects that the trust funds will have asset reserves (a positive balance) until 2034, meaning that Social Security benefits scheduled under current law can be paid in full and on time until then. This is the same year projected in last year's report.

In addition, the 2016 annual report shows the 75-year actuarial deficit for the Social Security trust funds. The actuarial deficit is the difference between the present discounted value of scheduled benefits and the present discounted value of future taxes plus asset reserves held by the trust funds. It can be viewed as the amount by which the payroll tax rate would have to be increased to support the level of benefits scheduled under current law throughout the 75-year projection period (or, roughly the amount by which the payroll tax rate would have to be increased for the trust funds to remain fully solvent throughout the 75-year period). The 2016 annual report projects that the 75-year actuarial deficit for the trust funds is equal to 2.66% of taxable payroll,21 a small decrease of 0.02 percentage point from last year's report.22 With respect to the change in the projected 75-year actuarial deficit, the trustees state,

 

A 0.06 percentage point increase in the OASDI actuarial deficit would have been expected if nothing had changed other than the one-year shift in the valuation period from 2015 through 2089 to 2016 through 2090. The effects of recently enacted legislation, updated demographic and economic data, and improved methodologies decrease the actuarial deficit by 0.08 percent of taxable payroll, causing the small net improvement in the actuarial balance.23

 

As noted above, on a combined basis, the Social Security trust funds are projected to have asset reserves sufficient to pay full scheduled benefits until 2034. Separately, however, the OASI Trust Fund is projected to have sufficient asset reserves until 2035 (the same year projected in last year's report) and the DI Trust Fund is projected to have sufficient asset reserves until 2023 (seven years later than projected in last year's report). The improvement in the DI fund's outlook is attributed largely to a temporary (three-year) reallocation of the combined 12.4% Social Security payroll tax rate between the OASI and DI funds, as required under Section 833 of the Bipartisan Budget Act of 2015 (P.L. 114-74). Under this provision, the DI fund receives a larger share of total payroll tax revenues for calendar years 2016 through 2018.24 With respect to the status of each of the trust funds (OASI and DI), the trustees state, "While legislation is needed to address all of Social Security's financial imbalances, the need remains most pressing with respect to the program's disability insurance component."25

Table 1 shows the annual cash flow operations of the Social Security trust funds (non-interest income, cost, and cash flow surplus/deficit) for the historical period 1957 to 2015.26 From 1957 to 1983 (the last time Congress enacted major amendments to the program), the Social Security trust funds operated with cash flow deficits (cost exceeded non-interest income) in 19 of the 27 years. Since 1984, the trust funds have operated with cash flow deficits in 6 of the past 32 years (2010 to 2015).

               Table 1. Operations of the Social Security

 

                Trust Funds, Historical Period 1957-2015

 

                            ($ in billions)

 

 ______________________________________________________________________

 

 

                                                   Cash Flow

 

                                                   Surplus or Deficit

 

              Non-Interest                         (non-interest income

 

 Year         Incomea               Cost           minus cost)

 

 ______________________________________________________________________

 

 

 1957              $7.5             $7.6                    ($0.1)

 

 1958               8.5              8.9                     (0.4)

 

 1959               8.9             10.8                     (1.9)

 

 1960              11.8             11.8                      0.0

 

 1961              12.3             13.4                     (1.1)

 

 1962              13.1             15.2                     (2.1)

 

 1963              15.6             16.2                     (0.6)

 

 1964              16.9             17.0                     (0.1)

 

 1965              17.2             19.2                     (2.0)

 

 1966              22.7             20.9                      1.8

 

 1967              25.5             22.5                      3.0

 

 1968              27.5             26.0                      1.5

 

 1969              32.0             27.9                      4.1

 

 1970              35.2             33.1                      2.1

 

 1971              38.9             38.5                      0.4

 

 1972              43.4             43.3                      0.1

 

 1973              52.4             53.1                     (0.7)

 

 1974              59.4             60.6                     (1.2)

 

 1975              64.7             69.2                     (4.5)

 

 1976              72.3             78.2                     (5.9)

 

 1977              79.5             87.3                     (7.8)

 

 1978              89.6             96.0                     (6.4)

 

 1979             103.7            107.3                     (3.6)

 

 1980             117.4            123.5                     (6.1)

 

 1981             140.2            144.4                     (4.2)

 

 1982             146.5            160.1                    (13.6)

 

 1983             163.0            171.2                     (8.2)

 

 1984             183.2            180.4                      2.8

 

 1985             200.8            190.6                     10.2

 

 1986             212.9            201.5                     11.4

 

 1987             225.7            209.1                     16.6

 

 1988             255.3            222.5                     32.8

 

 1989             276.7            236.2                     40.5

 

 1990             298.2            253.1                     45.1

 

 1991             307.8            274.2                     33.6

 

 1992             317.2            291.9                     25.3

 

 1993             327.7            308.8                     18.9

 

 1994             350.0            323.0                     27.0

 

 1995             364.5            339.8                     24.7

 

 1996             385.8            353.6                     32.2

 

 1997             413.9            369.1                     44.8

 

 1998             439.9            382.3                     57.6

 

