Introduction

Social Security is a self-financed program that provides monthly cash benefits to retired and disabled workers and their family members, and to the family members of deceased workers. The program is authorized under Title II of the Social Security Act and administered by the Social Security Administration (SSA). As of June 2011, there were 54.8 million Social Security beneficiaries. Of those, 38.1 million were retired workers and family members, 10.4 million were disability beneficiaries, and 6.3 million were survivors of deceased workers.[i]

Social Security is financed by payroll taxes paid by covered workers and their employers. In 2011, an estimated 156.9 million workers are covered by Social Security.[ii] Employees and employers each pay 6.2% of covered earnings up to an annual limit ($106,800 in 2011); self-employed individuals pay 12.4% of net self-employment income up to an annual limit ($106,800 in 2011).[iii] Self-employed persons may deduct one-half of their Social Security payroll taxes for federal income tax purposes.[iv] Social Security is also credited with tax revenues from the federal income taxes paid by some beneficiaries on a portion of their benefits.

Social Security income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: the Federal Old-Age and Survivors Insurance (OASI) trust fund and the Federal Disability Insurance (DI) trust fund.[v] As the Managing Trustee of the Social Security trust funds, the Secretary of the Treasury is required by law to invest Social Security revenues in interest-bearing federal government securities (special issues) held by the trust funds.[vi] The revenues exchanged for the federal government securities are deposited into the general fund of the U.S. Treasury and are indistinguishable from revenues in the general fund that come from other sources. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of federal government securities held by the trust funds.[vii]

In 2010, the Social Security trust funds had total income of $781 billion, total expenditures of $713 billion and accumulated holdings of $2.6 trillion.[viii] Because the assets held by the trust funds are federal government securities, the trust fund balance ($2.6 trillion at the end of 2010) represents the amount of money owed to the Social Security trust funds by the general fund of the U.S. Treasury.

Origins and Brief History of Social Security

Title II of the original Social Security Act of 1935[ix] established a national plan designed to provide economic security for the nation’s workers. The system of Old-Age Insurance it created provided benefits to individuals who were aged 65 or older and who had “earned” retirement benefits through work in jobs covered by the system. Benefits were to be financed by a payroll tax paid by employees and employers on wages up to a base amount ($3,000 per year at the time). Monthly benefits were to be based on cumulative wages in covered jobs. The law related the amount of the benefit to the amount of a worker’s wages covered by the program, but the formula was weighted to give a greater return, on payroll taxes paid, to low-wage earners. Before the Old-Age Insurance program was in full operation, the Social Security Amendments of 1939[x] shifted the emphasis of Social Security from protection of the individual worker to protection of the family by extending monthly cash benefits to the dependents and survivors of workers. The program now provided Old-Age and Survivors Insurance (OASI).

During the decades that followed, changes to the Social Security program were mainly ones of expansion. Coverage of workers became nearly universal (the largest groups remaining outside the system today are state and local government employees who have not chosen to join the system and federal employees who were hired before 1984). In 1956, Congress established the Disability Insurance (DI) program.[xi] Over the years, there were increases in the payroll tax rate, which increased from 2.0% of pay (1.0% each for employees and employers) in the 1937-1949 period to its current level of 12.4%.[xii] In addition, there were increases in the amount of wages subject to the payroll tax (the taxable wage base), which increased from $3,000 in the 1937-1950 period to its current level of $106,800.[xiii] The types of individuals eligible for benefits were expanded over the years,[xiv] and benefit levels were increased periodically. In 1972, legislation provided that benefits would increase automatically each year by the same percentage as the cost-of-living (effective in 1975).[xv]

Beginning in the late 1970s, legislative action regarding Social Security became more concentrated on solving persistent financing problems. Legislation enacted in 1977 raised taxes and curtailed future benefit growth in an effort to shore up the system’s finances.[xvi] Still, in 1982, the OASI trust fund needed to borrow assets from the DI trust fund and the Medicare Hospital Insurance trust fund (borrowed amounts were fully repaid by 1986). Finally, in 1983, Congress passed additional major legislation that was projected to restore solvency to the Social Security system on average over the 75-year projection period. Current projections by the Social Security Board of Trustees show that the Social Security system has a long-range funding shortfall. These projections, and other factors, have focused attention on potential Social Security program changes in the future.

