SECTION 1. SOCIAL SECURITY: THE OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE (OASDI) PROGRAMS CONTENTS Basic Social Security Information General Brief Description of Social Security Programs Concept of Social Insurance Financing Mechanism Brief History Social Security Coverage of the Work Force Benefits Eligibility for Workers Disability Eligibility for Dependents and Survivors Benefit Computation Full Retirement Age Trends in Retirement Age Trends in Longevity Average Indexed Monthly Earnings Benefit Formula Special Minimum Benefit Benefit Amounts Replacement Rates Benefit Reduction and Increase Dual Entitlement Actuarial Reduction Delayed Retirement Credit Maximum Family Benefit Earnings Limit Offsets Suspension of Benefits to Prisoners Cost-of-Living Adjustments Taxation of Benefits Social Security Benefits for Noncitizens Determination of Disability Benefits Determination of Disability Application of Law and Regulations Federal Review of State Determinations Periodic Review of Individuals Receiving Disability Benefits Medical Improvement Standard Medical Evidence Attorneys' Fees and Representation Vocational Rehabilitation (1) 2 Disability Claims and Appeals Structure Changes in Enrollment and Applicant Backlogs Disability Insurance (DI) Awards and Recipients Pending Claims in the Disability Determination Services Characteristics of Recipients Old-Age, Survivors, and Disability Insurance Disability Insurance Social Security Financing Current Law Status of OASDI Trust Funds How the Status of the Trust Funds is Measured Nature of the Social Security Trust Funds Budgetary Treatment of OASDI Current Budget Rules Pertaining to Social Security Current House and Senate Procedural Rules to Protect Social Security's Financial Condition Budgetary Treatment of Administrative Expenses Legislative History Changes in the 103d Congress Changes in the 104th Congress Changes in the 105th Congress Appendix Relationship of Taxes to Benefits for Social Security Retirees: Illustrations of the Amount of Time It Takes To Recover the Value of Taxes Paid, Plus Interest Illustrative Payback Times References 3 BASIC SOCIAL SECURITY INFORMATION Tax rate: Employee/employer eachÐ7.65%; (6.20%ÐOASDI; 1.45%ÐHI). Self-employedÐ15.30%; (12.40%ÐOASDI; 2.90%ÐHI). Maximum taxable earnings base for 1998: Social Security (OASDI) ................................................ $68,400 Medicare (HI) ................................................................. No Limit Maximum FICA/SECA tax: 1 OASDI HI Employee/employer, each .................................. $4,241 No limit Self-employed ..................................................... 8,482 No limit OASDI workers covered.Ð1997 (est.)Ð145.9 million. Average wage level.Ð1997 (est.)Ð$26,732 Earnings required in 1998 for a quarter of coverage.Ð$700; ($2,800 for four). Earnings limit exempt amounts in 1998: $14,500 for beneficiaries age 65±69; 2 ($1 for $3 withholding rate). $9,120 for beneficiaries under age 65; ($1 for $2 withholding rate). Medicare (SMI) premium.Ð$43.80/month. Number of OASDI beneficiaries (12/96) (in millions): Total OASDI beneficiaries ....................................................... 43.7 OASI beneficiaries ............................................................ 37.5 Retired workers .......................................................... 26.9 Families and survivors .............................................. 10.8 DI beneficiaries ................................................................. 6.0 Disabled workers ....................................................... 4.4 Family members ........................................................ 1.7 Average monthly benefits (12/96): Retired worker .......................................................................... $745 Retired worker and aged spouse ............................................. 1,256 Disabled worker ....................................................................... 704 Disabled worker, spouse and children .................................... 1,172 Aged widow(er) ......................................................................... 707 Widowed mother/father and two children .............................. 1,421 1 FICA/SECA tax paid by employers and self-employed can be partially deducted under income tax rules. 2 Will gradually increase to $30,000 in the year 2002. 4 BASIC SOCIAL SECURITY INFORMATIONÐContinued Monthly benefits for 1997 retirees At 62 At 65 Low earner (45% of average wages) .......................... $448 $565 Average earner ........................................................... 738 933 Maximum earner ........................................................ 1,049 1,326 Long-range replacement rates (in percent): Retirement at age 67 in 2030 and later: Low earner (45% of average wages) ....................................... 