 1999             471.1            392.9                     78.2

 

 2000             503.9            415.1                     88.8

 

 2001             529.1            438.9                     90.2

 

 2002             546.7            461.7                     85.0

 

 2003             547.0            479.1                     67.9

 

 2004             568.7            501.6                     67.1

 

 2005             607.5            529.9                     77.6

 

 2006             642.5            555.4                     87.1

 

 2007             674.7            594.5                     80.2

 

 2008             689.0            625.1                     63.9

 

 2009             689.2            685.8                      3.4

 

 2010             663.6            712.5                    (48.9)

 

 2011             690.7            736.1                    (45.4)

 

 2012             731.1            785.8                    (54.7)

 

 2013             752.2            822.9                    (70.7)

 

 2014             786.1            859.2                    (73.1)

 

 2015             826.9            897.1                    (70.2)

 

 ______________________________________________________________________

 

 

 Source: Table prepared by the Congressional Research Service (CRS)

 

 from data provided in the 2016 Annual Report, Table VI.A3, pp. 162-163,

 

 at https://www.ssa.gov/OACT/TR/2016/tr2016.pdf

 

 

                              FOOTNOTE TO TABLE 1

 

 

      a Non-interest income is equal to total income minus net

 

 interest. Stated another way, non-interest income includes net payroll

 

 tax contributions, reimbursements from the General Fund of the

 

 Treasury to the Social Security trust funds, and federal income tax

 

 revenues from the taxation of Social Security benefits.

 

END OF FOOTNOTE TO TABLE 1

 

 

Table 2 shows projected cash flow operations of the Social Security trust funds (non-interest income, cost, and cash flow deficits) for the 2016 to 2033 period, as projected by the trustees in the 2016 annual report (under the intermediate assumptions).

                  Table 2. Projected Operations of the

 

                 Social Security Trust Funds, 2016-2033

 

                            ($ in billions)

 

 ______________________________________________________________________

 

 

                                                   Cash Flow Deficit

 

              Non-Interest                         (non-interest income

 

 Yeara        Incomeb               Cost           minus cost)

 

 ______________________________________________________________________

 

 

 2016              $855.8          $928.9                  ($73.1)

 

 2017               909.1           965.5                   (56.4)

 

 2018               965.4         1,032.5                   (67.1)

 

 2019             1,021.3         1,101.6                   (80.3)

 

 2020             1,078.7         1,174.5                   (95.8)

 

 2021             1,137.5         1,248.4                  (110.9)

 

 2022             1,196.8         1,330.5                  (133.7)

 

 2023             1,255.4         1,418.8                  (163.4)

 

 2024             1,317.8         1,512.2                  (194.4)

 

 2025             1,380.2         1,609.2                  (229.0)

 

 2026             1,442.8         1,700.3                  (257.5)

 

 2027             1,507.6         1,795.1                  (287.5)

 

 2028             1,574.2         1,892.2                  (318.0)

 

 2029             1,643.1         1,992.1                  (349.0)

 

 2030             1,714.7         2,094.8                  (380.1)

 

 2031             1,788.8         2,199.9                  (411.1)

 

 2032             1,865.8         2,307.8                  (442.0)

 

 2033             1,946.2         2,418.0                  (471.8)

 

 ______________________________________________________________________

 

 

 Source: Table prepared by CRS from data provided in Table VI.G8

 

 (intermediate assumptions), Supplemental Single-Year Tables Consistent

 

 with the 2016 Annual Report, at https://www.ssa.gov/OACT/TR/2016/lr6g8.html

 

 

                              FOOTNOTES TO TABLE 2

 

 

      a Projections for years after 2033 are not shown because

 

 the asset reserves held by the Social Security trust funds are

 

 projected to be depleted in 2034 under the intermediate assumptions.

 

 

      b Non-interest income is equal to total income minus interest

 

 income.

 

END OF FOOTNOTES TO TABLE 2

 

 

One way to measure the cash flow operations of the trust funds is to take the ratio of non-interest income to cost for each year. A ratio greater than 100% indicates positive cash flow (a cash flow surplus); a ratio less than 100% indicates negative cash flow (a cash flow deficit). Figure 1 shows the ratio of current non-interest income to current cost for the Social Security trust funds each year over the historical period 1957 to 2015 and over the 2016 to 2033 period, as projected by the trustees in the 2016 annual report (under the intermediate assumptions).27

As shown in the figure, in 2009, non-interest income of $689.2 billion divided by a cost of $685.8 billion results in a ratio just over 100% (100.5%), indicating a cash flow surplus for the Social Security trust funds that year. By comparison, in 2015, non-interest income of $826.9 billion divided by a cost of $897.1 billion results in a ratio of 92.2%, indicating a cash flow deficit. In the 2016 annual report, the Social Security trustees project that the ratio of current non-interest income to current cost will remain below 100% for the 75-year projection period (2016-2090), with the gap between non-interest income and cost increasing over time (under the intermediate assumptions).

