Social Security Trustees 2014 Annual Report

The 2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance (OASDI) Trust Funds, transmitted to Congress on July 28, discloses that at the end of 2013, the OASDI program was providing benefit payments to about 58 million people, comprising 41 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 11 million disabled workers and dependents of disabled workers. During the year, an estimated 163 million people had earnings covered by Social Security and paid payroll taxes. Total OASDI income in 2013 was $855 billion, which consisted of $103 billion of interest earnings and $752 billion of income from payroll taxes and other sources. Total expenditures in 2013 were $823 billion. Asset reserves held in special issue U.S. treasury securities increased by $32 billion from $2,732 billion at the beginning of the year to $2,764 billion at the end of the year. According to the trustees, the OASDI cost is projected to rise from 4.9% of gross domestic product (GDP) for 2014 to about 6.2% of GDP by 2035, declining to 6.0% by 2050, and then stabilizing between 6.0 and 6.1% through 2088, the end-year of the standard 75-year projection period. The combined OASI and DI trust fund asset reserves are projected to increase through 2019, begin to decline in 2020 and become depleted in 2033. Revenues and asset proceeds are projected to be able to pay all scheduled benefits in full until 2033. However, for the combined OASI and DI trust funds to remain 100% solvent and pay all scheduled benefits throughout the 75-year projection period, revenues would need to be enhanced by an amount that is estimated as equivalent to a payroll tax increase of 1.42% of covered payroll payable by both employers and employees over the 75-year period.

The expected shortfall in the amount of revenues that are necessary to meet scheduled benefits would, in the absence of corrective legislation to improve the actuarial balance of the program, result in the inability of the system to pay scheduled benefits in full after 2033. The trust fund accounting accurately reflects the law, under which benefits cannot be paid in full on a timely basis after reserve depletion occurs. The Statement of Actuarial Opinion of the Chief Actuary of the Social Security Administration, appended to the trustees report, cautions readers to consider the overall federal unified budget perspective on social security finance with care, because the assumptions underlying unified budget accounting are inconsistent with the assumptions of trust fund accounting. The unified budget assumes that full scheduled benefits will continue to be paid through transfers from the General Fund of the Treasury and will represent a draw on other federal government resources for which there is no earmarked source of revenue from the public. However, not only are such draws impermissible under the current law, no precedent exists for a change in the Social Security Act to finance expected shortfalls in trust fund revenues to meet scheduled benefits with draws on other federal government resources. If precedent is followed, parametric changes to benefit provisions and or payroll taxes are likely to be made by amending the Social Security Act before the reserves of the trust funds become depleted. Another inconsistent aspect of the unified budget accounting process is to treat redemptions of trust fund reserves as an addition to annual federal deficits, referring to these redemptions also as a draw on other federal resources. This perspective is controversial and subject to challenge since, in fact, redemptions of trust fund reserves actually represent a deferred use of revenues specifically earmarked for the exclusive use of the trust fund that have been collected in prior years and saved for later application to provide cash flow for the OASDI system. The actual operations of the trust funds under current law do not draw on other federal resources. Expenditures can only be paid from current or deferred earmarked resources for the specific program financed from the trust fund. Assertions that trust fund reserve redemption and expected shortfalls after reserve depletion represent draws on other federal resources are based on assumptions that are inconsistent with the current law and with the actual trust fund cash flow operations. Unified budget analysis frequently refers to both trust fund reserve redemptions and expected trust fund shortfalls for scheduled benefits (that would not become payable under current law) as factors that increase the federal debt held by the public in future; this assertion is not consistent with a full assessment of the investment and redemption flows of the trust funds and the provisions of the current law with respect to the payment of benefits after trust fund reserves are depleted as projected by the trustees in 2033.