Fact Sheet: The President's FY 2009 Budget and Social Security

Summary

The administration's fiscal 2009 budget for Social Security again includes proposals to dismantle traditional Social Security by allowing workers to use a portion of the Social Security payroll tax to fund voluntary personal retirement accounts. The President allocates $30.2 billion to establish private accounts in 2013, totaling $647 billion through 2018. 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 $696 billion in total outlays, an increase by $36 billion from the FY 2008 level. This increase is attributable primarily to annual cost-of-living adjustments of 2.3 percent in January 2008 and an estimated 2.5 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 $10.460 billion, which will allow SSA in FY 2009 to:

• Pay benefits to almost 60 million people every month;
• Evaluate evidence and make determinations of eligibility for benefits on approximately 6.9 million new claims;
• Make decisions on more than 644,000 hearings;
• Process 329,000 medical continuing disability reviews;
• Process nearly 1.5 million non-disability SSI redeterminations;
• Handle approximately 67 million transactions on SSA's 800-number;
• Issue 20 million new and replacement Social Security cards;
• Process 274 million earnings items for crediting to workers' earnings records; and
• Issue 150 million Social Security Statements.

SSA's FY 2009 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 approximately 62 million 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. For FY 2009, the number of individuals receiving benefits under the OASDI programs is expected to increase by more than 1.1 million.

Total outlays for the Old Age, Survivors and Disability Insurance (OASDI) for 2009 is estimated at $649 billion, an increase of $35 billion, or 6 percent, over FY 2008. This includes estimated outlays of $530.5 billion in retired-worker benefits (OASI), $109.5 billion in disabled-worker benefits, and $10 billion in other expenses such as administration, beneficiary services, payments to the Railroad Retirement Board, and demonstration projects. Combined OASDI Trust Fund income will grow by about $47 billion in FY 2008 and will be $855 billion or 132 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 2009, SSI outlays will be $43.2 billion, an increase of $2 billion, or 4.7 percent, from FY 2008. Estimates of current benefits are driven by the number of recipients eligible for monthly payments and the amount of the monthly payments. The number of Federal SSI recipients is expected to increase to 7.3 million in FY 2009, an increase of 159,000 over estimated FY 2008 levels; average monthly benefit payments are expected to increase by $13 to $486 in FY 2009.

The maximum monthly Federal benefit amount in 2008, adjusted for the 2.3 percent January 2008 COLA, is $637 for an individual and $956 for a couple. This amount is projected to increase to $653 for an individual and $980 for a couple when adjusted for the estimated 2.5 percent COLA payable beginning in January 2009. The average monthly benefit payment was $458 in FY 2007 and it is expected to increase to $473 in FY 2008 and $486 in FY 2009.

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 2009 is $10.327 billion; a 5.97percent increase from the amount enacted for 2008. The SSA Commissioner requested $10.427, $13 million less than last year's request of $10.44 billion.

Disability Insurance “Funding Warning”

The 2009 Budget includes a proposal to highlight with a “funding warning” the fiscal problems facing the Disability Insurance (DI) program. If Social Security 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.

Legislative Proposals Related to OASDI

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

The 2008 budget includes the President's proposal to convert 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 $30 billion in fiscal 2013 and a total of $647 billion over the 2009 to 2018 period. Beginning in 2013, 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 $1,400 annually and rise by $100 a year through 2018.

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

Again, the President's budget includes three Social Security benefit reduction proposals that would cut an estimated $15 billion from SSA'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 $1.1 billion over ten years.

• The fourth proposal would provide that the month of entitlement for disability benefits can be no earlier than six months prior to the month of application. Currently, SSA may determine that an individual became disabled prior to the application date for disability benefits. In such a case, the beneficiary can receive up to twelve months of retroactive payments covering the period before the application date. The President's proposal would cut the length of retroactivity in half, allowing only the receipt of benefits six months prior to filing an application for disability benefits. This proposal would cut $9.7 billion over ten years.

Government Relations and Policy, February 2008