 

Figure 1. Ratio of Current Non-Interest Income to Cost

 

for the Social Security Trust Funds, 1957-2033

 

 

 

 

Source: Figure prepared by CRS from data provided in the 2016 Annual Report, Table VI.A3, pp. 162-163, at https://www.ssa.gov/OACT/TR/2016/tr2016.pdf; and Table VI.G8 (intermediate assumptions), Supplemental Single-Year Tables Consistent with the 2016 Annual Report, at https://www.ssa.gov/OACT/TR/2016/lr6g8.html.

Notes: Non-interest income excludes interest on accumulated holdings of U.S. government obligations. A ratio above 100% indicates a cash flow surplus for the year. A ratio below 100% indicates a cash flow deficit.

When the Social Security trust funds operate with annual cash flow deficits, the U.S. Treasury can continue to pay benefits scheduled under current law as long as the accumulated balance in the trust funds is sufficient to cover the costs. This is because the Social Security program has budget authority to pay benefits in full and on time as long as there is an adequate balance in the Social Security trust funds (the designated accounts). When current Social Security revenues are not sufficient to pay benefits, however, the U.S. government must raise the funds necessary to honor the redemption of U.S. government obligations held by the Social Security trust funds as they are needed to pay benefits. If there are no surplus governmental receipts, the U.S. government may raise the necessary funds by increasing taxes or other income, reducing non-Social Security spending, borrowing from the public (i.e., replacing bonds held by the trust funds with bonds held by the public), or a combination of these measures.

Investment of the Social Security Trust Funds

The Secretary of the Treasury is required by law to invest Social Security revenues in securities backed by the U.S. government.28 In addition, the Social Security trust funds receive interest on its holdings of special U.S. government obligations. Each U.S. government security issued by the U.S. Treasury for purchase by the Social Security trust funds must be a paper instrument in the form of a bond, note, or certificate of indebtedness.29 Specifically, Section 201(d) of the Social Security Act states,

 

Each obligation issued for purchase by the Trust Funds under this subsection shall be evidenced by a paper instrument in the form of a bond, note, or certificate of indebtedness issued by the Secretary of the Treasury setting forth the principal amount, date of maturity, and interest rate of the obligation, and stating on its face that the obligation shall be incontestable in the hands of the Trust Fund to which it is issued, that the obligation is supported by the full faith and credit of the United States, and that the United States is pledged to the payment of the obligation with respect to both principal and interest. The Managing Trustee may purchase other interest-bearing obligations of the United States or obligations guaranteed as to both principal and interest by the United States, on original issue or at the market price, only where he determines that the purchase of such other obligations is in the public interest.

 

Any interest or proceeds from the sale of U.S. government securities held by the Social Security trust funds must be paid in the form of paper checks from the General Fund of the Treasury to the Social Security trust funds.30 The interest rates paid on the securities issued to the Social Security trust funds are tied to market rates.31

For internal federal accounting purposes, when special U.S. government obligations are purchased by the Social Security trust funds, the U.S. Treasury is shifting surplus Social Security revenues from one government account (the Social Security trust funds) to another government account (the General Fund). The special U.S. government obligations are physical documents held by SSA, not the U.S. Treasury. The securities held by the Social Security trust funds are redeemed on a regular basis. These special U.S. government obligations, however, are not resources for the federal government because they represent both an asset and a liability for the government.32

Off-Budget Status of the Social Security Trust Funds

For federal budget purposes, on-budget status generally refers to programs that are included in the annual congressional budget process, whereas off-budget status generally refers to programs that are not included in the annual congressional budget process.

Social Security is a federal government program that, like the Postal Service, has had its receipts and (most) outlays designated by law as off-budget.33 The off-budget designation, however, has no practical effect on program funding, spending, or operations. The annual congressional budget resolution, in its legislative language, separates the off-budget totals (receipts and outlays) from the on-budget totals (receipts and outlays). The report language accompanying the congressional budget resolution usually shows the unified budget totals (which combine the on- and off-budget amounts) as well as the separate on- and off-budget totals. The President's budget tends to use the unified budget measures in discussing the budget totals. The President's budget documents also include the totals for the on- and off-budget components, as required by law. The Congressional Budget Office uses the unified budget numbers in its analyses of the budget; it generally does not include on- and off-budget data in its regular annual reports.

The unified budget framework is important because it includes all federal receipts and outlays providing a more comprehensive picture of the size of the federal government, as well as the impact of the federal budget on the economy. In the unified budget, the Social Security program is a large source of both federal receipts (24% in FY2015) and federal outlays (24% in FY2015).34 For purposes of the unified budget, the annual Social Security cash flow surplus or deficit is counted in determining the overall federal budget surplus or deficit.35

The Social Security Trust Funds as Accumulated Holdings

The Social Security trust funds can be viewed as trust funds, similar to any private trust funds, that are to be used for paying current and future benefits (and administrative expenses). By law, the Social Security revenues credited to the trust funds (within the U.S. Treasury) are invested in non-marketable U.S. government obligations. These obligations are physical (paper) documents issued to the trust funds and held by SSA. When the obligations are redeemed, the U.S. Treasury must issue a check (a physical document) to the Social Security trust funds for the interest earned on the obligations.36

Unlike a private trust that may hold a variety of assets and obligations of different borrowers, the Social Security trust funds can hold only U.S. government obligations. The sale of these obligations by the U.S. government to the Social Security trust funds is federal government borrowing (from itself) and counts against the federal debt limit. The requirement that the Social Security trust funds purchase U.S. government obligations serves several purposes, such as

  • offering a mechanism for the Social Security program to recoup the surplus revenues loaned to the rest of the government;

  • paying interest so that the loan of the surplus revenues does not lose value over time;

  • ensuring that the Social Security trust funds (and not other government accounts) receives credit for the interest earnings;

  • ensuring a level of return (interest) to the Social Security trust funds; and

  • providing a means outside of the securities market for the U.S. government to borrow funds.

