Social Security is a self-financed program that provides monthly cash benefits to retired or 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). (SSA also administers the Supplemental Security Income (SSI) program authorized under Title XVI of the Social Security Act. See Section 3 of the Green Book for a discussion of SSI, a means-tested program for the aged, blind, or disabled.) As of July 2014, there were almost 59 million Social Security beneficiaries. Of those, almost 42 million were retired workers and family members, almost 11 million were disability beneficiaries, and about 6 million were survivors of deceased workers.[1]
Social Security is financed primarily by payroll taxes paid by covered workers and their employers. In 2014, an estimated 165 million workers are covered by Social Security.[2] Employees and employers each pay 6.2% of covered earnings up to an annual limit ($117,000 in 2014); self-employed individuals pay 12.4% of net self-employment income up to an annual limit ($117,000 in 2014).[3] Self-employed persons may deduct one-half of their Social Security payroll taxes for federal income tax purposes.[4] Social Security is also credited with tax revenues from the federal income taxes paid by some beneficiaries on a portion of their benefits, reimbursements from the general fund of the U.S. Treasury that are made for a variety of purposes, and interest earned on Social Security trust fund assets. 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.[5] 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.[6] 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.[7]
In 2013, the Social Security trust funds had total income of $855 billion, total expenditures of $823 billion and accumulated holdings of $2.8 trillion.[8] Because the assets held by the trust funds are federal government securities, the trust fund balance ($2.8 trillion at the end of 2013) 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[9] 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[10] 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.[11] 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%.[12] 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 $117,000.[13] The types of individuals eligible for benefits were expanded over the years,[14] and benefit levels were increased periodically. In 1972, legislation provided that when inflation occurred, benefits would increase automatically each year by the same percentage as the cost-of-living (effective in 1975).[15]
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.[16] 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). 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 or 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 (i.e., 10 years of Social Security-covered employment), among other requirements.[17] A worker’s initial monthly benefit payable at the full retirement age (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.[18] 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 permanently to take into account the longer expected period of benefit receipt. The FRA ranges from 65 to 67, depending on the person’s year of birth. If a person claims benefits after he or she attains the full retirement age (up to age 70), benefits are increased 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 six quarters of coverage are 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 entitlement before the full retirement age.
Benefits for the Worker’s Family Members
Social Security is sometimes viewed narrowly as a program that provides benefits only to retired or disabled workers. However, about 19% of current Social Security beneficiaries are dependents and survivors of retired, disabled or deceased workers.[19]
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, the person’s receipt of a Social Security benefit based on his or her own work record, and other factors.
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;
· Overview 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. Separate sections provide a list of Tables and Figures included in these CRS reports, as well as Additional Tables and Figures related to Social Security, followed by a Legislative History and Links to Additional Resources.
This page was prepared on August 29, 2014, for the 2014 version of the House Ways and Means Committee Green Book.
[1] Social Security Administration (SSA), Monthly Statistical Snapshot, July 2014, Table 2. The latest edition of the Monthly Statistical Snapshot is available at https://www.socialsecurity.gov/policy/docs/quickfacts/stat_snapshot/.
[2] Currently, 93% of workers in paid employment or self employment are covered by Social Security. SSA, 2014 Social Security/SSI/Medicare Information, January 14, 2014, https://www.socialsecurity.gov/legislation/2014factsheet.pdf.
[3] The annual limit on covered wages and net self-employment income subject to the Social Security payroll tax (the taxable wage base) is adjusted annually based on average wage growth, if a Social Security cost-of-living adjustment (COLA) is payable.
[4] Self-employed individuals are required to pay Social Security payroll taxes if they have annual net earnings of $400 or more. Only 92.35% of net self-employment income (up to the annual limit) is taxable.
[5] The OASI and DI trust funds are referred to on a combined basis as the Social Security trust funds.
[6] Social Security Act, Title II, §201(d) [42 U.S.C. §401(d)].
[7] SSA, Trust Fund FAQs, https://www.socialsecurity.gov/OACT/ProgData/fundFAQ.html.
[8] In 2013, 85% of Social Security’s total income was from payroll taxes, 12% was from interest earned on trust fund assets, 2% was from federal income taxes paid on benefits, and the remainder was from general fund reimbursements to the trust funds for a variety of purposes. Of total expenditures, 99% was for benefit payments; the remainder was for administrative expenses and transfers to the Railroad Retirement program. See Social Security Administration, Office of the Chief Actuary, at https://www.socialsecurity.gov/OACT/STATS/table4a3.html.
[9] Public Law 271, 74th Congress.
[10] Public Law 379, 76th Congress.