Social Security Benefits

Social Security provides monthly cash benefits to retired and disabled workers and to the family members of retired, disabled or deceased workers. To be eligible for a Social Security retired-worker benefit, a person generally needs a minimum of 40 earnings credits, or 10 years of Social Security-covered employment (among other requirements).[xvii] A worker’s initial monthly benefit (known as the primary insurance amount or PIA) is based on his or her career-average earnings (using the highest 35 years of earnings) and a progressive benefit formula designed to provide a higher replacement rate for lower-wage workers compared to higher-wage workers.[xviii] A person may claim Social Security retired-worker benefits as early as age 62, however, benefits claimed before the full retirement age (FRA) are reduced to take into account the longer expected period of benefit receipt. The FRA ranges from age 65 to age 67, depending on the person’s year of birth. If a person claims benefits after he or she attains the full retirement age, benefits are increased (up to age 70) to take into account the shorter expected period of benefit receipt. In addition to benefit adjustments based on early or delayed retirement, other adjustments may apply such as those based on simultaneous entitlement to more than one type of Social Security benefit.

For Social Security disability benefits, “disability” is defined as the inability to engage in substantial gainful activity by reason of a medically determinable physical or mental impairment expected to result in death or last at least 12 months. Generally, the worker must be unable to do any kind of work that exists in the national economy, taking into account age, education and work experience. As noted above, a worker generally needs a minimum of 40 quarters of coverage for a Social Security retired-worker benefit. A worker may qualify for Social Security disabled-worker benefits with fewer quarters of coverage, depending on the age at which the worker became disabled. However, a minimum of 6 quarters of coverage is needed. Similarly, while the worker’s 35 highest years of earnings are used to compute a retired-worker benefit, fewer years of earnings may be used to compute a disabled-worker benefit. A disabled worker’s benefit is not reduced for receipt before the full retirement age.

Benefits for the Worker’s Family Members

Social Security is sometimes viewed narrowly as a program that provides benefits to retired and disabled workers. However, about 21% of current Social Security beneficiaries are dependents and survivors of retired, disabled and deceased workers.[xix]

Social Security benefits are payable to the spouse, divorced spouse or child of a retired or disabled worker. Benefits are also payable to the widow(er), divorced widow(er), child or parent of a deceased worker. In addition, in the case of a deceased worker, benefits are payable to the mother or father of a deceased worker’s child when the child is under age 16 or disabled and entitled to a Social Security child’s benefit based on the worker’s record. Benefits payable to family members are equal to a specified percentage of the worker’s PIA, subject to a maximum family benefit amount. For example, the spouse of a retired worker may receive up to 50% of the retired worker’s PIA, and the widow(er) of a deceased worker may receive up to 100% of the deceased worker’s PIA. Benefits paid to family members may be subject to adjustments based on the person’s age at entitlement, receipt of his or her own Social Security retired-worker benefit and other factors.

Chapter Overview

This chapter of the Green Book includes a series of Congressional Research Service (CRS) Reports organized under the following general headings:

• History of Social Security;
• Social Security Financing and the Trust Funds;
• Social Security Benefits and Eligibility;
• Social Security Disability Insurance; and
• Program Administration and Administrative Funding.

Readers should consult the reports listed under each of these headings for information and data related to these topics. A Tables and Figures section provides a list of the tables and figures included in the CRS reports, and includes additional tables and figures related to Social Security, followed by a Legislative History and Links to Additional Resources.

Congressional Research Service (CRS) Reports

The House Ways and Means Committee is making available selected reports by the Congressional Research Service (CRS) for inclusion in its 2011 Green Book website. CRS works exclusively for the United States Congress, providing policy and legal analysis to Committees and Members of both the House and Senate, regardless of party affiliation. Certain CRS reports with cover dates earlier than 2011 are included here because their contents remain current.

History of Social Security

RL30920: Major Decisions in the House and Senate on Social Security: 1935-2010

Social Security Financing and the Trust Funds

RL33028: Social Security: The Trust Fund

Social Security Benefits and Eligibility

R41479: Social Security: Revisiting Benefits for Spouses and Survivors

R41518: Social Security: The Minimum Benefit Provision

94-803: Social Security: Cost-of-Living Adjustments

98-35: Social Security: The Windfall Elimination Provision (WEP)

RL32453: Social Security: The Government Pension Offset (GPO)

R41242: Social Security Retirement Earnings Test: How Earnings Affect Benefits

RL32552: Social Security: Calculation and History of Taxing Benefits

Social Security Disability Insurance

RL32279: Primer on Disability Benefits: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI)

R41289: Disability Benefits Available Under the Social Security Disability Insurance (SSDI) and Veterans Disability Compensation (VDC) Programs

RS20479: Social Security: Substantial Gainful Activity for the Blind

RS22220: Social Security Disability Insurance (SSDI): The Five-Month Waiting Period for Benefits

Program Administration and Administrative Funding

R41716: Social Security Administration (SSA): Budget Issues

Tables and Figures in CRS Reports

The following tables and figures related to Social Security can be found in the CRS reports section of this Green Book chapter.