 

The accumulated holdings of the Social Security trust funds represent the sum of annual surplus Social Security revenues (for all past years) that were invested in U.S. government obligations, plus the interest earned on those obligations. As a result of surplus Social Security revenues from 1984 to 2009 and the interest income credited to the Social Security trust funds, the accumulated holdings of the Social Security trust funds totaled $2.8 trillion at the end of calendar year 2015.37 It is the accumulated holdings of the Social Security trust funds (or the trust fund balance) that many people refer to when discussing the Social Security trust funds. Table 3 shows the accumulated holdings of the Social Security trust funds for the historical period 1957 to 2015. Table 4 showsthe projected accumulated holdings of the Social Security trust funds for the 2016to 2033 period, as projected by the Social Security trustees in the 2016 annual report (under the intermediate assumptions). The Social Security trustees project that the level of accumulated trust fund holdings will continue to increase from 2016 through 2019, due to interest income to the trust funds. Under the current projections, the level of accumulated holdings will begin to decline in 2020, and the Social Security trust funds' asset reserves will be depleted in 2034.38

The Social Security trustees project that, on average over the next 75 years (2016 to 2090), program costs will exceed income by an amount equal to 2.66% of taxable payroll (on average, costs are projected to exceed income by about 19%).39 The gap between income and costs, however, is projected to increase over the 75-year period. For example, in 2035, the cost of the program is projected to exceed income by an amount equal to 3.28% of taxable payroll (costs are projected to exceed income by about 25%). By 2090, the cost of the program is projected to exceed income by an amount equal to 4.35% of taxable payroll (costs are projected to exceed income by about 33%).40

For illustration purposes, the trustees project that the Social Security trust funds would remain solvent throughout the 75-year projection period if, for example,

  • revenues were increased by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.58 percentage points (from 12.40% to 14.98%; a relative increase of 21%);41

  • benefits scheduled under current law were reduced by an amount equivalent to an immediate and permanent reduction of (1) about 16% if applied to all current and future beneficiaries, or (2) about 19% if applied only to those who become eligible for benefits in 2016 or later; or

  • some combination of these approaches were adopted.42

 

                  Table 3. Accumulated Holdings of the

 

        Social Security Trust Funds, Historical Period 1957-2015

 

                            ($ in billions)

 

 ______________________________________________________________________

 

 

                Accumulated                             Accumulated

 

 Year           Holdingsa               Year            Holdingsa

 

 ______________________________________________________________________

 

 

 1957              $23.0                1987                $68.8

 

 1958               23.2                1988                109.8

 

 1959               22.0                1989                163.0

 

 1960               22.6                1990                225.3

 

 1961               22.2                1991                280.7

 

 1962               20.7                1992                331.5

 

 1963               20.7                1993                378.3

 

 1964               21.2                1994                436.4

 

 1965               19.8                1995                496.1

 

 1966               22.3                1996                567.0

 

 1967               26.3                1997                655.5

 

 1968               28.7                1998                762.5

 

 1969               34.2                1999                896.1

 

 1970               38.1                2000              1,049.4

 

 1971               40.4                2001              1,212.5

 

 1972               42.8                2002              1,378.0

 

 1973               44.4                2003              1,530.8

 

 1974               45.9                2004              1,686.8

 

 1975               44.3                2005              1,858.7

 

 1976               41.1                2006              2,048.1

 

 1977               35.9                2007              2,238.5

 

 1978               31.7                2008              2,418.7

 

 1979               30.3                2009              2,540.3

 

 1980               26.5                2010              2,609.0

 

 1981               24.5                2011              2,677.9

 

 1982               24.8                2012              2,732.3

 

 1983               24.9                2013              2,764.4

 

 1984               31.1                2014              2,789.5

 

 1985               42.2                2015              2,812.5

 

 1986               46.9

 

 ______________________________________________________________________

 

 

 Source: Table prepared by CRS from data provided in the 2016 Annual

 

 Report, Table VI.A3, pp. 162-163 (the full report is at

 

 https://www.ssa.gov/OACT/TR/2016/tr2016.pdf

 

 end-of-year totals.

 

 

                              FOOTNOTE TO TABLE 3

 

 

      a The accumulated holdings of the Social Security trust

 

 funds are also referred to as the trust fund balance.

