Staff data and materials on financing of the social security programs

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Title:
Staff data and materials on financing of the social security programs
Uncontrolled:
Financing of the social security programs
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iv, 27 p. : ; 24 cm.
Language:
English
Creator:
United States -- Congress. -- Senate. -- Committee on Finance
United States -- Congress. -- Senate. -- Committee on Finance. -- Subcommittee on Social Security
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U.S. Govt. Print. Off.
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Washington
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Subjects / Keywords:
Social security -- United States   ( lcsh )
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federal government publication   ( marcgt )
non-fiction   ( marcgt )

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Statement of Responsibility:
Committee on Finance, United States Senate, Russell B. Long, chairman.
General Note:
Reuse of record except for individual research requires license from LexisNexis Academic & Library Solutions.
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CIS Microfiche Accession Numbers: CIS 78 S362-10
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Reuse of record except for individual research requires license from Congressional Information Service, Inc.
General Note:
Chiefly tables.
General Note:
Issued Mar. 30, 1978.
General Note:
"Data and materials prepared by the staff of the Committee on Finance for the use of the Subcommittee on Social Security."
General Note:
At head of title: 95th Congress, 2d session. Committee print.

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Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 022539711
oclc - 03936282X
Classification:
lcc - KF49
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AA00024059:00001

Full Text



95th Congress COXTE RN
2d Session ~ OMTE RN



Staff Data and Materials on


Financing of the Social Security

Programs




COMMITTEE ON FINANCE UNITED STATES SENATE

RUSSELL B. LONG, Chairman



Data and Materials Prepared by the Staff of the

Committee on Finance for the Use of the

SUBCOMMITTEE ON SOCIAL SECURITY GAYLORD NELSON, Chairman







MARCH 30, 1978


Printed for the use of the Committee on V4ce

U.S. GOVERNMENT PRINTING OFFICE 25-W6 WASHINGTON :1978

For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402





























COADMITTEE ON FINANCE

RUSSELL B. LONG, Louisiana, Chairman HE RMAN E. TALMADGE, Georgia CARL T. C U RTIS, Nebraska
ABRAHAM RIBICOFF, Connecticut CLIFFORD P. HANSEN, Wyoming
HARRY F. BYRD, JR., Virginia ROBERT DOLE, Kansas
GAYLORD NELSON, Wisconsin BOB PACKWOOD, Oregon
MIKE GRAVEL, Alaska WILLIAM V. ROTH, JR., Delaware
LLOYD BENTSEN, Texas PAUL LAXALT, Nevada
WILLIAM D. HATHAWAY, Maine JOHN C. DANFORTH, Missouri
FLOYD K. HASKELL, Colorado SPARK M. MATSUNAGA, Hawaii DANIEL PATRICK MOYNIHAN, New York MICHAEL STERN, Staff Director GEORGE W. PRITTs, Jr., Minority Counsel


SUBCOMMITTEE ON SOCIAL SECURITY

GAYLORD NELSON, Wisconsin, Chairman ABRAHAM RIBICOFF, Connecticut PAUL LAXALT, Nevada
FLOYD K. HASKELL, Colorado JOHN C. DANFORTH, Missouri
(II)













CONTENTS


page
Financing, of the social security programs ----------------------------- 1
Alternative financing proposals -------------------------------------- 14
Administration tax package ------------------------------------- 1 15
S. 24.19 is
S. 2501 (Senator Hathaway and 18
S. 2503 (Senator Nelson and 21
Alternative proposal (Senator Nelson) 24
S. 2607 (Senator Haskell) --------------------------------------- 26
S. 2741 (Senator 26
S. 2746 (Senator Hatfield of 27
S. 2808 (Senator Dole) ----------------------------------------- 27
S. 2812 (Senator 27
LIST OF TABLES
Table 1. Tax rates for the social security trust funds 2
Table 2. Annual earnings subject to social security tax ----------------- 3
Table 3. Annual tax at selected earnings levels ------------------------ 3
Table 4. Estimated operations of the OASI and DI trust funds, combined,
during calendar years 1977-87 under present and p rior law 4
Table 5. Estimated operations of the OASI trust fund during calendar
years 1977-87 under present and prior 5
Table 6. Estimated operations of the DI trust fund during calendar years
1977-87 under present and prior law -------------------------------- 6
Table 7. Estimated operations of the III trust fund, during calendar years
1977-87 under present and prior law ------------------------------- 7
Table 8. Calendar years 1978-83: Additional contribution income resulting
fi-oni 1977 amendments ------------------------------------------- 8
Table 9. Fiscal years 1978-83: Additional contribution income resulting
fi-orn 1977 9
Table 10. Estimated amount of changes in OASDI benefit payments under
1977 amendments, calendar years 1978-83 --------------------------- 10
Table 11. Changes in the actuarial balance of the OASDI system over the
long-range period (1977-2051) under the Social Security Act as amended
through Public Law 12
Table 12. Comparison of the estimated expenditures with the scheduled
tax rates for the old-age, survivors, and disability insurance system as
amended through Public Law 95-216, calendar years 1977-2055 -------- 13 Table 13. Long-range estimates of the OASDI program under 3 sets of actuarial, assumptions ---------------------------------------------- 14
Table 14. Social security tax liability tinder present law compared with
prior law and with 1977 tax levels ---------------------------------- 15
Table 15. 1978 combined income tax and social security (FICA) tax burdens: person, 16
Table 16. 1979 combined income tax and social security (FICA) tax burdens: 4-person, I-earner families ----------------------------------- 16
Table 17. 1978 combined income tax and social security (FICA) tax burdens: 4 person, 2-earner families ---------------------------------- 17
Table 18. 1979 combined income tax and social security (FICA) tax burdens: 4-person, 2-earner 17
Table 19. Social security tax rates under present law and under S. 2501, employee and employer, each ------------------------------------- 19
Table 20. Social security tax base under T)resent law and under S. 2501 - - 20 Table 21. Reduction in OASDI and III tax contribution income and
amount of general fund contributions under S. 23501, calendar years 197987 and fiscal years 1979-83- 20
(M)