RL30920: Major Decisions in the House and Senate on Social Security: 1935-2010

Table 1. Social Security Laws, 1935-2010

RL33028: Social Security: The Trust Fund

Table 1. Annual Revenues, Costs, and Cash Flow Surpluses or Deficits for the Social Security Trust Fund, 1957-1983

Table 2. Annual Revenues, Costs, and Cash Flow Surpluses or Deficits for the Social Security Trust Fund, 1984-2010

Table 3. Projected Annual Revenues, Costs, and Cash Flow Deficits for the Social Security Trust Fund, 2011-2035

Table 4. Accumulated Holdings of the Social Security Trust Fund, 1957-2010

Table 5. Projected Accumulated Holdings of the Social Security Trust Fund, 2011-2035

R41479: Social Security: Revisiting Benefits for Spouses and Survivors

Figure 1. Basis of Entitlement for Women Aged 62 or Older, 1960-2008, Selected Years

Figure 2. Labor Force Participation Rate of Women with Children, 1975 to 2008

Figure 3. Relative Importance of Social Security to Total Retirement Income for Persons Aged 65 or Older in 2006

Figure 4. Poverty Status of Social Security Beneficiaries Aged 65 or Older in 2006 by Gender and Marital Status

Table 1. Percentage Reaching 10th Marriage Anniversary, by Marriage Cohort and Sex, for First and Second Marriages

Table 2. Average Benefit Levels Among Retired Workers With Dual Entitlement, December 2009

Table 3. Women's Earnings as a Percent of Men's Earnings, 1979 and 2009

Table 4. Benefits for Three Couples with Different Earnings Splits Between Husband and Wife

Table B-1. Computation of a Worker's Primary Insurance Amount (PIA) in 2010 Based on an Illustrative AIME of $5,000

Table C-1. Social Security Spousal and Widow(er)'s Benefits

R41518: Social Security: The Minimum Benefit Provision

Table 1. Special Minimum PIA Initial Monthly Benefit Amounts, by Number of Years of Coverage, Effective in 2011

Table 2. The Special Minimum PIA: Number of Current Beneficiaries, Average Monthly Special Minimum PIA Amounts and Average Monthly Benefit Payments, December 2009

Table A-1. Computation of a Worker's Primary Insurance Amount (PIA) in 2011 Based on an Illustrative AIME of $5,000

Table B-1. Social Security Auxiliary Benefits

Table C-1. Years of Coverage Counted for the Special Minimum PIA

Table C-2. Years of Coverage Counted for the Special Minimum PIA

94-803: Social Security: Cost-of-Living Adjustments

Table 1. Computation of a Potential Social Security COLA, January 2011

Table 2. History of Social Security Benefit Increases

98-35: Social Security: The Windfall Elimination Provision (WEP)

Table 1. Social Security Benefit Formula in 2011

Table 2. Monthly PIA for a Worker With Average Indexed Monthly Earnings of $1,500 and Retiring in 2011

Table 3. WEP Reduction Falls with Years of Substantial Coverage

Table 4. Number of Beneficiaries in Current Payment Status with Benefits Affected by Windfall Elimination Provision (WEP), by State and Type of Benefit, December 2010

RL32453: Social Security: The Government Pension Offset (GPO)

Table 1. Dual Entitlement Formula

Table 2. GPO Formula

Table 3. Dual Entitlement Rule Compared with Government Pension Offset

Table 4. Mary's Spousal Benefit, Before and After GPO Enactment

Table 5. Number of Social Security Beneficiaries Affected by GPO, by State, Type of Benefit, and Offset Status, December 2010

R41242: Social Security Retirement Earnings Test: How Earnings Affect Benefits

Table 1. Number of Worker Beneficiaries with Earnings in 2006

Table 2. Application of the Retirement Earnings Test to a Single Worker Beneficiary with Earnings Above the Annual Exempt Amount, 2011

Table 3. Application of the Retirement Earnings Test to a Family Consisting of a Worker Beneficiary with Earnings Above the Annual Exempt Amount and Auxiliary Beneficiaries (a Spouse and a Child), 2011

Table 4. Application of the Retirement Earnings Test to a Couple Consisting of a Worker Beneficiary and an Auxiliary (Spousal) Beneficiary, Both of Whom Have Earnings Above the Annual Exempt Amount and Are Below FRA Throughout the Calendar Year, 2011

Table 5. Applicability of the Retirement Earnings Test to Worker Beneficiaries and Auxiliary Beneficiaries

Table A-1. Computation of a Worker's Primary Insurance Amount in 2011 Based on an Illustrative AIME of $5,000

Table B-1. Social Security Auxiliary Benefits

Table C-1. Annual Exempt Amounts Under the Social Security Retirement Earnings Test, Calendar Years 2000-2011