 

END OF FOOTNOTE TO TABLE 3

 

 

Table 4. Projected Accumulated Holdings of the Social Security Trust Funds, 2016-2033 ($ in billions) ______________________________________________________________________

Accumulated Accumulated YearaHoldingsbYear Holdingsb ______________________________________________________________________

2016 $2,828.2 2025 $2,526.7 2017 2,859.3 2026 2,365.4 2018 2,881.5 2027 2,174.9 2019 2,892.2 2028 1,952.3 2020 2,889.0 2029 1,694.1 2021 2,871.2 2030 1,397.0 2022 2,831.1 2031 1,052.2 2023 2,762.1 2032 657.3 2024 2,662.2 2033 210.7 ______________________________________________________________________

Source: Table prepared by CRS from data provided in Table VI.G8 (intermediate assumptions), Supplemental Single-Year Tables Consistent with the 2016 Annual Report, at https://www.ssa.gov/OACT/TR/2016/lr6g8.html. Accumulated holdings are end-of-year totals.

 

FOOTNOTES TO TABLE 4

 

 

a Projections for years after 2033 are not shown because the asset reserves held by the Social Security trust funds are projected to be depleted in 2034 under the intermediate assumptions.

b The accumulated holdings of the Social Security trust funds are also referred to as the trust fund balance.

 

END OF FOOTNOTES TO TABLE 4

 

 

The Social Security Trust Funds and the Level of Federal Debt

As part of the annual congressional budget process, the level of federal debt (the federal debt limit) is established for the budget by Congress. The federal debt limit includes debt held by the public, as well as the internal debt of the U.S. government (i.e., debt held by government accounts). Borrowing from the public and the investment of the Social Security trust funds in special U.S. government obligations both fall under the restrictions of the federal debt limit. This means that the balance of the Social Security trust funds has implications for the federal debt limit.43

The Social Security Trust Funds and Benefit Payments

The accumulated holdings of the Social Security trust funds represent funds designated to pay current and future benefits. When current Social Security tax revenues fall below the level needed to pay benefits, however, these funds become available only as the federal government raises the resources needed to redeem the securities held by the trust funds. The securities are a promise by the federal government to raise the necessary funds.44 In past years, when Social Security was operating with annual cash flow surpluses, Social Security's surplus revenues were invested in U.S. government securities and used at the time to pay for other federal government activities. Social Security's past surplus revenues, therefore, are not available to finance benefits directly when Social Security is operating with annual cash flow deficits, as it does today.45 The securities held by the trust funds must be redeemed for Social Security benefits to be paid.

Stated another way, when Social Security is operating with a cash flow deficit, the program relies in part on the accumulated holdings of the trust funds to pay benefits and administrative expenses. Because the trust funds hold U.S. government securities that are redeemed with general revenues, there is increased reliance on the General Fund of the Treasury. With respect to reliance on the General Fund when Social Security is operating with a cash flow deficit, it is important to note that Social Security does not have authority to borrow from the General Fund. Social Security cannot simply draw upon general revenues to make up for any current funding shortfall. Rather, Social Security relies on revenues that were collected for the program in previous years and used by the federal government at the time for other (non-Social Security) spending needs, plus the interest earned on its trust fund investments. Social Security draws on its own previously collected tax revenues and interest income (accumulated trust fund holdings) when current Social Security tax revenues fall below current program expenditures.

As the trustees point out, over the program's 80-year history, Social Security has collected approximately $19.0 trillion and paid out $16.1 trillion, leaving asset reserves of more than $2.8 trillion at the end of 2015.46 The accumulated trust fund holdings of $2.8 trillion represent the amount of money that the General Fund of the Treasury owes to the Social Security trust funds. The General Fund could be said to have fully paid back the Social Security trust funds if the trust fund balance were to reach zero (i.e., if all of the trust funds' asset reserves were depleted).

The trustees project that the asset reserves held by the Social Security trust funds will be depleted in 2034. At that point, the program will continue to operate with incoming receipts to the trust funds. Incoming receipts are projected to be sufficient to pay about three-fourths of scheduled benefits through the end of the projection period in 2090 (under the intermediate assumptions of the 2016 annual report).47 Title II of the Social Security Act, which governs the program, does not specify what would happen to the payment of benefits in the event that the trust funds' asset reserves are depleted and incoming receipts to the trust funds are not sufficient to pay scheduled benefits in full and on time. Two possible scenarios are (1) the payment of full monthly benefits on a delayed basis or (2) the payment of partial monthly benefits on time.48

 

* * * * *

 

 

Appendix. Projected Trust Fund Dates, 1983-2016

 

 

The following table shows the key dates projected for the Social Security trust funds by the Social Security Board of Trustees (based on their intermediate set of assumptions) in each of their annual reports from 1983 to 2016.