IV

page
Table 22. Social security tax rates under current law and under S. 2503____ 22 Table 23. Estimated operations of the OASI trust fund under present law
and under the program as modified by S. 2503, calendar years 1977-87-- 23 Table 24. Reduction in OASDI and 111 tax contribution income and
amount of general fund contributions under S. 2503, calendar years
1979-87 and fiscal years 21
Table 25. Social security tax rates under present and prior law and Nelson
alternative ------------------------------------------------------ 25
Table 26. Social security tax base under present and prior law and Nelson
alternative ------------------------------------------------------ 25
Table 27. Estimated operations of the OASI and DI trust funds, combined, tinder present law and under the programs as modified by Nelson
alternative proposal, calendar years 26
Table 28. Estimated operations of the HI trust fund under present law and
under the program as modified by a Nelson alternative proposal, calendar
years 1977-81 --------------------------------------------------- 26











FINANCING OF THE SOCIAL SECURITY PROGRAMS
The social security payroll tax generates funds to pay the benefits and administrative costs of three separate programs. These are old-agre and survivors insurance (GASI), disability insurance (DI), andI hospital insurance or part A of medicare (HI). Although the I)a-yroll deduction for social security taxes is shown as a single amount onl the employee's pay stub, a specific portion of that tax is earmarked for each of these three programs. The revenues generated for each program are maintained in a separate trust fund and can be used only for that program.
Over the past few years, the funding of these social security programs became increasingly inadequate as a result of the economic situation coupled with unanticipated growth in program costs. In the 1977 report of the board of trustees of the OASDI trust funds,-, the disability insurance fund was projected to be exhausted by the end of 1979 and the combined OASI and DI funds were expected to be exhausted by 1982. On the basis of the assumptions used for the 1977 report of the trustees, it was estimated that the HI trust fund would be exhausted in 1987. Each of these programs also faced continuing deficits on into the future.
As a result of the cletqriorating financial situation of the social security cash benefit programs, legislation was enacted in 1977 to address the problems. The legislation revised certain benefit provisions in a manner which resulted in some reduction in outgo, and also provided for additional income by increasing both the social security tax rates and the amount of annual earnings subject to social security taxation.
The tables which follow show the situation which existed prior to the enactment of the 1977 amendments and the changes which resulted from those amendments.





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TABLE 2.-ANNUAL EARNINGS SUBJECT TO
SOCIAL SECURITY TAX
Present law
Under prior (1977
Year law amendments)

1977.............................. $16,500 $16,500
1978 .............................. 17,700 17,700
1979..............................1 18Y900 22,900
1980 ..............................'20,400 25,900
1981...............................'121,900 29,700
1982 ............................. '23,400 '31,800
1983......................... .....'124,900 133,900
1984.............................. '26,400 136,000
1985..............................'27,900 '38,100
1986.......................'*'*'29,400 '40,200
1987.............................. 131,200 '42,600

t Estimated.
TABLE 3.-ANNUAL TAX AT SELECTED EARNINGS LEVELS
[Employer/employee each]

Prior law Present law (1977 amendments)
Maximum Maximum
Year $10,000 $15,000 tax $10,000 $15,000 tax

1977.......$585 $878 $965 $585, $878 $965 1978........ 605 908 1,071 605 908 1,071
1979.......605 908 '1,143 613 920 1,404
1980........ 605 908 '1,234 613 920 1,588
1981......... 630 945 '1,380 665 998 1,975
1982.......630 945 '1,P474 670 1,005 12,131

1Estimated.







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TABLE 8.-CALENDAR YEARS 1978-83: ADDITIONAL CONTRIBUTION INCOME RESULTING FROM 1977 AMENDMENTS
[in billions]

Increase
in OASDI
Increase self-emRealloca- in tax ployment
Increase tion of rates tax rates in contri- tax rates for em- to 13Y2 bution and between ployees times benefit OASDI and em- employee Calendar year base and HI ployers rate Total I

OASDI:
197~8............. $1.6 ... ............. $1.7
1979 ........$ 4.0O 1.1 $1.5........... 6.6
1980........ 6.3 1.1 1.8........ 9.2
1981........ 8.0 1.2 8.1 $0.2 17.6
1982...... 8.8 1.3 10.3 .8 21.3
1983........ 9.4 1.4 11.1 .9 22.9
HI:
1979. .9..... -1.1 ............... -1.2
1980 .........1.4 -11....................-.2
1981........ 2 .1 -1.2 .................... .9
1982........ 2.4 -1.3 .................... 1.0
1983........ 2.5 -1.4...... .............. 1.1
OASDHI:
1978......................... .. .. ..(2
1979 .........4.9................ .
1980........ 7.6........... 1.8........... 9.4
1981........ 10.1........... 8.1 .2 18.4
1982........ 11.2 ........... ** 10.3 .8 22.4
1983 ........ 11.9........... 11.1 .9 23.9

Includes relatively small amounts of additional taxes payable by employers on employees' income from tips and reduction in taxes due to the provision on totalization agreements.
2 Amount is less than $50,000,000.
Note: The above estimates are based on the intermediate set of assumptions in the report of the trustees for 1977.






TABLE.9.-FISCAL YEARS 1978-83: ADDITIONAL CONTRIBU.
TION INCOME RESULTING FROM 1977 AMENDMENTS
[in billions]

Increase
in OASDI
Increase self-emRealloca- in tax ployment
Increase tion of rates tax rates in contri- tax rates for em- to 1 U bution and between ployees times benefit OASDI and em- employee Fiscal year base and HI ployers rate TotalI'

OASDI:1978................ $1.2 ......... .......... $1.3
1979 ........ $1.7 1.2 $1.1............ 4.1
1980........ 5.8 1.1 1.7............ 8.7
1981........ 7.9 1.2 6.7 $0.2 16.1
1982 ........ 10.0 1.4 10.4 .8 22.6
1983........ 10.7 1.5 11.8 .9 24.9
HI:
1978................ -1.2 ......... ..........--1.2
1979 ....04 -1.2......... .......... -.8
1980........ 1.3 -11.......... .......... .2
1981......... 1.9 --1.2 .......... .......... .6
1982........ 2.7 -1.4......... .......... 1.3
1983........ 2.9 --1.5......... .......... 1.3
OASDHI:
1978 ................................ ..........(2
1979........ 2.1........... 1 .1........... 3.3
1980........ 7.1........... 1.7............ 8.8
1981 .... 9.8 ......... 6.7 .2 16.7
1982 ........ 12.6........* 10.4 .8 23.9
1983 ........ 13.5 ......... 11.8 .9 26.3

1 Includes relatively small amounts of additional taxes payable by employers on employees' income from tips and reduction in taxes due to the provision on totalization agreements.
2 Amount is less than $50,000,000.
Note: Based on assumptions underlying President's 1979 budget.







