Fact Sheet: The President's FY 2008 Budget and Social Security

Summary

The administration's fiscal 2008 budget for Social Security again includes proposals that would dismantle traditional Social Security by allowing workers to use a portion of the Social Security payroll tax to fund private accounts. To make the system sustainable, the President continues to endorse the idea of progressive price indexing whereby future benefits of the highest-wage earners are indexed to inflation while continuing to index the wages of lower-wage earners to wage growth.

The SSA budget proposes $657 billion in total outlays, an increase by $31 billion from the FY 2007 level. This increase is attributable primarily to annual cost-of-living adjustments of 3.3 percent in January 2007 and an estimated 1.4 percent in January 2008, for both the OASDI and SSI programs. Additionally, the number of individuals receiving benefits from the OASDI and SSI programs continues to increase.

The President's budget proposes administrative resources of $9.719 billion which will allow SSA in FY 2008 to:

• Pay benefits to nearly 55 million people every month;
• Evaluate evidence and make determinations of eligibility for benefits on more than 6.8 million new claims;
• Make decisions on more than 545,000 hearings;
• Issue 18 million new and replacement Social Security cards;
• Process 268 million earnings items for crediting to workers' earnings records;
• Handle approximately 63 million transactions on SSA's 800-number;
• Issue 148 million Social Security Statements ;
• Process 1.1 million periodic continuing disability reviews;
• Process over 1.5 million non-disability SSI redeterminations; and
• Process almost 269,000 Medicare Part D “extra help” subsidy applications.

SSA's FY 2007 budget includes the resources required for ongoing work related to the MMA. In addition, SSA continues to provide service delivery support to the Medicaid, Railroad Retirement, and Food Stamp programs.

Old-Age, Survivors and Disability Insurance

Social Security pays monthly cash benefits to retired and disabled workers and their dependents, and to survivors of deceased workers. Benefits are financed by payroll taxes paid by employees, employers, and the self-employed, interest on the trust funds, and income taxes on higher income retirees.

Total outlays for the Old Age, Survivors and Disability Insurance (OASDI) for 2008 is estimated at $612 billion, an increase of $26 billion, or 4.4 percent, over FY 2007 . This includes estimated outlays of $499 billion in retired-worker benefits (OASI), $103 billion in disabled-worker benefits, and $9.7 billion in other expenses such as administration, beneficiary services, payments to the Railroad Retirement Board, and demonstration projects. Additionally, the number of individuals receiving benefits under the Social Security programs is expected to increase by 900,000. Combined OASDI Trust Fund income will grow by about $50 billion in FY 2008 and will be $822 billion or 134 percent of yearly outlays.

Supplemental Security Income

The SSI program provides benefits for low-income aged, blind, and disabled individuals and couples, including blind and disabled children, up to a maximum award called the standard benefit rate. In FY 2008, SSI outlays will increase by $5.3 billion, or 13.4 percent, from FY 2007. Estimates of current benefits are driven by the number of recipients eligible for monthly payments and the amount of the monthly payments. There is a slight increase of 176,000 in the number of Federal SSI recipients, but outlays have a significant increase of $5.3 billion.

The maximum monthly Federal benefit amount, adjusted for the 3.3 percent January 2007 COLA, is $623 for an individual and $934 for a couple. This amount is projected to increase to $632 for an individual and $947 for a couple when adjusted for the estimated 1.4 percent COLA payable beginning in January 2008. States may choose to supplement the Federal payment and have SSA administer these supplements.

Limitation on Administrative Expenses (LAE)

The Limitation on Administrative Expenses (LAE) account provides resources for SSA to administer the OASDI programs, the SSI program, certain health insurance and Medicare prescription drug functions, and the Special Benefits for Certain World War II Veterans program. Funding for this account is initially financed from the Social Security and Medicare trust funds. The trust funds are subsequently reimbursed for the administrative expenses of the SSI program, which are covered by general funds, as well as for other costs not related to the trust funds. Funds are included for personnel costs and operating expenses such as equipment, space, and building services. The estimated appropriation for FY 2008 is $9.597 billion; a 4.6 percent increase from the amount enacted for 2007.

Disability Insurance “Funding Warning”

The 2008 Budget includes a proposal to highlight with a “funding warning” the escalating and persistent fiscal problems facing DI. If SSA's actuaries project a negative DI cash flow that is more than 10 percent of program cost for four consecutive years in the upcoming 10 years, the Board of Trustees will issue the warning in the annual Trustees Report. Issuance of a DI funding warning would require the President to transmit to the Congress proposed legislation to respond to the warning within 15 days after the date of the next Budget submission; the Congress would then consider this legislation.

Legislative Proposals Related to OASDI

Proposal to Carve Out Private Accounts from Social Security and Index Benefits

The 2008 budget includes the President's proposal to convert a portion of the traditional Social Security program into a system of private accounts funded by a portion of workers' payroll taxes. The budget proposal estimates that privatization of Social Security would cost $29 billion in fiscal 2012 and a total of $637 billion over the 2008 to 2017 period. Beginning in 2012, workers under 60 years of age would be able to divert up to four percent of their payroll taxes to voluntary private accounts. The maximum contribution to such accounts would start at $1,300 annually and rise by $100 a year through 2017.

The budget also reiterates the administration's endorsement of progressive price-indexing, which would change the formula for calculating benefits. This method would al low benefits for low-wage earners to continue rising in line with wages, while converting benefits for maximum earners to a pure price-based index; workers in between would see some combination of the two, as their initial benefits would be calculated by applying a hybrid formula that blends wage and price indexing. This formula would cut future benefits for middle and high wage workers by breaking the link between wages and benefits and, over time, flattening all workers' benefits to the levels earned by those with the lowest wages.

Proposals to Cut Certain Social Security Benefits

The President's budget includes three Social Security benefit reduction proposals designed to restrain spending and simplify the administration of Social Security Administration's benefit programs:

• The first proposal would establish a mandatory system for collecting data on pension income from State and local employment not covered by Social Security thus strengthening enforcement of the windfall elimination provision (WEP) and government pension offset (GPO) provision. This proposal would require State and local governments to provide data, in an electronic format, directly to SSA regarding the receipt of government pensions based on employment not covered by Social Security. This proposal is expected to generate $2.5 billion in revenue over ten years.

• The second proposal would require full-time attendance at an educational institution as a condition of entitlement for children's benefits beginning at age 16. The payment of benefits would be suspended for any month in which the child does not meet the definition of full-time attendance in SSA's regulations. Currently, eligible children of retired, disabled, or deceased workers may receive Social Security benefits up to the month they reach age 18 regardless of school attendance. This proposal would cut $1.5 billion over ten years.

• The third proposal would replace the current reduction to Disability Insurance (DI) benefits for beneficiaries in some States who also receive workers' compensation (WC) benefits with a uniform offset that would affect all such beneficiaries for not more than five years. Currently, if an individual receives both a Social Security DI and a WC payment, the disability benefit is offset so that the combined benefits do not exceed 80 percent of the individual's average earnings before he or she became disabled. It is estimated that this change would reduce spending by $1 billion over ten years.

Government Relations and Policy, February 2007