         Table A-1.Key Dates Projected for the Social Security

 

        Trust Funds as Shown Under the Intermediate Assumptions

 

                 in Trustees Reports from 1983 to 2016

 

 ______________________________________________________________________

 

 

                                 First Year That      First Year That

 

           Year of Reserve         Cost Exceeds         Cost Exceeds

 

              Depletion        Non-Interest Income      Total Income

 

 Year    ___________________   __________________    __________________

 

 of

 

 Report  OASI    DI    OASDI   OASI    DI   OASDI    OASI    DI   OASDI

 

 ______________________________________________________________________________

 

 

 Intermediate II-B Projectionsa

 

 

 1983      b      b      b       c      c    2021      c      c    2047

 

 1984      b    2050     b     2021   2012   2021    2045   2038   2044

 

 1985    2050   2034   2049    2019   2010   2019    2032   2020   2032

 

 1986    2054   2026   2051    2020   2009   2019    2035   2017   2033

 

 1987    2055   2023   2051    2020   2008   2019    2036   2013   2033

 

 1988    2050   2027   2048    2019   2009   2019    2033   2016   2032

 

 1989    2049   2025   2046    2019   2009   2018    2032   2014   2030

 

 1990    2046   2020   2043    2019   2008   2017    2030   2011   2028

 

 

 Intermediate Projections

 

 

 1991    2045   2015   2041    2018   1998   2017    2030   2011   2028

 

 1992    2042   1997   2036    2018   1992   2016    2028   1992   2024

 

 1993    2044   1995   2036    2019   1993   2017    2030   1993   2025

 

 1994    2036   1995   2029    2016   1994   2013    2024   1994   2019

 

 1995    2031   2016   2030    2014   2003   2013    2021   2007   2020

 

 1996    2031   2015   2029    2014   2003   2012    2021   2007   2019

 

 1997    2031   2015   2029    2014   2004   2012    2021   2007   2019

 

 1998    2034   2019   2032    2015   2006   2013    2023   2009   2021

 

 1999    2036   2020   2034    2015   2006   2014    2024   2009   2022

 

 2000    2039   2023   2037    2016   2007   2015    2026   2012   2025

 

 2001    2040   2026   2038    2016   2008   2016    2027   2015   2027

 

 2002    2043   2028   2041    2018   2009   2017    2028   2018   2027

 

 2003    2044   2028   2042    2018   2008   2018    2030   2018   2028

 

 2004    2044   2029   2042    2018   2008   2018    2029   2017   2028

 

 2005    2043   2027   2041    2018   2005   2017    2028   2014   2027

 

 2006    2042   2025   2040    2018   2005   2017    2028   2013   2027

 

 2007    2042   2026   2041    2018   2005   2017    2028   2013   2027

 

 2008    2042   2025   2041    2018   2005   2017    2028   2012   2027

 

 2009    2039   2020   2037    2017   2005   2016    2025   2009   2024

 

 2010    2040   2018   2037    2018   2005   2015    2026   2009   2025

 

 2011    2038   2018   2036    2017   2005   2010    2025   2009   2023

 

 2012    2035   2016   2033    2010   2005   2010    2023   2009   2021

 

 2013    2035   2016   2033    2010   2005   2010    2022   2009   2021

 

 2014    2034   2016   2033    2010   2005   2010    2022   2009   2020

 

 2015    2035   2016   2034    2010   2005   2010    2022   2009   2020

 

 2016    2035   2023   2034    2010   2019   2010    2022   2019   2020

 

 ______________________________________________________________________

 

 

 Source: CRS, based on data from the 1983 to 2016 Social Security

 

 trustees reports and information provided by SSA.

 

 

                             FOOTNOTES TO TABLE A-1

 

 

      a From 1983 to 1990, two intermediate forecasts were prepared

 

 (II-A and II-B). The intermediate II-B forecast corresponds more

 

 closely to the intermediate forecast in subsequent years.

 

 

      b Trust fund expected to remain solvent throughout the long-range

 

 projection period.

 

 

      c Not available.

 

END OF FOOTNOTES TO TABLE A-1

 

 

Author Contact Information

 

Dawn Nuschler

 

Specialist in Income Security

 

dnuschler@crs.loc.gov, 7-6283

 

Acknowledgments

This report was originally written by retired CRS analyst Christine Scott.

 

FOOTNOTES

 

 

1 A person may receive retired-worker benefits and continue to have earnings from work. If a person is below the full retirement age and has earnings above a specified amount, benefits are withheld in part or in full under the Retirement Earnings Test. For more information, see Social Security Administration (SSA), Social Security: How Work Affects Your Benefits, Publication No. 05-10069, January 2016, at https://www.ssa.gov/pubs/EN-05-10069.pdf.

2 SSA, Monthly Statistical Snapshot, May 2016, Table 2. The latest edition of the Monthly Statistical Snapshot is available at http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/index.html.

3 SSA, Trust Fund FAQs, at http://www.socialsecurity.gov/OACT/ProgData/fundFAQ.html.

4 Social Security Act, Title II, § 201(d) [42 U.S.C. § 401(d)]. For more information, see SSA, Office of the Chief Actuary, Actuarial Note Number 142, Social Security Trust Fund Investment Policies and Practices, by Jeffrey L. Kunkel, January 1999, at http://www.ssa.gov/OACT/NOTES/n1990s.html.

5 The limit on wages and net self-employment income subject to the Social Security payroll tax (the taxable wage base) is adjusted annually based on average wage growth if a Social Security cost-of-living adjustment (COLA) is payable. For more information on the COLA, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments. The Medicare Hospital Insurance component of the FICA/SECA tax is levied on total earnings. In addition, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) imposes an additional 0.9% tax on high-income workers with wages and self-employment income over $200,000 for single filers and $250,000 for joint filers effective for taxable years beginning after December 31, 2012. For more information on Medicare, see CRS Report R43122, Medicare Financial Status: In Brief.