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12

TABLE 11.-CHANGES IN THE ACTUARIAL BALANCE OF THE OASDI SYSTEM OVER THE LONG-RANGE PERIOD (1977-2051) UNDER THE SOCIAL SECURITY ACT AS AMENDED THROUGH PUBLIC LAW 95-216
[As percent of taxable payroll]

Item OASI DI OASDI

Under the act prior to amendments in Public Law 95-216:
Long-range expenditures ...................... 15.51 3.68 19.19
Long-range tax rate...........................9.45 1.55 10.99
Long-range actuarial balance ................. -6.06 -2.14 -8-20
Effects of 1977 amendments:
Decoupling .................................. 9.63 2.32 11.95
New (wage-indexed) benefit formula............ -5.91 -1.24 -7.16
Frozen minimum at the December 1978 level. .07 .02 .08
Changes in the special minimum..........0 0 0
Reduction in spouses benefits for Gover'nment
pensions..................................._.04 0 .04
Changes in the retirement test.................. .11 0 -.11
3-percent delayed retirement credit.............. .04 .......... -.04
Delayed retirement credit for widows,............. .01........... -.01
Remarriage after age 60 of widowed-spouse beneficiaries................................. -.01 0 -0
Elimination of retroactive payments of actuarially
reduced benefits .....................01 0 .01
Change in the method of increasing actuarially
reduced benefits ............................ .24 0 .24
Changes in SGA for the blind.......................... 0 0
Employer tax l iabilIity on ti ps deemed to be wages. 0 0 0
Correction of coverage regarding limited partnerships...................................... 0 0 0
Tax relief for related corporations ............... 0 0 0
10-year marriage requirement for divorced
beneficiaries .............................. 0 0 0
Annual reporting of earnings...................-.01 0 -.01
Changes in the earnings base ........... .45 .08 .54
Change in self-employed tax rate to 150 percent
of employee tax rate......................... .08 .02 .10
Change in employee-employer tax schedule .... .57 .57 1.14
Total effect of Public Law 95-216............. 4.98 1.75 6.74
Under the act as amended through PublicLa 95-216:
Long-range actuarial balance.................. -1.08 -.38 -1.46
Long-range tax rate........................... 10.01 2.11 12.12
Long-range expenditures ...................... 11.09 2.49 13.58

Note: Expenditures and taxable payroll are calculated under the intermediate set of assumptions (alternative 11) which ar described in the 1977 Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. These assumptions incorporate ultimate annual increases of 5 percent in average wages in covered employment and 4 percent in Consumer Price Index, an ultimate unemployment rate of 5 percent. and an ultimate total fertility rate of 2.1 children per woman. Taxable payroll is adjusted to take into account the lower contributions rates on self-employed income, on tips, and on multi pl e-employer "excess wages" as compared with the combined employeremployee rate.






13

TABLE 12.-COMPARISON OF THE ESTIMATED EXPENDITURES WITH THESCHED. ULED TAX RATES FOR THE OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE SYSTEM AS AMENDED THROUGH PUBLIC LAW 95-216, CALENDAR YEARS 1977-2055
[in percent of taxable payroll]

Estimated expenditures
Old-age and
survivors Disability
Calendaryear insurance insurance Total Tax rate Difference

1977 .................... 9.39 1.50 10.89 9.90 -0.99
1978 .................... 9.33 1.53 10.86 10.10 -.76
1979 .................... 8.80 1.47 10.28 10.16 -.12
1980 .................... 8.63 1.48 10.11 10.16 .05
1981 .................... 8.51 1.49 10.00 10.70 .70

1982 .................... 8.59 1.53 10.11 10.80 .69
1983 .................... 8.65 1.57 10.22 10.80 .58
1984 .................... 8.71 1.62 10.33 10.80 .47
1985 .................... 8.79 1.66 10.45 11.40 .95
1986 .................... 8.85 11.70 10.56 11.40 .84
1987 .................... 8.91 1.74 10.65 11.40 .75
1988 .................... 8.81 1.78 10.60 11.40 .80
1989 .................... 8.76 1.83 10.59 11.40 .81
1990 .................... 8.71 1.87 10.58 12.40 1.82
1991 .................... 8.70 1.91 10.61 12.40 1.79
1992 .................... 8.69 1.95 10.64 12.40 1.76
1993 .................... 8.68 1.99 10.67 12.40 1.73
1994 .................... 8.68 2.03 10.71 12.40 1.69
1995 .................... 8.68 2.07 10.75 12.40 1.65
1996 .................... 8.66 2.12 10.78 12.40 1.62
1997 .................... 8.64 2.18 10.82 12.40 1.58
1998 .................... 8.63 2.23 10.86 12.40 1.54
1999 .................... 8.63 2.28 10.91 12.40 1.49
2000 .................... 8.63 2.34 10.96 12.40 1.44
2001 .................... 8.64 2.40 11.04 12.40 1.36
2005 .................... 8.71 2.64 11.35 12.40 1.05
2010 ................. 9.30 2.88 12.17 12.40 .23
2015 .................... 10.45 2.99 13.44 12.40 -1.04
2020 .................... 11.97 3.02 14.99 12.40 -2.59
2025 .................... 13.49 2.91 16.40 12.40 -4.00

2030 .................... 14.35 2.78 17.13 12.40 -4.73
2035 .................... 14.45 2.70 17.15 12.40 -4.75
2040 .................... 13.97 2.72 16.69 12.40 -4.29
2045 .................... 13.50 2.79 16.29 12.40 -3.89
2050 .................... 13.35 2.82 16.18 12.40 -3.78
2055 .................... 13.41 2.83 16.24 12.40 -3.84

25-year averages:
1977-2001 ......... 8.75 1.85 10.60 11.57 .97
2002-2026.......... 10.59 2.86 13.46 12.40 -1.06
2027-2051 .......... 13.93 2.77 16.69 12.40 -4.29
75-year average:
1977-2051 .......... 11.09 2.49 13.58 12.12 -1.46

Note: Expenditures and taxable payroll are calculated under the intermediate set of assumptions (alternative 11) which are described in the 1977 Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. These assumptions incorporate ultimate annual increases of 5% percent in average wages in covered employment and 4 percent in Consumer Price Index, an ultimate unemployment rate of 5 percent, and an ultimate total fertility rate of 2.1 children per woman. Taxable payroll is adjusted to take into account the lower contribution rates on self-employment income, on tips, and on multiple-employer "excess wages" as compared with the combined employerPmployee rate.