56 Average earner ......................................................................... 42 Maximum earner ...................................................................... 28 COLA (effective January 1998).Ð2.1%. Taxation of benefitsÐpercent of benefits taxed: Percent taxed Income threshold Filing status Up to 50% ....................... $25,000±$34,000 ............. Individual. $32,000±$44,000 ............. Joint. Up to 85% ....................... $34,001 + ........................ Individual. $44,001 + ........................ Joint. Substantial gainful activity in 1998: $500/month disabled/nonblind; $1,050/month blind. OASDI Trust Fund operations (in billions of dollars): OASDI Trust Fund operations Calendar year Net Income Outgo increase Balance 1996 .................................. $424.5 $353.6 $70.9 $567.0 1997 (est.) ......................... 451.3 370.8 80.5 647.4 Fiscal year 1996 OASDI outlays.Ð$350 billionÐ22.4% of total U.S. budget of $1.56 trillion. For SSA information, call: 1±800±SSA±1213. SSA On Line.Ðhttp://www.ssa.gov/SSAlHome.html Source: Social Security Administration and Board of Trustees (1997). 5 GENERAL BRIEF DESCRIPTION OF SOCIAL SECURITY PROGRAMS The Old-Age, Survivors, and Disability Insurance (OASDI) Pro- grams provide monthly benefits to retired and disabled workers, their dependents and survivors. The OASDI Programs are con- tained in title II of the Social Security Act, and are commonly known as ``Social Security.'' Old-age benefits were provided for re- tired workers by the original Social Security Act of 1935, benefits for dependents and survivors were provided by the 1939 amend- ments, and benefits for disabled workers were enacted in 1956. The Medicare Hospital Insurance (HI) Program, enacted in 1965 as title XVIII of the Social Security Act, is closely related to the OASDI Program. (The HI Program is described in section 2.) CONCEPT OF SOCIAL INSURANCE When the OASDI Programs were created, ``insurance'' was in- cluded in their titles to show that their purpose is to replace in- come that is lost to a family through the retirement, death, or dis- ability of a worker who has earned protection against these risks. This protection was to be obtained by working in jobs that are cov- ered under Social Security and therefore subject to payroll taxes that finance Social Security benefits. Once workers worked long enough in covered jobs to be insured, they and their families would have eligibility for their benefits as a matter of earned right. The level of benefits is based on the amount the worker earned in cov- ered jobs, and is paid without a test of economic need. However, the social ends the programs serve diverge somewhat from the insurance analogy. The programs are national, and cov- erage is generally compulsory and nearly universal. They are de- signed to address such social purposes as alleviating poverty, pro- viding added protection of families versus single workers, and pro- viding a larger degree of earnings replacement for low-paid versus high-paid workers. The OASDI Programs were therefore described as ``social'' insurance. FINANCING MECHANISM The primary source of revenue for OASDI is the payroll tax paid by workers covered by the program and their employers. OASI and DI have separate tax rates set by law. Coverage under Social Secu- rity is generally compulsory. Currently, an estimated 96 percent of the Nation's paid work force is covered either voluntarily or mandatorily. The taxes for wage and salaried workers are imposed under the Federal Insurance Contributions Act (FICA, chapter 21 of the In- ternal Revenue Code). Taxes are based on earnings up to the an- nual maximum taxable wage base ($68,400 in 1998 for OASDI, with no limit on wages subject to HI). The employee share of the payroll tax is withheld from wage and salary payments, and is matched by employers, currently at a rate of 7.65 percent each. Self-employed persons are covered by the Self-Employment Con- tributions Act (SECA, chapter 2 of the Internal Revenue Code). They pay contributions on their net earnings annually up to the 6 same maximum as employees, but at a rate that is equal to the combined employee-employer tax rate. However, the self-employed may deduct 7.65 percent from their net earnings before computing their Social Security tax and may also deduct half of their Social Security tax as a business expense for income tax purposes. Revenue from the OASI and DI portion of the tax is credited to the Old-Age and Survivors Insurance Trust Fund and the Disabil- ity Insurance Trust Fund, respectively. In addition, the revenue de- rived from the taxation of a portion of 50 percent of Social Security benefits is credited