6 Self-employed individuals are required to pay Social Security payroll taxes if they have annual net earnings of $400 or more. Only 92.35% of net self-employment income (up to the annual limit) is taxable.

7 SSA, Office of the Chief Actuary, Financial Data For A Selected Time Period, at https://www.ssa.gov/OACT/ProgData/allOps.html.

8 The taxes associated with including Social Security benefits in federal taxable income go to the Social Security trust funds and Medicare's Hospital Insurance trust fund. For more information, see CRS Report RL32552, Social Security: Calculation and History of Taxing Benefits.

9 The Social Security trust funds receive reimbursements from the General Fund for (1) the cost of noncontributory wage credits for military service before 1957; (2) the cost in 1971-1982 of deemed wage credits for military service performed after 1956; (3) the cost of benefits to certain uninsured persons who attained the age of 72 before 1968; (4) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by P.L. 98-21; (5) the cost in 2009-2013 of excluding certain self-employment earnings from SECA taxes under P.L. 110-246; and (6) payroll tax revenue forgone under the provisions of P.L. 111-147, P.L. 111-312, P.L. 112-78, and P.L. 112-96. See SSA, Office of the Chief Actuary, Trust Fund Data, at http://www.socialsecurity.gov/OACT/STATS/table4a3.html.

10 The total also includes a small amount of gifts to the trust funds.

11 SSA, Office of the Chief Actuary, Financial Data For A Selected Time Period, at https://www.ssa.gov/OACT/ProgData/allOps.html.

12 For more information, see CRS Report R41328, Federal Trust Funds and the Budget.

13 Social Security Act, Title II, § 201 [42 U.S.C. § 401].

14 In addition, a portion of the federal income taxes paid on Social Security benefits, reimbursements from the General Fund, and the interest income on Social Security trust fund investments are credited to the Social Security trust funds.

15 Social Security Act, Title II, § 201(b) [42 U.S.C. § 401(b)]. See SSA, Office of the Chief Actuary, Social Security Tax Rates, at https://www.ssa.gov/OACT/ProgData/oasdiRates.html.

16 Before the Bipartisan Budget Act of 2015, the share of the payroll tax allocated to the DI fund was last changed (to 1.8%) in 2000, under a reallocation schedule established under the Social Security Domestic Employment Reform Act of 1994 (P.L. 103-387). For more information on past legislative changes to the allocation of payroll taxes between the OASI and DI trust funds, see CRS Report R43318, The Social Security Disability Insurance (DI) Trust Fund: Background and Current Status.

17 The accumulated holdings of the Social Security trust funds in U.S. government obligations are also referred to as the Social Security trust fund balance.

18 Certain government projects may be given "budget authority until expended," which allows the authority to spend funds on the project to be carried over each year until all of the authority to spend funds has been exhausted.

19 The Social Security Amendments of 1983 (P.L. 98-21) made a number of program changes, including the coverage of federal workers, an increase in the full retirement age, and the taxation of Social Security benefits. For more information on the 1983 amendments, see CRS Report RL30920, Social Security: Major Decisions in the House and Senate Since 1935.

20 The Social Security Board of Trustees is composed of three officers of the President's Cabinet (the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services); the Commissioner of Social Security; and two public representatives who are appointed by the President and subject to confirmation by the Senate. (The two public trustee positions are currently vacant.) The Board of Trustees issues an annual report to Congress on the financial status of the Social Security trust funds. The trustees make three sets of projections based on low-cost, intermediate, and high-cost assumptions reflecting the uncertainty surrounding projections for a 75-year period. The trust fund projections cited in this CRS report are based on the intermediate (or "best estimate") assumptions of the 2016 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Washington, DC, June 22, 2016, at https://www.ssa.gov/OACT/TR/2016/tr2016.pdf. (Hereinafter cited as "2016 Annual Report.")

21Taxable payroll refers to total earnings in the economy that are subject to Social Security payroll taxes (with some adjustments).

22 The Congressional Budget Office (CBO) projects that the trust funds will have asset reserves until 2029, and that the program's 75-year actuarial shortfall would be equal to 4.7% of taxable payroll. As CBO explains: "The larger shortfall projected by CBO primarily stems from differences in the projections of interest rates and taxable payroll. Differences in projections involving life expectancy, fertility, and growth in the consumer price index also contribute . . ." See CBO, The 2016 Long-Term Budget Outlook, July 2016, p. 28.

23 Social Security and Medicare Boards of Trustees, Status of the Social Security and Medicare Programs: A Summary of the 2016 Annual Reports, June 22, 2016, at https://www.ssa.gov/OACT/TRSUM/tr16summary.pdf. (Hereinafter cited as "Summary of the 2016 Annual Report.")

24 The Bipartisan Budget Act of 2015 (P.L. 114-74) was signed into law on November 2, 2015. In July 2015, the trustees released the 2015 Annual Report in which they projected that the asset reserves held by the DI Trust Fund would be depleted by the end of calendar year 2016 (under the intermediate assumptions). If reserve depletion had occurred, Social Security would have been unable to pay disability benefits in full and on time from that point forward.

