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1 1 (October 14, 2022)

handle is hein.crs/govejax0001 and id is 1 raw text is: Congressional Research Service informing the legislative debate since 1914 S October 14, 2022 Social Security: Scheduled Versus Payable Benefits Background Social Security is a self-financing program that, in 2022, covers approximately 182 million workers and provides monthly cash benefits to over 65 million beneficiaries. Social Security is composed of the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) programs, referred to on a combined basis as OASDI. The ability to pay fully scheduled benefits on time is determined by the financial status of Social Security. Without changes to current law, under the Social Security Trustees' (hereafter trustees) intermediate assumptions- their best estimate of future experience is that beneficiaries in 2035 would receive a de facto reduction of about 20%. Recent surveys show about 42% of workers not yet retired expect benefits at a reduced level. Another 42% of workers not yet retired do not expect to receive any Social Security benefits (see Additional Resources). Congressional interest in this issue may be high because of the large number of beneficiaries-current and future-who may face benefit cuts under current law. Additionally, the possibility of benefits cuts may affect the employment and savings behavior of future beneficiaries. Social Security Benefits and Financial Status Social Security, or OASDI, is a work-based social insurance program. It protects insured workers and their family members against a loss of earnings due to old age, disability, or death. Workers obtain insured status by working for a number of years specified in statute in jobs covered by Social Security. Social Security benefits are based on a worker's career-average earnings in jobs covered by Social Security. About 94% of workers in paid employment and self-employment are covered under Social Security. Social Security is primarily financed through dedicated tax revenues: a payroll tax (accounting for 90.1% of program income in 2021) and federal income taxes paid by about half of beneficiaries on a portion of their benefits (accounting for 3.5% of program income in 2021). Asset reserves are held in the OASI and DI trust funds. From years where total revenues exceeded total cost, these earn interest (accounting for 6.4% of program income in 2021). In 2021, 99.0% of total expenditures went toward monthly benefit payments. In 2021, Social Security operated an annual deficit the first since 1982. Since total cost exceeded total income in 2021, some trust fund assets were redeemed to pay fully scheduled benefits as specified under current law. The trustees project annual deficits to persist indefinitely (under their intermediate assumptions). This indicates that reserves will need to be redeemed in future years. Without the redemption of asset reserves, Social Security could have paid out in benefits based only on what it received in income. In 2021, the program had total costs of $1,145 billion and total revenues of $1,088 billion. Thus, approximately $56 billion in asset reserves were redeemed, or about 5% of total costs. Said differently, revenues in 2021 were sufficient to pay about 95% of scheduled benefits. At the beginning of 2022, the value of the combined trust funds was $2,852 billion. This is the value of asset reserves available for Social Security to augment incoming tax revenues should deficits persist as projected. Scheduled Versus Payable Benefits The relationship described above is illustrated in Figure 1. The period through 2009 shows non-interest income (i.e., tax revenues) exceeding costs. During this period, excess revenues accumulated in the trust funds. The period from 2010 onward shows cost exceeding non-interest income. Full scheduled benefits-benefit amounts specified under current law-were possible because of interest income through 2020 and because of redeemed asset reserves starting in 2021. Figure 1 shows how the imbalance between cost and income is projected to continue and helps to answer the question of how long the trust funds can support scheduled benefits to be paid. Under the intermediate assumptions, the trustees project that asset reserves will be depleted sometime in 2035. This means asset reserves can be redeemed from 2021 through 2035 to pay scheduled benefits. Once asset reserves are depleted, the program can pay out in benefits only the amount it receives in income from tax revenues. Thus, there will be a difference between scheduled benefits and payable benefits (i.e., the percent of scheduled benefits supported by revenue), as seen in Figure 1. Figure I. OASDI Income, Cost, and Expenditures 2000-2096 as Percentages of Taxable Payroll Source: Congressional Research Service (CRS). Cost sheuIed buts ot Cost: schedued and payable benefits 2%paveb 'e b:enefits4 4--- -------------- ---- Benefit Reduction Payable benefits as percent Non-interest Expenditures: payable of scheduled benefits: be'efits = income af2er 2000 2034: 100% Icm trust fund depletion in 2035 2096: 74% -Historical Projected 0% - 2000 2010 2020 2030 2040 250

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