14

Most of the tables in this document present estimates of the cost of the social security program (or of proposals to modify the financing of that program). These estimates are based on a set of economic and demographic assumptions made by the actuaries who calculate the estimates. In the annual actuarial evaluation of the social security program by the trustees of the social security trust fund, three sets of assumptions are adopted, representing a range of possible developments which could be characterized as optimistic, intermediate, and pessimistic. The intermediate assumptions are generally referred to and, in fact, underlie most of the tables in this document. Table 13, below, however, shows the range of estimates resulting from the three sets of assumptions used by the trustees in developing their 1977 reports.

TABLE 13,-LONG-RANGE ESTIMATES OF THE OASDI PROGRAM
UNDER 3 SETS OF ACTUARIAL ASSUMPTIONS [In percent of taxable payroll]
1977-2001 1977-2051
Expend- Tax Surplus Expend- Tax Surplus
Assumptions itures rate or deficit itures rate or deficit

Alternative I.... 10.30 11.57 +1.27 12.66 12.12 -0.54
Alternative II... 10.60 11.57 +.97 13.58 12.12 -1.46 Alternative Ill.. 10.95 11.57 -1.62 15.38 12.12 -3.26

ALTERNATIVE FINANCING PROPOSALS
As shown in table 4, the 1977 Social Security Amendments reversed the short-range deficit situation of the program under which the combined cash benefit trust funds had been projected to be exhausted by the end of 1982. Instead, under the new law, the cash benefits fund reserves reach a low of 25 percent of 1 year's outgo at the beginning of 1981 and then build up to 59 percent of a year's outgo by the start of 1987. As shown in the table, this result arises partly from a reduction in benefit costs under the new amendments but more substantially as a result of increased payroll tax revenues. (Over the next 10 years, program costs decline by a total of $32 billion while income grows by $282 billion.)
The substantial increases in the level of payroll taxes required by the 1977 legislation have been a cause of concern leading to a number of proposals designed to lessen the impact, of those taxes. In general there appear to be three approaches which could be used to achieve that result: (1) Reducing the cost of the social security program; (2) providing some other source of funding; and (3) reducing income taxes to offset, the impact of the increased social security taxes.
As of the date this document was prepared, a number of proposals designed to lessen the impact of social security taxes have been put forward. Somec of these proposals deal with the social security payroll tax incidence in a general way while others are targeted at specific elements such as the tax on employers or the tax that arises from increases in rates as compared with prior law or as compared with 1977. Some of the elements comprising the social security tax for the next 3 years, (1978-80) are shown in table 14 below.





OW
a

TABLE 14.-SOCIAL SECURITY TAX LIABILITY UNDER PRESENT LAW COMPARED WITH PRIOR LAW AND WITH 1977
TAX LEVELS
[in billions of dollars]
Prior law tax rates
and- 1977 tax rates andPresent Prior Present Prior
Present law law law law 1977
Calendar year law base base base base base

1978, total....... 107.1 107.1 107.0 103.5 103.5 101.2
Em loyees ......... 51.0 51.0 51.0 49.3 49.3 48.2
Employers.......... 51.6 51.6 51.5 49.8 49.8 48.8
Self-employed...... 4.5 4.5 4.5 4.4 4.4 4.3
1979, total ....... 126.2 124.6 118.3 120.6 114.4 109.2
Employees...,...... 60.2 59.4 56.4 57.5 54.5 51.9
Emp oyers ......... 60.7 59.9 57.0 57.9 55.1 52.7
Self-employed...... 5.3 5.3 4.9 5.2 4.8 4.5
1980, total ....... 142.4 140.6 132.0 136.0 127.6 118.1
Employees ......... 68.0 67.1 62.9 64.9 60.9 56.1
Employers.......... 68.5 67.6 63.7 65.3 61.5 57.2
'Self-employed ...... 5.9 5.9 5.4 5.8 5.2 4.7

Note: The above estimates are based on the economic assumptions that underlie the President's 1979 budget.
Administration tax package.-The President has proposed a package involving numerous changes in the tax laws (particularly the income tax laws) which wb uld result in net reductions in revenue amountm*zto some $25 billion. In submitting this package to Congress, the President indicated that one of its objectives was to offset the impact of the social security tax increases. Tables 15 to 18 below are reprinted from the materials prepared by the administration in conneetion with its tax proposals to show the combined impact of social security and income taxes in 1978 and 1979. The amounts shown as social security taxes (FICA) under "present law" in these tables are actually 1977 taxes and do not reflect the increases in the tax rate and tax base in 1978 and 1979 under either present law or the law as it was in effect prior to the 1977 amendments. (The increase in social security taxes which went into effect January 1, 1978 is the result of the law in effect prior to the 1977 amendments while a(lditional increases are provided under the 1977 legislation starting January 1, 1979.)