25 Summary of the 2016 Annual Report.

26 The DI Trust Fund was created under the Social Security Act Amendments of 1956, and DI became effective on January 1, 1957. The historical table begins with 1957, the first year for which operations of the combined OASDI Trust Fund can be shown.

27 2016 Annual Report, Table VI.A3, pp. 162-163, at https://www.ssa.gov/OACT/TR/2016/tr2016.pdf; and Table VI.G8 (intermediate assumptions), Supplemental Single-Year Tables Consistent with the 2016 Annual Report, at https://www.ssa.gov/OACT/TR/2016/lr6g8.html.

28 Social Security Act, Title II, § 201(d) [42 U.S.C. § 401(d)]. For more information, see SSA, Office of the Chief Actuary, Actuarial Note Number 142, Social Security Trust Fund Investment Policies and Practices, by Jeffrey L. Kunkel, January 1999, at http://www.ssa.gov/OACT/NOTES/n1990s.html.

29 Social Security Act, Title II, § 201(d) [42 U.S.C. § 401(d)].

30 Social Security Act, Title II, § 201(f) [42 U.S.C. § 401(f)]. The funds are then used to purchase additional U.S. government securities credited to the Social Security trust funds.

31 For more information, see CRS Report RS20607, Social Security: Trust Fund Investment Practices.

32 For SSA's perspective on the U.S. government securities held by the trust funds, see SSA, Trust Fund FAQs, at http://www.ssa.gov/oact/progdata/fundFAQ.html.

33 Although the Social Security program is designated as off-budget, SSA's administrative funding is subject to an annual appropriated limit. For more information, see CRS Report R41716, The Social Security Administration (SSA): Budget Request and Appropriations.

34 Percentages based on data from: U.S. Office of Management and Budget, Historical Tables, Budget of the U.S. Government, Fiscal Year 2017, Tables 2.1, 2.4, 6.1 and 13.1.

35 For related information, see David Pattison, "Social Security Trust Fund Cash Flows and Reserves," Social Security Bulletin, vol. 75, no. 1 (February 2015), at https://www.ssa.gov/policy/docs/ssb/v75n1/v75n1p1.html.

36 The funds are then used to purchase additional U.S. government securities credited to the Social Security trust funds.

37 The Social Security trust funds also receive reimbursements from the General Fund of the Treasury for a variety of purposes. In 2011 and 2012, the trust funds received relatively large reimbursements from the General Fund ($102.7 billion and $114.3 billion, respectively). In those years, general revenues were credited to the trust funds to make up for forgone payroll tax revenues under a temporary two-percentage-point reduction in the payroll tax rate for employees.

38 Under the intermediate assumptions of the 2016 Annual Report, the Social Security trustees project that program costs will exceed total income (tax revenues plus interest income) beginning in 2020. At that point, the combined trust fund balance will begin to be drawn down to help pay benefits and administrative expenses. The trustees project that the asset reserves (U.S. government securities) held by the trust funds will be depleted during calendar year 2034. Following the depletion of trust fund reserves, the program will continue to operate with incoming receipts.

39 Program costs and income are evaluated as a percentage of taxable payroll because Social Security payroll taxes are the primary source of funding for the program.

40 The 75-year "open group unfunded obligation" for Social Security is $11.4 trillion (in present value terms).

41 The Social Security trustees explain that the projected increase in the payroll tax rate needed for the trust funds to remain solvent throughout the 75-year projection period (2.58 percentage points) differs from the projected 75-year actuarial deficit (2.66% of taxable payroll) for two reasons. The trustees state on page 5 of the 2016 Annual Report:

"First, the necessary tax rate is the rate required to maintain solvency throughout the period that does not result in any trust fund reserve at the end of the period, whereas the actuarial deficit incorporates an ending trust fund reserve equal to 1 year's cost. Second, the necessary tax rate reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax."

42 2016 Annual Report, p. 5.

43 For a discussion of how reaching the debt limit potentially could affect Social Security trust fund investment practices and benefit payments, see CRS Report R41633, Reaching the Debt Limit: Background and Potential Effects on Government Operations.

44 If there are no surplus governmental receipts, the U.S. government may raise the necessary funds by increasing taxes or other income, reducing non-Social Security spending, borrowing from the public (i.e., replacing bonds held by the trust funds with bonds held by the public), or a combination of these measures.

45 Social Security has been operating with annual cash flow deficits since 2010, and the trustees project that cash flow deficits will continue each year throughout the 75-year projection period (2016-2090). (2016 Annual Report; intermediate assumptions.)

46 Summary of the 2016 Annual Report.

47 Projections show that incoming receipts would be sufficient to pay 79% of scheduled benefits in 2034 and 74% of scheduled benefits in 2090. On a separate basis, the OASI Trust Fund is projected to be unable to pay scheduled benefits starting in 2035; the DI Trust Fund is projected to be unable to pay scheduled benefits starting in 2023. (2016 Annual Report, p. 12.)

48 For more information, see CRS Report RL32822, Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues.

 

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