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1 1 (October 15, 2021)

handle is hein.crs/goveeqo0001 and id is 1 raw text is: Congressional Research Service October 15, 2021 Social Security Financial Status: How the 2021 Annual Report Addressed the Impact of the COVID-19 Pandemic Background Social Security is a self-financing program that in 2021 covers approximately 176 million workers and provides monthly cash benefits to over 65 million beneficiaries. It is the federal government's largest program in terms of both the number of people affected (i.e., covered workers and beneficiaries) and its finances. Social Security is composed of Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI), referred to collectively as OASDI. The financial status of Social Security helps to determine the program's ability to pay fully scheduled benefits on time-that is, the ability to provide monthly payments to current and future beneficiaries. At a basic level, the financial status of Social Security is simply the relationship among revenues, cost, and the holdings in trust funds. COVID-19 News articles during the Coronavirus Disease 2019 (COVID-19) outbreak and the ensuing recession highlighted potential ways that Social Security and its beneficiaries could be adversely affected. If the totality of pandemic-related events were to result in a worse-than- expected relationship between program revenues and cost, it would likely result in a sooner-than-anticipated date for trust fund reserve depletion (i.e., the date at which the program could not support full and on-time payment of scheduled benefits). Furthermore, conditions that negatively impact economic and demographic factors in the future could also result in a lower percentage of payable benefits (i.e., incoming revenues could support lower benefit levels than pre-pandemic conditions). Changes in other economic factors such as inflation-and changes in demographic and program factors-could have additional effects on program revenues, program costs, and the trust funds. The Board of Trustees 2021 Annual Report acknowledges the continuing uncertainty regarding the long-term (75- year) impacts of the COVID-19 pandemic. Although the trustees assumed that the pandemic will have no net effect on the individual long-range ultimate assumptions, they further acknowledged their intent to monitor developments and modify projections in later reports. The 2021 report did discuss many changes to the near-term (10-year) assumptions that were necessary to incorporate the potential effects of the COVID-19 pandemic. This report reviews how the most recent near-term projections- under the intermediate assumptions in Board of Trustees 2021 Annual Report-addressed the impacts of the COVID-19 pandemic on the financial status and how COVID-19-related projections have changed from previous reports and guidance. Revenues, Cost, and the Trust Funds Revenues for Social Security are generated primarily through taxes. In 2020, 93.2% of total income was from dedicated tax revenue: (1) payroll taxes paid by employers, employees, and self-employed individuals and (2) federal income taxes paid by about half of beneficiaries on a portion of their benefits. The remainder of the program's income came in the form on interest earned by assets held in the trust funds. Costs for Social Security primarily consist of benefit payments. In 2020, 99.0% of total costs went toward monthly retired-worker, disabled-worker, and dependent benefit payments. The Social Security trust funds are an accounting mechanism used to track revenues and cost. The trust funds also provide a means to hold any accumulated assets (holdings). Currently, the combined Social Security trust funds hold about $2.9 trillion in asset reserves that are available for future program spending. 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 to help pay benefits. Changes that increase revenues, increase the trust funds, or decrease costs have a beneficial effect on the financial status. Changes that decrease revenues, decrease the trust funds, or increase costs have a negative effect on the financial status. Long-Term Projected Shortfall Over the long term, Social Security has an unfavorable relationship between projected revenues and projected cost. Costs are projected to increase faster than revenues, leading to projected cash-flow deficits starting indefinitely in 2021. The accumulated assets held in the trust funds can be used to augment revenues until 2034-the projected date of depletion for the trust funds. That is, trust fund reserves are projected to decline steadily from their current peak-$2.9 trillion-to zero in 2034. At the time of depletion, incoming revenues would be insufficient to fully pay scheduled benefits. The 2020 Annual Report (April 2020) The trustees released the 2020 Annual Report on April 22, 2020, which reflected the trustees' understanding of the Social Security program at the beginning of 2020. Thus, it did not incorporate any potential effects of the COVID-19 pandemic. The trustees stated: Given the uncertainty associated with these impacts, the Trustees believe that it is not possible to adjust their estimates accurately at this time. The trustees went on to write that the magnitude of both near-term and long-range effects on the population and the economy was still too unclear. ittps://Crsreports.congress.gt 0

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