16

TABLE 15.-1978 COMBINED INCOME TAX AND SOCIAL SECURITY (FICA) TAX
BURDENS: 4 PERSON, 1-EARNER FAMILIES
(in dollars]

Present law tax 1978 proposed tax Change in tax
Wage Income FICA TotalI Income FICA Total I ncome FICA Total
income tax I tax 2 tax tax I tax'3 tax tax tax tax

$5,000...... -300 292 -8 -300 303 3 0 11 11
$10,000... 446 585 1,t031 192 605 797 -254 20 -234
$15,000..... 1,330 877 2,207 1,166 908 2,074 -164 31 -133 $20,000....2,180 965 3,145 2,042 1,071 3,113 -138 106 -32 $25,000....3,150 965 4,115 3,025 1,071 4,096 -125 106 -19 $30,000....4,232 965 5,197 4,150 1,071 5,221 -82 106 24 $40,000....6,848 965 7,813 6,748 1,071 7,819 -100 106 6
$50,000....9,950 965 10,915 9,855 1,071 10,926 -95 106 11 $100,000.. 28,880 965 29,845 28,640 1,071 29,711 -240 106 -134

1 Assumes deductible expenses equal to 23 percent of income.
2 Calculated under prior law rate for 1977 (5.85 percent) and prior law base for 1977 ($16,500), employees' share only.
3 Calculated under present law rate and base for 1978 (6.05 percent and $17,700), employees' share only.
Source: Office of the Secretary of the Treasury, Office of Tax Analysis.

TABLE 16.-1979 COMBINED INCOME TAX AND SOCIAL SECURITY (FICA) TAX
BURDENS: 4 PERSON, 1-EARNER FAMILIES [in dollars]

Present law tax 1979 proposed tax Change in tax
Wage Income FICA Total Income FICA Total Income FICA Total
Income tax I tax 2 tax tax 3 tax 4 tax tax tax tax

$5,000 ...... -300 292 -8 -300 306 6 0 14 14
$10,000... 446 585 1,031 134 613 747 -312 28 -284
$15,000..... 1,330 877 2,207 1,t072 919 1,991 -258 42 -216 $20,000..... 2,180 965 3,145 1,910 1,226 3,136 -270 261 -9
$25,000..... 3,150 965 4,115 2,830 1,404 4,234 -320 439 119
$30,000..... 4,232 965 5,197 3,910 1,404 5,314 -322 439 117
$40,000..... 6,848 965 7,813 6,630 1,404 8,034 -218 439 221
$50,000..... 9,950 965 10,915 9,870 1,404 11,274 -80 439 359 $100,000. 28,880 965 29,845 29,470 1,404 30,874 590 439 1,029

1 Assumes deductible expenses equal to 23 percent of income under present law.
2 Calculated under prior law rate for 1977 (5.85 percent) and prior law base for 1977 ($16,500), employees' share only.
9 Assumes deductible expenses equal to 20 percent of income under proposal. "
4 Calculated under present law rate and base for 1979 (6.13 percent and $22,900), employees' share only.






17

TABLE 17.-1978 COMBINED INCOME TAX AND SOCIAL SECURITY (FICA) TAX
BURDENS: 4 PERSON, 2-EARNER FAMILIES'
[in dollars]

Present law tax 1978 proposed tax Change in tax
Wage Income FICA Total Income FICA Total Income FICA Total
Income tax 2 tax 3 tax tax 2 tax'4 tax tax tax tax

$5,000...... -300 292 -8 -300 303 3 0 11 11
$10,000... 446 585 1,031 192 605 797 -254 20 -234
$15,000..... 1,330 877 2,207 1,166 908 2,074 -164 31 -133
$20,000....2,180 1,170 39350 2,042 1,210 3,252 -138 40 -98
$25,000....3,150 1,463 4,613 3,025 1,513 4,538 -125 50 -75
$30,000....4,232 1,755 5,987 4,150 1,815 5,965 -82 60 -22 $40,000..... 6,848 1,931 8,779 6,748 2,142 8,890 -100 211 I11
$50,000....9,950 1,931 11,881 9,855 2,142 11,997 -95 211 116
$100,000... 28,880 1,931 30,811 28,6401 2,142 309782 -240 211 -29

I Assumes that each spouse earns 50 percent of total family income.
2 Assumes deductible expenses equal to 23 percent of income.
3 Calculated under prior law rate for 1977 (5.85 percent) and prior law base for 1977 ($16,500), employees share only.
4 Calculated under present law rate and base for 1978 (6.05 percent and $17,700), employees' share only.

TABLE 18-1979 COMBINED INCOME TAX AND SOCIAL SECURITY (FICA) TAX
BURDENS: 4-PERSON, 2-EARNER FAMILIES I [in dollars

Present law tax 1979 proposed tax Change in tax
Wage Income FICA Total Income FICA Total Income FICA Total
income tax 2 tax 3 tax tax4* tax56 tax tax tax tax

$5,000...... -300 292 -8 -300 306 6 0 14 14
$10,000... 446 585 1,031 134 613 747 -312 28 -284
$15,000..... 1,330 877 2,207 1,072 919 1,991 -258 42 -216 $20,000....2,180 1,170 3,350 1,910 1,226 3,136 -270 56 -214
$25,000.... 3,150 1,463 4,613 2,830 1,533 4,363 -320 70 -250
$30,000....4,232 1,755 5,987 3,910 1,839 5,749 -322 84 -238
$40,000....6,848 1,931 8,779 6,630 2,452 9,082 -218 521 303
$50,000....9,950 1,931 11,881 9,870 2,808 12,678 -80 877 797 $100,000. 28,880 1,931 30,811 29,470 2,808 32,278 590 877 1,467

Assumes that each spouse earns 50 percent of total family income.
2 Assumes deductible expenses equal to 23 percent of income under present law.
3 Calculated under prior law rate for 1977 (5.85 percent) and prior law base for 1977 ($16,500), employees" share only.
I Assumes deductible expenses equal to 20 percent of income under proposal.
6 Calculated under present law rate and base for 1979 (6.13 percent and $22,900), employees' share only.