[11] The DI program was established by the Social Security Amendments of 1956 (Public Law 880, 84th Congress). The program became known as the Old-Age, Survivors, and Disability Insurance (OASDI) program, the formal name for Social Security.
[12] Congress has increased the Social Security payroll tax rate many times over the program’s history. The payroll tax rate under current law (12.4%) was established by the Social Security Amendments of 1983 (Public Law 98-21). Public Law 98-21 increased the payroll tax rate gradually from 11.4% in 1984 to 12.4% in 1990.
[13] The most recent legislative change to the Social Security taxable wage base was in 1977. The Social Security Amendments of 1977 (Public Law 95-216) established ad-hoc increases in the taxable wage base for 1979, 1980 and 1981, followed by a return to automatic wage indexation for 1982 and subsequent years.
[14] For example, the Social Security Amendments of 1965 (Public Law 89-97) established benefits for divorced wives aged 62 or older.
[15] The Social Security Amendments of 1972 (Public Law 92-603) established automatic annual cost-of-living adjustments (COLAs) for benefits already in payment. Social Security COLAs are based on inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) using a formula specified by law.
[16] See the Social Security Amendments of 1977 (Public Law 95-216).
[17] A worker may earn a maximum of four earnings credits (or quarters of coverage, QCs) per calendar year. In 2014, a worker obtains one QC for each $1,200 of covered earnings, up to a maximum of four QCs for earnings of $4,800 or more. A person may receive retired-worker benefits and continue to have earnings from work. If the person is below the full retirement age, however, the current earnings may cause all or part of the person’s benefit to be withheld under the Retirement Earnings Test.
[18] Replacement rates can be measured in different ways; stated generally, replacement rates show a worker’s initial benefit as a percentage of his or her pre-retirement earnings.
[19] SSA, Monthly Statistical Snapshot, July 2014, Table 2. The latest edition of the Monthly Statistical Snapshot is available at https://www.socialsecurity.gov/policy/docs/quickfacts/stat_snapshot/.
This page was prepared on August 29, 2014, for the 2014 version of the House Ways and Means Committee Green Book.
The House Ways and Means Committee is making available selected reports by the Congressional Research Service (CRS) for inclusion in its 2014 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 2014 are included here because their contents remain current.
RL30920: Social Security: Major Decisions in the House and Senate Since 1935
R42035: Social Security Primer
RL33028: Social Security: The Trust Fund
RS20607: Social Security: Trust Fund Investment Practices
R43318: Social Security Disability Insurance (DI) Trust Fund: Background and Solvency Issues
RL33514: Social Security: What Would Happen If the Trust Funds Ran Out?
R43542: How Social Security Benefits Are Computed: In Brief
R41962: The Social Security Retirement Age: In Brief
RS22294: Social Security Survivors Benefits
R43637: Social Security: The Lump-Sum Death Benefit
R43615: Social Security: Minimum Benefits
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)
RL32552: Social Security: Calculation and History of Taxing Benefits
RS20479: Social Security: Substantial Gainful Activity for the Blind
RS22220: Social Security Disability Insurance (SSDI): The Five-Month Waiting Period for Benefits
RL33585: Social Security Disability Insurance (SSDI) Demonstration Projects
R41934: Ticket to Work and Self-Sufficiency Program: Overview and Current Issues
R41716: Social Security Administration (SSA): Budget Issues
This page was prepared on August 29, 2014, for the 2014 version of the House Ways and Means Committee Green Book.
The following tables and figures related to Social Security can be found in the CRS reports included in this Green Book chapter.
RL30920: Social Security: Major Decisions in the House and Senate Since 1935
Table 1. Social Security Laws, 1935-2012
R42035: Social Security Primer
Table 1. Increase in the Full Retirement Age Scheduled Under Current Law
Table 2. Computation of a Worker’s Primary Insurance Amount (PIA) in 2014 Based on an Illustrative AIME of $5,000
Table 3. Social Security Benefits for the Worker’s Family Members
Table 4. Social Security Beneficiaries, by Type, June 2014
RL33028: Social Security: The Trust Fund
Table 1. Operations of the Social Security Trust Fund, Historical Period 1957-2013
Table 2. Projected Operations of the Social Security Trust Fund, 2014-2032
Table 3. Accumulated Holdings of the Social Security Trust Fund, Historical Period 1957-2013
Table 4. Projected Accumulated Holdings of the Social Security Trust Fund, 2014-2032
Figure 1. Ratio of Current Non-Interest Income to Costs for the Social Security Trust Fund, 1957-2032
R43318: Social Security Disability Insurance (DI) Trust Fund: Background and Solvency Issues
Table 1. Social Security and Medicare Payroll Tax Rates
Table 2. Annual Operations of the DI Trust Fund, 2003-2013
Table 3. Interfund Loans From the DI and HI Trust Funds to the OASI Trust Fund, 1982
Table 4. Legislative History of Payroll Tax Reallocations Between the OASI and DI Trust Funds
Table 5. OASDI Payroll Tax Rate Reallocations under the Social Security Domestic Employment Reform Act of 1994 (P.L. 103-387)
Table 6. Potential Reallocation of the OASDI Payroll Tax Rate, 2015 and Beyond
Table A-1. Key Dates Projected for the Social Security Trust Funds as Shown Under the Intermediate Assumptions in Trustees Reports from 1983 to 2014
Figure 1. Actual and Projected DI Trust Fund Ratios, 2000-2023
Figure 2. DI Income and Cost Rates, 1990-2013
Figure 3. Actual and Projected OASI, DI, and HI Trust Fund Ratios
Figure A-1. Actual and Projected DI Income and Cost Rates with Scheduled and Payable Benefits, 1970-2090
RL33514: Social Security: What Would Happen If the Trust Funds Ran Out?
