NATIONAL NEED: PROVIDING INCOME SECURITY [Functional code 600; in millions of dollars) Recom- Outlays budget *$500 thousand or less. living, as measured by the Consumer Price Index (CPI) or some other index. In this way, benefits are protected against inflation. Beginning in 1978, two consumer price indexes will be published, the current index, which was designed to measure the purchasing power of the dollar for urban wage earners and clerical workers, and a new index, which covers all urban households. The new index will cover about 80% of the population, double that of the current index. Legislation is proposed to shift to the more comprehensive all-urban index whenever the CPI is used in measuring automatic cost-of-living increases for Federal programs linked to the CPI. Social security.—The old-age, survivors and disability insurance (OASDI) program is the largest single program in the budget, accounting for 21% of total 1979 outlays. This program mitigates the loss of earnings when a wage earner retires, becomes disabled or dies. Participation in the program is almost universal: only Federal civilian employees, some employees of State and local governments, nonprofit organizations, and irregular workers are not covered. In 1977, more than $82 billion was paid in benefits to 33.2 million individuals. Outlays are estimated to be $93.0 billion in 1978 and $103.1 billion in 1979. The system is financed almost entirely from payroll taxes paid by covered workers and their employers. In 1977 more than 100 million workers and their employers paid $77.8 billion in payroll taxes to finance the OASDI program. The Social Security Amendments of 1977 made major changes to the OASDI program to help correct the following longer range problems that confronted the program: • An error was made in the 1972 legislative provision for automatically adjusting the benefit computation formula to the rise in the cost-of-living. The formula unintentionally allowed future benefits to rise faster than the growth in either prices or wages, and would have ultimately increased program costs by the equivalent of a 37% increase in taxes on employers and employees. • A long-range decline in birth rates was not foreseen in earlier projections of program costs. The effect of such a decline means that there will be fewer workers in future years to pay for the cost of benefits and that each worker's share of the cost will be higher than estimated. • Earlier projections of the long-range growth of the economy were overoptimistic. As a result, the total revenues from payroll taxes were overestimated and the total outlays for future benefits were understated. Some corrections were also needed because of short-range considerations. The recession, which began in 1974, increased unemployment and reduced wage and salary incomes, thus reducing anticipated revenues during this period. At the same time, inflation raised benefit costs faster than contemplated. New revenues were needed quickly to avoid exhausting reserves by the early 1980's. To remedy these problems the benefit formula, tax rates, and wage base were all corrected. The Social Security Amendments of 1977 revised the benefit formula to correct the excess growth in future benefits. This action has been called "decoupling and indexing,” and will stabilize future benefits for those who retire in the future at an average of about 40% of preretirement covered earnings, and about 60% for a married person whose spouse had no covered earnings. The more immediate impact of the social security amendments will be to increase payroll taxes substantially over the next few years by raising both the maximum earnings subject to tax and the tax rate itself. The legislation also raised the limit on the amount that may be earned after retirement without offsetting benefit reductions. The annual earnings limitation would be increased from $3,000 in 1977 to $6,000 by 1982 for persons aged 65 and over as seen in the table below. The legislation would also lower the age at which the beneficiary would be exempt from any annual earnings limitation from age 72 at present to age 70 beginning in 1982. Elimination of outmoded or windfall benefits still needs to be addressed to further improve equity and the financial integrity of the social security system. The administration is therefore proposing legislation in 1979 to: • Eliminate the minimum benefit for new beneficiaries, and freeze the minimum benefit for those already on the rolls. Supplemental ANNUAL EARNINGS LIMITATION FOR SOCIAL SECURITY RETIREES (Calendar years) 1 Not applicable. Note.