18

S. 2459 (Senator Eagleton) .-S. 2459 is one of a number of proposals wvvhich have been introduced to offset the impact of social security taxes by a reduction in income taxes which is directly based on social security tax liability. The bill would allow as a credit against income taxes an amount equal to 15 percent of the amount paid by an employee or sell-employed person after September 30, 1978 in social security or railroad retirement taxes. The credit would not be ref undable but would be limited to the amount of the individual's income tax liability. The credit would not apply to the employer portion of the social security tax. The 1979 revenue reduction resulting from this bill would be approximately $8 to $9 billion.
S. 2501 (Senator Hathaway and others). S. 2501 would modify the financing of the social security program so that the cost of the program would be paid one-third by employees, one-third by their em ployers and one-third from the general revenues of the United States. In order to provide general 're venue funding, the bill would make a permanent appropriation to the social security trust funds equal to 150 percent (rather than the 100 percent provided under present law) of the social security taxes collected from employees, their employers and the self-employed.
The new financing provisions would become effective January 1, 1979. The revised schedule of taxes is shown in table 19.
In addition, the bill would increase the social security tax base to $100,000 in 1979 with automatic increases thereafter. The estimated increases in the tax base for years after 1979 are shown in table 20.
Estimates of the reduction in social security payroll taxes which would result from the enactment of S. 2501, along with the payments from general revenues that would be appropriated, are shown in table 2 1.







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20

TABLE 20.-SOCIAL SECURITY TAX BASE UNDER PRESENT

LAW AND UNDER S. 2501

Calendar year Present law S.2501


1977 .............................. $16p500 $16,500
1978................................ 17,700 17,700
1979................................ 22,900 100,000
1980................................ 25,900 1108,000

1981 ............................ 29,700 11 16,400
1982................................ 131,800 1124,500
1983................................ 133,900 1132,600
1984 ..............................'136,000 1140,400

1985 ........................... 138,100 '1,48,500.
1986 .......................... .. 140,200 1156,900
1987 ..................... .. .,.. .. 142,600 1165,900

1 Estimated-Base increases automatically as wage levels rise.

TABLE 21.-REDUCTION IN OASDI AND HI TAX CONTRIBUTION INCOME AND AMOUNT OF GENERAL FUND CONTRIBUTIONS UNDER S. 2501, CALENDAR YEARS 1979"7 AND FISCAL YEARS 1979-83 (in billions)

Reduction in tax contribution Amount of general fund income contributions
0ASOI HI Total OASDI HI TotalI

Calendar year:
1979 ............... $29.7 $5.3 $35.0 $33.3 $7.2 $40.5
1980................ 34.9 6.2 41.2 40.8 8.8 49.5
1981................ 44.5 11.7 56.2 44.8 10.1 54.9
1982................ 50.3 13.0 63.3 48.1 10.9 58.9
1983................ 54.1 13.9 68.1 51.4 11.6 63.0

1984............. 57.9 14.9 72.9 54.8 12.4 67.2
1985................ 61.3 12.6 73.9 63.3 15.6 79.0
1986................ 65.1 16.3 81.4 68.1 16.9 85.1
1987................ 69.5 17.7 87.2 72.6 18.0 90.7
Fiscal year: 3
1979................ 24.7 4.5 29.2 24.1 5.2 29.4
1980................ 33.5 6.0 39.5 40.1 8.6 48.7
1981................ 42.8 10.5 53.3 45.2 10.1 55.3
1982................ 51.5 13.4 64.9 50.3 11.4 61.7
1983................ 56.8 14.6 71.4 54.9 12.4 67.3

IBased on the intermediate assumptions in the 1977 trustees report.
2S. 2501 provides for general fund contributions amounting to 50 percent of payroll tax contributions for each trust fund.
3'Based on the 1979 budget assumptions.





21

S. 2508 (Senator Nelson and others).-S. 2503 would modify the financing of the social security programs so that the disability insurance program and part A of the hospital insurance program would be financed from general revenues. Under the provisions of the bill, the Congress would pass legislation each year authorizing the amount of money that could be appropriated for the two programs and( these authorizations would then go through the regular appropriation process. The bill states that the authorization for each program would be for "such sums as may be determined . to be necessary to )provide for the prompt payment of the benefits . and administrative expenses . and to provide an adequate contingency reserve".
These changes would be effective for fiscal years which end after the date of enactment. (If enactment occurred prior to September 30, 1978, authorization and appropriations would be needed for fiscal year 1979.)
In addition, the bill would revise the schedule of social security taxes as shown in table 22.
Estimates of income, outgo, and assets under present law and under S. 2503 for calendar years 1979-80 are shown in table 23. Table 24 shows the reduction in taxes for calendar years 1979-87 that would result from enactment of the bill. The table also shows the estimated additional general revenue income that would be needed to maintain the DI and HI trust funds at their 1979 ratios of assets to expenditures (25 percent for HI and 56 percent for DI).





22

TABLE 22.-SOCIAL SECURITY TAX RATES UNDER CURRENT
LAW AND UNDER S. 2503
EMPLOYEE AND EMPLOYER, EACH
[in percent]

Current law
S. 2503,
Calendar year QASI DI OASDI HI Total IQAS1 1

1979 and 1980 .... 4.330 0.750 5.08 1.05 6.13 4.33 1981 ........... 4.525 .825 5.35 1.30 6.65 4.40
1982-84.....4.575 .825 5.40 1.30 6.70 4.40
1985.......4.750 .950 5.70 1.35 7.05 4.40
1986"9 ......... 4.750 .950 5.70 1.45 7.15 4.40
1990-2001 ....... 5.100 1.100 6.20 1.45 7.65 4.40
2002-10 ......... 5.100 1.100 6.20 1.45 7.65 4.60
2011-20 ......... 5.100 1.100 6.20 1.45 7.65 5.40
2021 and later... 5.100 1.100 6.20 1.45 7.65 6.80


SELF-EM PLOY MENT TAX
Current law
S. 2503
Year QASI DI OASDI HI Total QASI 1

1979-80.....6.0100 1.0400 7.05 1.05 8.10 6.495
1981 ......... 6.7625 1.2375 8.00 1.30 9.30 6.6
1982-84 .....6.8125 1.2375 8.05 1.30 9.3:5 6.6
1985 ......... 7.1250 1.4250 8.55 1.35 9.90 6.6
1986-89.....7.1250 1.4250 8. 55 1.45 10.00 6.6
1990-2001. 7.6500 1.6500 9.30 1.4.5 10.75 6.6 2002-10 .....7.6500 1.6500 9.30 1.45 10.75 6.9
2011-20 .....7.6500 1.6500 9.30 1.45 10.75 8.1
2021 and
later.......7.6500 1.6500 9.30 1.45 10.75 10.2

IThis would be the only payroll tax under S. 2503.





