PERCENT

independent lives. Moreover, their families no longer carry the sole responsibility of providing their financial support.

Growth in Retirement Benefits

The retirement part of Social Security is facing financial stress, due to changing demographics and the program's financing. The retirement program is largely a "pay as you go" program-current retirement benefits are financed by current payroll contributions. Such financing has worked well in the past, when five workers were paying for every retiree. But, when the baby boom generation retires, eventually only two workers will be paying for every retiree.

Adding to the financial stress, baby boomers are having fewer babies and living longer. In 1957, women had an average of 3.7 babies, compared to 2.03 today. Males born in 1935 had an average life expectancy of 60 years, and females of 63 years. By contrast, baby boom males have an average life expect

ancy of about 67 years, and females of about 73. The longer people live, the longer they will collect Social Security. The more time that people spend retired, the more people there are to support at any one time and the fewer there are working and contributing to provide that support.

Growth in Disability Benefits

DI has grown rapidly. The program provided about $43 billion to about six million disabled beneficiaries and their families in 1996, compared to $57 million for 150,000 disabled workers in 1957. Growth has been especially rapid in the last 10 years, with the number of beneficiaries rising by 75 percent and benefits rising by 125 percent.

Why? Because growing numbers of baby boomers are reaching the age at which they are increasingly prone to disabilities; more women are insured; and laws, regulations, and court decisions have expanded eligibility for benefits. In addition, the annual share

of beneficiaries leaving the rolls has fallen steadily, raising questions about whether those remaining on the rolls are all, in fact, eligible for benefits. To maintain DI's integrity, the Administration proposes to maintain support for continuing disability reviews (CDRs)— a periodic review of individual cases that ensures that only those eligible continue to receive benefits.

The budget proposes a pilot program to encourage DI beneficiaries (and recipients of Supplemental Security Income, or SSI) to re-enter the workforce. Currently, the Social Security Administration refers DI or SSI beneficiaries to State Vocational Rehabilitation agencies. Under the Administration's proposal, beneficiaries could choose their own public or private vocational rehabilitation provider-and the provider could keep a share of the DI and SSI benefits that the Federal

Government no longer pays to these individuals after they leave the rolls.

A Long-range Problem, but No Crisis

The OASDI trust funds are not in balance over the next 75 years-the period over which the Social Security Trustees measure Social Security's well-being. The President wants to work with Congress on a bipartisan basis to develop a long-term solution to the financing challenge, but it does not constitute an imminent crisis.

In their 1996 report, the Trustees estimated that the combined OASDI trust funds would have a cash imbalance in 2012 and be insolvent in 2029. The OASI Trust Fund would have a cash imbalance in 2014 and be insolvent in 2031. The DI Trust Fund would face a cash imbalance in 2003 and be insolvent in 2015.

Tax Expenditures

Social Security recipients pay taxes on their Social Security benefits when their combined income (including Social Security)

exceeds certain income thresholds. These exclusions reduce Social Security beneficiary taxes by $25 billion in 1998 and $138 billion from 1998 to 2002.

The Federal Government provides a broad range of benefits and services, to veterans (and their survivors) who served in conflicts as long ago as the Spanish-American War and as recent as the Persian Gulf War. In providing these benefits and services, the Government recognizes the sacrifices that wartime and peacetime veterans made during their service in the military. The $40 billion a year in veterans benefits and services, and $4.7 billion in tax benefits, compensate for service-related disabilities, provide medical care to low-income and disabled veterans, and help returning veterans prepare for reentry into civilian life through education and training. In addition, veterans benefits provide financial assistance to needy veterans of wartime service and their survivors.

About six percent of veterans are military retirees. This group of veterans can receive both military retirement from the Defense Department (DOD) and veterans benefits from the Department of Veterans Affairs (VA). Active duty military personnel are eligible for veterans housing benefits, and they can make contributions to the Montgomery GI Bill program for education benefits that are paid later. To deliver these services to veter

ans, VA employs about 20 percent of the non-Defense workforce of the Federal Government-almost 250,000 people. About 220,000 of these employees deliver medical services to veterans (as described in Chapter 22, Health).

The veteran population is declining, with much of the decline among draft-era veterans, meaning that a rising share of veterans is coming from the All-Volunteer Force (see Chart 26-1). Thus, the types of needed benefits and services likely will change. Further, as the veteran population shrinks and technology improves, access to, and the quality of, service should continue to improve.

The Veterans Benefits Administration (VBA) processes veterans claims for benefits in 58 regional offices across the country. Several factors, including the introduction of judicial review to the claims adjudication process in 1988 and DOD downsizing from 1992 to 1994, significantly increased the claims. and appeals workload. Workload peaked in 1993 and 1994, with 500,000 backlogged claims and 214 days needed to process a claim.