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1 1 (November 15, 2022)

handle is hein.crs/govejjq0001 and id is 1 raw text is: s Congressional Research Service Naam info rming th e legislative d ebate since 1914 0 November 15, 2022 Social Security: The Trust Funds and Interest Income Background The Old-Age, Survivors, and Disability Insurance (OASDI) program, or Social Security, is a self-financing social insurance program that protects workers and their families against loss of income due to old age, death, or disability. Workers become eligible for future benefits by working in Social Security-covered employment. (About 94% of workers in paid employment and self-employment are covered under Social Security.) Given that Social Security covers approximately 182 million workers and pays benefits to over 65 million beneficiaries, it is the federal government's single largest program. The financial status of Social Security determines 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, expenses, and the holdings in the Social Security trust funds. This report focuses on the trust funds and interest income, a decreasing source of income for the program. Sources of Incorme Social Security is primarily financed through a payroll tax where employers and workers each pay 6.2% of covered earnings up to an annual limit ($147,000 in 2022). Payroll taxes accounted for 90.1% of program income in 2021. Additionally, some beneficiaries are subjected to federal income tax on a portion of their Social Security benefits. Taxation of benefits accounted for 3.5% of program income in 2021. The payroll tax and income from taxation of benefits are commonly referred to as the program's tax revenues or non-interest income. These tax revenues are used to pay monthly Social Security benefits. A third source of income is interest income. Excess revenues that are not needed to immediately pay benefits are credited to the Social Security trust funds. As required by law, any excess revenues are invested in interest-bearing U.S. Treasury securities held in trust funds. This transaction loans money to the rest of government. Interest on trust fund asset reserves accounted for 6.4% of program income in 2021. The average interest rate on asset reserves (i.e., effective interest rate) was 2.5% in 2021. The Trust Funds The trust funds provide the program with a means to track revenues and expenses. Additionally, the trust funds provide a means for the Social Security program to hold accumulated assets-that is, money not immediately needed to pay benefits-for the payment of future benefits. At the end of 2021, the trust fund balance was $2,852 billion. This balance represents the accumulation of excess revenues and the interest earned on those excess revenues. The Board of Trustees oversees the Social Security trust funds and is required by law to report to Congress annually on the financial status of the trust funds. From 1983 through 2009, Social Security operated with a cash surplus (i.e., tax revenues exceeded expenses). The cash surplus is the shaded blue area, as shown in Figure 1. Figure 1. Social Security Tax Revenues and Expenses 1980-2034 (in Billions of Current Dollars) $2,500 *, Cas Def cts $ Cash surplus Historica Projected 19U I5 1990 S5~ 20200 2 0 2010 20S 2020 2025 2730 Source: CRS. Notes: Projections use the trustees' 2022 intermediate projections. Each of those year's cash surpluses were invested in government securities and earned interest. Figure 2 shows how those cash surpluses (i.e., trust fund asset reserves) and the earned interest grew over time. However, Figure 2 also shows how the value of the trust funds decreased in 2021. Figure 2 also shows the projected value of the trust funds decreasing to zero by the end of 2035 (under the Board of Trustees' 2022 intermediate assumptions, its best guess of future experience). Figure 2. Social Security Trust Fund Asset Reserves 1980-2034 (in Billions of Current Dollars) Asset Reserves $0 19% 980 290 29s 2J t 2 G 1 2 2 023 s 213 Source: CRS. Notes: Projections use the trustees' 2022 intermediate projections.

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