Table 1. Current Social Security Benefit Payment Schedule
Figure 1. Social Security Trust Fund Ratios
Figure 2. Payable Benefits as a Share of Scheduled Benefits at Current Law Payroll Tax Rates, 2014-2088
Figure 3. Replacement Rates Under Benefit Cut Scenario, 2014-2088
Figure 4. Initial Real Annual Payable Benefits Under Benefit Cut Scenario, 2014-2088
Figure 5. Combined Payroll Tax Rate Needed To Fund Scheduled Benefits, 2014-2088
R43542: How Social Security Benefits Are Computed: In Brief
Table 1. Computation of a Worker’s Primary Insurance Amount (PIA) in 2014 Based on an Illustrative AIME of $5,000
Table 2. Full Retirement Age (FRA) by Year of Birth
Figure 1. Computation of a Worker’s Primary Insurance Amount (PIA) in 2014
Figure 2. Monthly Retirement Benefit by Claim Age
R41962: The Social Security Retirement Age: In Brief
Table 1. Age to Receive Full Social Security Benefits
Table 2. Benefit Decrease for Early Retirement
Table 3. Benefit Increase for Delayed Retirement
Figure 1. Age Distribution of Retirement Benefit Claims in 2012
RS22294: Social Security Survivors Benefits
Table 1. Survivors Beneficiaries and Benefits
R43637: Social Security: The Lump-Sum Death Benefit
Figure 1. The Diminishing Significance of the Lump-Sum Death Benefit
R43615: Social Security: Minimum Benefits
Table 1. Special Minimum PIA Monthly Benefit Amounts, 2014
Table 2. Number of Special Minimum PIA Beneficiaries and Average Increase in Monthly Benefit, June 2013
94-803: Social Security: Cost-of-Living Adjustments
Table 1. Computation of the Social Security COLA, January 2014
Table 2. Average CPI-W for the Third Quarter, 2007-2013
Table 3. History of Social Security Benefit Increases
98-35: Social Security: The Windfall Elimination Provision (WEP)
Table 1. Social Security Benefit Formula in 2014
Table 2. Monthly PIA for a Worker With Average Indexed Monthly Earnings of $1,500 and Retiring in 2014
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 2013
RL32453: Social Security: The Government Pension Offset (GPO)
Table 1. Dual Entitlement Formula Applied to Spouses
Table 2. GPO Formula for Spouses
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 2013
RL32552: Social Security: Calculation and History of Taxing Benefits
Table 1. Calculation of Taxable Social Security and Tier I Railroad Retirement Benefits
Table 2. Example of Calculation of Taxable Social Security Benefits for Single Social Security Recipients with a $15,000 Benefit and Different Levels of Other Income
Table 3. State Income Taxation of Social Security Benefits, Tax Year 2014
Table 4. Projected Number and Percentage of Beneficiaries with Taxable Social Security Benefits by Income Class, 2014
Table 5. Projected Social Security Benefits and Taxes on Social Security Benefits by Income Class, 2014
Figure 1. Taxable Social Security Benefits as Annual Non-Social Security Income Increases
Figure 2. Taxable Social Security Benefits as Total Annual Social Security Benefits Increase
Table 1. Number of SSDI Workers Terminated, by Reason for Termination, 2012
Table 2. Number of Blind and Disabled SSI Recipients (Aged 18-64) Terminated, by Reason for Termination, 2012
Figure 1. SSA’s Disability Determination Process for SSDI and Adult SSI Claimants
Figure 2. SSA’s Disability Determination Process for Child SSI Claimants
Figure 3. SSA’s Appeals Process
Table 1. Computation of “Ms. M.’s” Primary Insurance Amount (PIA) in 2014 Based on Her AIME of $1,6000
Table A-1. Disability and Childcare Dropout Year (CDY) Computation Chart for SSDI Benefits
Figure A-1. Primary Insurance Amounts of Disabled Workers Credited with Childcare Dropout Years (CDYs), 2000-2013
Table 1. Comparison of SSDI and VDC Recipients
Table 2. Comparison of Key SSDI and VDC Program Components
Table 3. General VDC and SSDI Eligibility Determinations for Four Hypothetical Veterans
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
RS20479: Social Security: Substantial Gainful Activity for the Blind
Figure A-1. SGA Levels for Blind and Non-Blind Individuals, Calendar Years 1975-2014
