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1 1 (June 01, 2020)

handle is hein.crs/govdaty0001 and id is 1 raw text is: Social Security, Deficits, and Debt Social Security is a self-financing program that covers an estimated 178 million workers and will provide monthly benefits to about 64 million beneficiaries in 2020. The Social Security program is composed of the Old-Age and Survivors Insurance (OASI) program and the Disability Insurance (DI) program, commonly referred to on a combined basis as OASDI. Social Security, or OASDI, is the federal government's single largest program in terms of both the number of people affected (i.e., covered workers and beneficiaries) and its finances (i.e., revenues and payments). The Social Security program is primarily financed through a payroll tax (employers and workers each pay 6.2%), which is applied to covered earnings up to an annual limit ($137,700 in 2020). A second source of funding is from the federal income tax imposed on a portion of Social Security benefits of some beneficiaries. These tax revenues (i.e. noninterest revenues) are used to pay monthly benefits. By law, any surplus arising when noninterest revenues are greater than total costs is loaned to the rest of the federal government, creating assets in the form of interest-bearing U.S. Treasury securities. These securities are known as special issues and are nonmarketable (i.e., not available for public purchase or sale). This process provides a third source of income, the interest payments those investments generate. This In Focus examines the relationship of the Social Security trust funds to the rest of government and how this impacts federal deficits and the federal debt. '. ,e Trust F ,' A trust find is an accounting mechanism that allows a program to track revenues and costs and, if necessary, provides a means to hold any accumulated assets, such as cash surpluses. The trust funds are dedicated to spend on current and future scheduled monthly benefits. The trust funds provide automatic spending authority to pay benefits without the need for Congress to periodically re-authorize the spending. The OASI and DI programs are two legally distinct trust funds and do not have the authority to borrow from each other. Tax revenues are credited to each program's trust fund according to the percentage set in statute, and payments to each program's beneficiaries are debited from its respective trust fund. Any interest earned on asset reserves held in the trust funds is also credited to the respective trust fund. Section 201 of the Social Security Act (42 U.S.C. §401) requires tax revenues not immediately needed for current costs (i.e., current monthly benefits) to be invested in interest bearing U.S. Treasury securities. Additionally, any interest income from asset reserves held in the trust funds is invested in government securities. During periods of short- term surpluses-in which incoming tax revenues exceed outgoing costs this investment process results in Social Security revenues being exchanged for Treasury securities. Said differently, during times of surpluses, Social Security is essentially lending cash to the General Fund of the Treasury or the rest of government. Such lending from one part of the federal government to another part is called intragovernmental debt. Surpluses that are converted into government securities and held in the trust funds become indistinguishable from other revenues in the general fund. Annual OASDI Surpluses and Deficits When annual income (tax revenues plus interest income) is greater than annual costs, the program is said to be in surplus. Alternatively, when annual income is less than annual costs, the program is in a deficit. Under the 2019 Board of Trustees' intermediate assumptions, the combined OASDI program will be in deficit starting in 2021. . When annual tax revenues are greater than annual costs, the program is operating a cash surplus. Conversely, when annual tax revenues are less than annual costs, the program is operating a cash deficit. On a combined OASDI basis, the program has been operating cash deficits since 2010. These are also referred to as short term surpluses or deficits, respectively. Unlike surpluses and deficits described above, short-term cash surpluses and cash deficits do not include interest income. Conversely, times of short-term deficits in which outgoing costs exceed incoming tax revenues result in the opposite transaction taking place. With a short-term deficit, Social Security would redeem trust fund asset reserves held in U.S. Treasury securities for cash. Said differently, this reverse transaction would result in the general fund paying back the Social Security trust funds for amounts previously borrowed. The trust funds' holdings represent the amount of money that the general fund, or the rest of government, owes the trust funds. A trust fund can redeem securities so long as the trust fund balance is positive: once depleted, a trust fund no longer has Treasury securities to redeem to augment income during a time of program deficit. For Social Security, this means the amount of scheduled benefits that could be paid would be determined solely by incoming tax revenues. Under current law, the trust funds do not have the authority to borrow money from the general fund or outside creditors after they are depleted. That is, the trust funds cannot issue debt obligations to pay for benefits. For this reason, maintaining a positive trust fund balance (or sufficient continuing tax revenues) is important, if tax revenues are not sufficient to pay scheduled benefits. If holdings were to be depleted, and continuing reserves and tax revenue were June 1, 2020 mppm qq\ M , q mmm, go 'M I 11LULANJILiM,

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