- Persons age 70 or over would not be subject to retirement test beginning in 1982, the corresponding age under previous law was 72, which remains in effect until 1982. security income is the more appropriate source of income for the truly needy. The minimum benefit is a windfall for others who are not solely dependent on social security. • Limit retroactive benefit claims to 3 months instead of the present 12 months. The payment of a sizable amount of retroactive benefits, which is frequent under present law, is not necessary to replace current income that is lost because of retirement, death, or disability. • Start benefits to retired workers and their dependents for the month in which all eligibility requirements are met on the first of the month. • Limit the amount of benefits paid to dependents over age 18, while they are in school, to the maximum amount available under the basic educational opportunity grants program. As required by the 1977 amendments, the administration will engage in studies on extension of social security coverage to sectors not already covered, to provide greater equity in benefits for dependents, and to review the whole range of social security functions in relation to other retirement systems. Railroad retirement.—In 1979, 1,025,000 retired or disabled railroad workers, their spouses, and dependents will receive retirement, survivors, and disability benefits, a 5,000 decrease from 1978. Railroad retirement outlays are estimated to rise from $3.8 billion in 1977 to $4.1 billion in 1978 and $4.3 billion in 1979. The railroad retirement system is administered by the Federal Government for the workers and dependents in this one industrial sector. The railroad retirement system includes the provision of windfall benefits to certain beneficiaries entitled to both social security and railroad retirement benefits. The general taxpayer has subsidized the cost of providing these windfall benefits to railroad beneficiaries each year since 1976. The budget reflects a policy that will treat all windfall recipients similarly and no longer index the initial windfall benefit for workers who retire after December 31, 1978. Windfall benefits are not indexed for current recipients. The annual windfall subsidy from the Federal Government to the railroad retirement system through the year 2000 under this plan is currently projected at $313 million in outlays. Special benefits for disabled coal miners.-The Federal Coal Mine Health and Safety Act of 1969 established monthly benefit payments to coal miners who are totally disabled from pneumoconiosis and to their widows and surviving dependents. Benefit payments financed out of Federal funds increase automatically with annual increases in GS-2 Federal salary levels, and are estimated to total about $1.0 billion annually in 1978 and 1979. It is estimated that an increase in the level of average benefits will be partially offset by a reduction in the number of beneficiaries from 487,000 in 1977 to 467,000 in 1978, and to 445,000 in 1979. Since 1972, benefits for miners newly found eligible have been the responsibility of the operator of the coal mine in which the miner worked. If no responsible operator can be indentified, the Federal Government still pays the benefit. Pension Benefit Guaranty Corporation.—The Pension Benefit Guaranty Corporation, an off-budget Federal entity, was established by the Employee Retirement Income Security Act of 1974 to protect the vested benefits of workers in covered pension plans in case a plan terminates. Employers with covered plans pay an annual premium to cover the Corporation's costs of taking over terminated pension plans and paying benefits when due. Employers whose plans terminate are liable for the unfunded portion of vested retirement benefits to the extent it does not exceed 30% of their net worth. The Corporation's income is expected to exceed outlays by $28 million in 1978 and $30 million in 1979. These estimates reflect a January 1, 1978, increase in the insurance premium for single-employer plans to $2.60 for each participant in a plan. A recently enacted law deferred coverage of multi-employer plans until January 1, 1979. The new law also requires the Corporation to study the impact that such coverage will have on its financial situation and develop any needed recommendations. Taz expenditures.—Several tax expenditure provisions are related to the income of the aged. The major items are the exclusion from income subject to tax of all social security and most railroad retirement benefits without regard to an individual's income from other sources, the extra exemption for taxpayers 65 or over, and the tax credit for the elderly. The combined benefits under current law to the retired and elderly from these tax expenditures is estimated to be $6.2 billion in 1978 and $6.8 billion in 1979. The tax reform proposals would reduce tax liabilities for most elderly persons currently subject to tax by substituting a credit for the current deduction for personal exemptions, including the extra exemption for taxpayers 65 or over. Because of these reductions in the tax rate schedules, the tax expenditures related to the income of the aged will decrease. Other tax provisions assist the economic security of aged persons by promoting private pension programs. The largest benefits result from excluding employer contributions to and current earnings of qualified pension funds from employee income subject to tax. Taking into account deferred taxes collected from present retirees, the net loss in receipts is estimated to be $9.9 billion in 1979. Similar benefits |