The tax rates for OASDI and for HI are not scheduled to change from their current values under present law. The maximum amount of earnings subject to OASDI taxes increases automatically each year, based on the increase in the average wage for all workers. In calendar year 1995, OASDI payroll tax income amounted to $359.0 billion, representing 90 percent of the total income received under the OASDI program during the year.
Beneficiaries whose adjusted gross income exceeds certain threshold amounts must pay income taxes on up to 85 percent of their annual OASDI benefits. The income tax revenue that results from taxing up to 50 percent of those benefits, together with taxes withheld from the benefits paid to nonresident aliens, is credited to the OASI and DI Trust Funds and totaled $5.8 billion in 1995. (The additional tax revenue that results from taxing up to 85 percent of benefits is credited to the HI Trust Fund.)
The final source of income to the trust funds is from interest on the invested assets of the funds. By law, these investments must be in interest-bearing securities of the U.S. Government or in securities guaranteed by the United States. Interest from investments in 1995 amounted to $35.0 billion. As an offset to income, $0.3 billion was transferred from the OASI and DI Trust Funds to the general fund of the Treasury to adjust past reimbursements for the cost of noncontributory wage credits for military service prior to 1957.
When program income exceeds expenditures, the trust fund serves as a vehicle to help fund a portion of the program's accruing financial obligations in advance. In particular, as invested assets continue to increase over the next 20 to 30 years, interest earnings will become a larger share of total trust fund income. In 1995, interest income to the combined OASI and DI Trust Funds represented 8.8 percent of total OASDI income. On a combined basis, interest income in 2005 would represent an estimated 12.5 percent of total income.
Conversely, if income to a trust fund is inadequate to defray expenditures, the fund's assets serve as a contingency reserve to cover the shortfall temporarily. For example, the expenditures of the DI Trust Fund exceeded income to the fund for most of 1994 (prior to enactment of the OASDI tax rate reallocation), necessitating a redemption of assets to cover the difference. In the event of recurring shortfalls, the availability of trust fund assets allows time for the enactment and implementation of legislation to restore financial stability to the program.
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