23

TABLE 23.-ESTIMATED, OPERATIONS OF THE OASI TRUST FUND UNDER PRESENT LAW AND UNDER THE PROGRAM AS MODIFIED BY S. 2503, CALENDAR YEARS 1977-87
(Amounts in billions]

Net increase in
Income Outgo fund
Present Present Present
Calendar year law S. 2503 law S. 2503 law S. 2503

1977 .................... $72.5 $72.5 $75.6 $75.6 -$3.1 -$3.1
1978 ................... 78.6 78.6 83.6 83.6 -5.0 -5.0
1979 .................... 90.8 90.8 91.6 91.6 -.8 -.8
1980 .................... 101.5 101.9 100.0 100.0 1.5 1.9
1981 .................... 116.0 113.4 108.4 108.4 7.6 4.9
1982 .................... 127.2 122.2 117.4 117.4 9.7 4.8
1983 .................... 136.6 130.9 126.3 126.4 10.3 4.5
1984 .................... 146.4 140.0 136.0 136.0 10.5 3.9
1985 .................... 162.0 149.3 146.4 146.4 15.7 2.8
1986 .................... 174.1 159.1 157.3 157.4 16.8 1.7
1987 .................... 186.3 169.4 168.9 169.1 17.4 .4

Assets at beginning of year as a
Assets at end of year percentage of outgo during year Present Present
law S .2503 law S. 2503

1977 .................... $32.3 $32.3 47 47
1978 .................... 27.3 27.3 39 39
1979 ..................... 26.5 26.6 30 30
1980 ..................... 28.0 28.5 26 27
1981 ..................... 35.6 33.4 26 26
1982 .................... 45.3 38.2 30 28
1983 .................... 55.6 42.7 36 30
1984 ..................... 66.1 46.6 41 31
V 85 .................... 81.7 49.5 45 32
1986 .... ............ 98.5 51.1 52 31
1987 .................... 115.9 51.5 58 30

Note; The above estimates are based on the intermediate assumptions in the 1977 trustees report.






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TABLE 24.-REDUCTION IN OASDI AND HI TAX CONTRIBUTION INCM N
AMOUNT OF GENERAL FUND CONTRIBUTIONS UNDER S. 2503, CALENDAR YEARS 1979--87 AND FISCAL YEARS 1979-83 [in billions]

Amount of general fund
Reduction in tax contribution income contributions I
QASI Dl OASDI HI TotalI DI H I Total

Calendar year: 2
1979 ......... 3($0 .1) $14.2 $14.1 $19.8 $34.0 $14.1 $20.9 $35.0
1980 .......... 3(.4) 17.2 16.8 23.8 40.6 17.2 25.9 43.1
1981 ............2.5 20.6 23.2 31.8 55.0 19.0 29.9 49.0
1982 ...........4.6 22.4 27.0 34.7 61.7 20.9 34.1 55.1
1983.......... 5.0 24.0 29.0 37.2 66.1 23.0 38.9 61.9

1984.......... 5.3 25.6 31.0 39.7 70.7 25.3 44.1 69.4
1985.......... 11.0 31.1 42.1 43.9 86.0 27.7 49.6 77.4
1986.......... 12.3 33.6 45.9 50.2 96.0 30.3 55.3 85.7
1987 ........13.1 35.8 48.9 53.8 102.7 33.2 61.7 94.9
Fiscal year:4i
1979 ..........3(.1) 10.7 10.6 14.9 25.5 10.6, 14.9 25.5
1980 .......... 3(.3) 16.8 16.5 23.2 39.7 16.9 24.5 41.5
1981.......... 2.0 20.3 22.2 30.7 52.9 18.8 28.5 47.3
1982.......... 4.5 23.3 27.8 36.2 64.0 20.7 32.8 53.4
1983.......... 5.4 25.4 30.8 39.5 70.3 22.8 37.3 60. 1

1 Amount reqietomitiacosatlelotrsfudastatedoyarsa percentage ofoutgo during year. At the end of 1978, these percentages are 25 percent for the Dl trust fund and 56 percent for the HI trust fund, for the intermediate assumptions in the 1977 trustees report.
2 Based on the intermediate assumptions in the 1977 trustees report. I Amount shown in parentheses represents an increase rather than a reduction.
4 Based on the 1979 budget assumptions.

Alternative pro posal (Senator Nelson) .-Jn testimony before the Senate Budget Comimittee, Senator Nelson described a proposal under which there would be a 3-year moratorium on the social security financing provisions enacted last year.
Under this proposal, the total OASDHJ tax rate and base would be returned to the levels p rovided under the law in effect prior to the enactment of the Social Security Amendments of 1977 (Public Law 95-216) but the distribution of the taxes between the three programs (old-age and survivors insurance, disability insurance, and hospital insurance) would be changed so that the payroll tax would provide sufficient funds to suppDort the cash-benefits programs (old-age, survivors and disability insurance). In eff ect, hospital insurance payroll taxes would be reduced and the difference would be made uip by payments from general revenues as follows:

Year: ~Paymnents from general revenues Blin
1979----------------------------------$6.4

1981 ---------------------------------------------18
Tota---------------------------------34.0






25

The tax rates under prior law, present law and the proposal are shown in table 25, and the imiaxinumll amounts of earnings taxable under present law and the proposal (which is the law in effect prior to the enactment of the 1977 amendments) are shown in table 26. The effect these changes would have on the social security trust funds is shown in tables 27 and 28.