Table 1. Estimated Average Monthly Number of Concurrent SSDI and UI Beneficiaries, 2014-2023
Table 2. Proposals to Eliminate or Offset Concurrent Receipt of SSDI and UI Benefits
RL33585: Social Security Disability Insurance (SSDI) Demonstration Projects
Table 1. Legislative History of SSA’s Demonstration Authority
Table 2. Status of SSDI Demonstration Projects
R41934: Ticket to Work and Self-Sufficiency Program: Overview and Current Issues
Table 1. Data on the Ticket to Work Program
Table 2. The Percentage of Disability Beneficiaries Participating in Ticket to Work, Calendar Years 2002-2010
Table 3. Distribution of EN Payments, Calendar Years 2002-2011
Table 4. Employment Outcomes Before and After the July 2008 Regulatory Changes
Table A-1. Side-by-Side Comparison of Key Ticket to Work July 2008 Regulatory Changes
Table B-1. Comparison of Total Potential EN Payments for All Ticket Holders Under Milestone-Outcome and Outcome-Only Payment Systems
Table B-2. Comparison of Total Potential EN Payments for SSDI and SSI Ticket Holders Under Both EN Payment Systems
Table B-3. Breakdown of Milestone-Outcome EN Payment System
Table B-4. Breakdown of Outcome-Only Payment System
Figure 1. Sample Ticket
Figure 2. Ticket to Work Payment Systems for Employment Networks, Calendar Year 2014
Figure 3. New Tickets Assigned, Calendar Years 2004-2010
Figure 4. New Tickets Assigned to ENs, Calendar Years 2004-2010
R41716: Social Security Administration (SSA): Budget Issues
Figure 1. Projected Spending on SSA Programs
Figure 2. SSA Total LAE Budget Authority
Figure 3. SSA Administrative Budget Requests and Appropriations
This page was prepared on August 29, 2014, for the 2014 version of the House Ways and Means Committee Green Book.
The following additional tables and figures appear in this section of the Green Book chapter on Social Security.
Figure 1-2. Disability Claims and Appeals in Fiscal Year 2013
Social Security Disability Insurance: Substantial Gainful Activity Amounts
Table 1-9. Monthly Substantial Gainful Activity (SGA) Amounts, 1968-2014
This page was prepared on August 29, 2014, for the 2014 version of the House Ways and Means Committee Green Book.
This section covers major legislative changes made in the 112th Congress through the first session of the 113th Congress. For a description of legislative changes made in the 95th through 102nd Congresses, please refer to the 1996 Green Book. For legislative changes made in the 103rd Congress, please refer to the 1998 Green Book. For legislative changes made in the 104th through 111th Congresses, please refer to the 2012 Green Book.
Among other provisions, the Temporary Payroll Tax Cut Continuation Act of 2011 extended for two months (i.e., through February 2012) the temporary 2 percentage point reduction in the Social Security payroll tax for employees and the self-employed in effect for calendar year 2011 under Public Law 111-312. The reduced payroll tax rate was applied to the first $18,350 of covered wages (an amount equal to two-twelfths of the 2012 taxable wage base of $110,100). The employer’s share of the payroll tax was not affected. The law provided general revenue transfers to the Social Security trust funds in amounts needed to protect the trust funds from a loss of payroll tax revenues due to the temporary reduction.
Among other provisions, the Middle Class Tax Relief and Job Creation Act of 2012 further extended the temporary 2 percentage point reduction in the Social Security payroll tax for workers (described above) through the end of calendar year 2012. The law provided general revenue transfers to the Social Security trust funds to make up for the foregone payroll tax revenues.
For more information on the legislative history of the Social Security program, see the Social Security Administration website at https://www.ssa.gov/history/law.html.
This page was prepared on August 29, 2014, for the 2014 version of the House Ways and Means Committee Green Book.
https://www.socialsecurity.gov/policy/rrc/index.html
This page was prepared on August 29, 2014, for the 2014 version of the House Ways and Means Committee Green Book.