RL32552: Social Security: Calculation and History of Taxing Benefits

Figure 1. Taxable Social Security Benefits as Non-Social Security (and Provisional) Income Increases for a Single Retiree with $14,105 in Annual Social Security Benefits, Tax Year 2010

Figure 2. Taxable Income for an Average Single Retiree

Figure 3. Taxable Income for a Single Retiree with $20,000 or $30,000 in Non-Social Security Income as Annual Social Security Benefits Increase, Tax Year 2010

Table 1. Calculation of Taxable Social Security and Tier I Railroad Retirement Benefits

Table 2. Example of Calculation of Social Security Benefits for Average Social Security Recipient and Different Assumptions about Other Income

Table 3. State Income Taxation of Social Security Benefits, Tax Year 2008

Table 4. Number and Percentage of Beneficiaries with Taxable Social Security Benefits by Income Class Under 2005

Table 5. Social Security Benefits and Taxes on Social Security Benefits by Income Class Under 2005 Law

RL32279: Primer on Disability Benefits: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI)

Table 1. Reasons for SSDI Worker Benefit Termination, 2009

R41289: Disability Benefits Available Under the Social Security Disability Insurance (SSDI) and Veterans Disability Compensation (VDC) Programs

Figure 1. Social Security Administration's Five-Step Sequential Evaluation Process for Determining Disability

Figure 2. SSDI Appeals Process

Figure 3. Flow Chart of the Various Steps in the VA Appeal Process

Table 1. Comparison of SSDI and VDC Recipients, End of FY2010

Table 2. Comparison of Key SSDI and VDC Program Components

Table 3. General VDC and SSDI Eligibility Determinations for Four Hypothetical Veterans

R41716: Social Security Administration (SSA): Budget Issues

Figure 1. Projected Spending on SSA Programs

Figure 2. SSA Total LAE Budget Authority

Figure 3. New Claims for Social Security and SSI Benefits

Figure 4. SSA Hearings Pending at the End of Each Fiscal Year

Figure 5. SSA Program Integrity Activities

Figure 6. SSA Administrative Budget Requests and Appropriations

Additional Tables and Figures Related to Social Security

The following additional tables and figures appear in this section of the Green Book chapter on Social Security.

Social Security as a Percentage of Income Among Beneficiaries Age 65 and Older

Table 1-1. Social Security as a Percentage of Income Among Beneficiaries Age 65 and Older in 2009

Figure 1-1. Social Security as a Share of Total Income Among Beneficiaries Age 65 and Older in 2009 By Income Quartile

Social Security Trust Funds

Table 1-2. Long-Range Actuarial Status of the Combined OASDI Trust Fund as Shown Under Intermediate Assumptions in Trustees’ Reports from 1983 to 2011

Table 1-3. Projected Trust Fund Exhaustion and Operations as Shown Under Intermediate Assumptions in Trustees’ Reports from 1983 to 2011

Social Security Retirement Age

Table 1-4. Increases in Full Retirement Age and Delayed Retirement Credits with Resulting Benefit, as a Percent of Primary Insurance Amount, Payable at Selected Ages, for Persons Born in 1924 or Later

Taxation of Social Security Benefits

Table 1-5. Worksheet for Determining the Taxable Portion of Social Security Benefits

Social Security Disability Insurance: Disability Determination Process

Figure 1-2. The Five-Step Disability Determination Process

Social Security Disability Insurance: Number of Beneficiaries

Table 1-6. Number of Disability Insurance (DI) Beneficiaries in Current-Payment Status, Selected Years 1960-2009

Social Security Disability Insurance: New Benefit Awards

Table 1-7. Disabled Workers’ Applications, Awards, Awards as a Percent of Applications, and Awards Per 1,000 Insured Workers, Selected Calendar Years 1965-2010

Table 1-8. Percent Distribution by Age and Sex of Title II Disabled Worker Beneficiaries Awarded Benefits in Selected Calendar Years 1970-2009

Table 1-9. Percent Distribution by Disabling Impairment of Title II Disabled Worker Beneficiaries Awarded Benefits in Selected Calendar Years 1970-2009

Social Security Disability Insurance: Substantial Gainful Activity Amounts

Table 1-10. Monthly Substantial Gainful Activity (SGA) Amounts, 1968-2011

▪ U.S. Social Security Administration

   www.socialsecurity.gov

▪ Social Security Advisory Board

   www.ssab.gov

▪ Congressional Budget Office

   www.cbo.gov (enter search phrase “Social Security”)

▪ U.S. Government Accountability Office

   www.gao.gov (enter search phrase “Social Security”)

▪ Retirement Research Consortium

   https://www.socialsecurity.gov/policy/rrc/index.html

tables and figures