TABLE 25.-SOCIAL SECURITY TAX RATES UNDER PRESENT AND PRIOR LAW AND NELSON ALTERNATIVE
[in percent]

Prior law Present law Nelson alternative
Calendaryear OASDI HI Total OASDI HI Total OASDI HI Total

mployers and
employees, each:
1977 .............. 4.95 .90 5.85 4.95 0.90 5.85 4.95 0.90 5.85
1978 .............. 4.95 1.10 6.05 5.05 1.00 6.05 5.05 1.00 6.05
1979 .............. 4.95 1.10 6.05 5.08 1.05 6.13 5.30 .75 6.05
1980 .............. 4.95 1.10 6.05 5.08 1.05 6.13 5.40 .65 6.05
1981 .............. 4.95 1.35 6.30 5.35 1.30 6.65 5.75 .55 6.30
1982 .............. 4.95 1.35 6.30 5.40 1.30 6.70 5.40 1.30 6.70
Self-employed
persons:
1977 .............. 7.00 .90 7.90 7.00 .90 7.90 7.00 .90 7.90
1978 ........... 7.00 1.10 8.10 7.10 1.00 8.10 7.10 1.00 8.10
1979 ........... 7.00 1.10 8.10 7.05 1.05 8.10 7.35 .75 8.10
1980........... 7.00 1.10 8.10 7.05 1.05 8.10 7.45 .65 8.10
1981 ........... 7.00 1.35 8.35 8.00 1.30 9.30 8.65 .55 9'20
1982 ........... 7.00 1.35 8.35 8.05 1.30 9.35 8.05 1.30 9.35


TABLE 26.-SOCIAL SECURITY TAX BASE UNDER PRESENT
AND PRIOR LAW AND NELSON ALTERNATIVE

Nelson
Calendar year Prior law Present law alternative

1977 .. ...............$16,500 $16,500 $16,500
1978 .................... 17,700 17,700 17,700
1979 ................ 18,900 22,900 1 18,900
1980 ............... 20400 25,900 120,400
1981. .................. '21,900 29,700 '21,900
1982 ...................... '24,400 131,800 131,800

I Estimated.






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TABLE 27.-ESTIMATED OPERATIONS OF THE OASI AND DI TRUST FUNDS, COMBINED, UNDER PRESENT LAW AND UNDER THE PROGRAMS AS MODIFIED BY NELSON ALTERNATIVE PROPOSAL, CALENDAR YEARS 1977-81 [In billions]
Assets at end of
Income Outgo Net increase in funds year
Present Pro- Present Pro- Present Present ProCalendar years law posal law posal law Proposal law posal

1977 .......... $82.1 $82.1 $87.6 $87.6 -$5.5 -$5.5 $35.6 $35.6
1978 .......... 92.4 92.4 97.2 97.2 -4.8 -4.8 30.8 30.8
1979 .......... 106.5 106.4 106.9 106.9 -.4 -.4 30.4 30.3
1980 .......... 119.1 119.5 117.1 117.0 2.0 2.4 32.4 32.8
1981 .......... 137.1 137.8 127.4 127.3 9.6 10.5 42.0 43.3


TABLE 28.-ESTIMATED OPERATIONS OF THE HI TRUST FUND UNDER PRESENT LAW AND UNDER THE PROGRAM AS MODIFIED BY A NELSON ALTERNATIVE PROPOSAL, CALENDAR YEARS 1977-81
[In billions]

General
Net increase in Assets at end of fund
Income I Outgo fund year 1 contributions
Pres- Pres- Pres- Pres- under
Calendar ent Pro- ent Pro- ent Pro- ent Pro- proyears law posal law posal law posal law posal posal

1977 ........ $16.1 $16.1 $16.2 $16.2 -$0.1 -$0.1 $10.5 $10.5.....
1978 ........ 19.2 19.2 19.0 19.0 .2 .2 10.7 10.7......
1979 ........ 23.1 23.2 22.2 22.2 .9 1.0 11.6 11.6 $6.4
1980 ........ 25.7 25.3 25.7 25.7 (2) -.5 11.5 11.2 9.4
1981 ........ 34.0 33.1 29.7 29.7 4.3 3.4 15.9 14.6 18.3

I Includes general fund contributions.
2 Less than $0.05 billion.

S. 2607 (Senator Haskell).-S. 2607 would provide for a tax credit equal to 10 percent of the social security and railroad retirement tax liabilities of employers and self-employed individuals. The credit would be refundable and, in the case of nonprofit organizations and State and local governments, a payment in lieu of the tax credit would be made. The bill does not provide any credit against the employee share of social security taxes. The bill would be effective for taxable years after 1977. The calendar 1979 revenue reduction under this bill would be approximately $6 billion.
S. 2741 (Senator Domenici).-S. 2741 would provide for a refundable tax credit to employers, employees, and self-employed persons. The amount of the credit would be equal to the increase in social security tax liability over the amount of liability which would have existed if the social security tax rates (but not the tax base) had been frozen at the 1977 levels (5.85 percent for employers and employees, each, and 7.9 percent for self-employed persons). For calendar year 1979, this bill Wolul result in a revenue reduction of approximately $6 billion.





27

S. 2746 (Senator Hatjield of Montana).-The bill S. 2746 would roll back the present 6.05 percent social security tax rate to the 5.S5 level which was in effect in 1977. That 5.85 percent rate would remain in effect permanently thereafter. The revenues generated by the 5.85 percent tax would, however, be augmented I)by General Treasury funds so as to provide the same total income to the trust funds as they would receive under present law. (The bill also would roll back the self-employment tax rate to the 7.9 percent level in effect in 1977 and make up the difference by general transfers to the trust funds.) The bill does not modify the tax base provisions of present law. Under S. 2746, which is effective for years after 1977 the following amounts of general revenues would be substituted for pa,-roll tax revenues: [In billions]
Calendar year: Amount Calendar year-Con. Amount
1978- -$3. 3 1983 ....$24. 9
1979 ---------------------5. 5 1984--------------------- 2. G
1980 --------------------- 3 1985 ---------------------39. 0
1981 ---------------------19. 0 1986 ---------------------45. 8
1982 ---------------------23. 1 1987----------- 49. 2
(The fiscal year 1979 general revenue fund transfer would be $5.0 billion.)
S. 2808 (Senator Dole).-S. 2808 would provide a refundable income tax credit equal to 20 percent of employee and self-employed (but not employer) social security and railroad retirement taxes effective for taxable years after 1977. The bill would result in an estimated revenue reduction of approximately $12 billion in calendar 1979.
S. 2812 (Senator Danforth).-S. 2812 is generally similar to S. 2808 except that it provides for a 10-percent rather than a 20-percent credit and would be effective for years after 1978. The credit would be refundable and would apply to employee and self-employed (but not employer) social security and railroad retirement taxes.
0




UNIVERSITY OF FLORIDA 3 1262 09118 8671