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Trustees Report- 1996

 

D. TRUST FUND FINANCIAL OPERATIONS

The various sources of income to the OASDI program, and categories of expenditures, can be illustrated by reference to the actual transactions during calendar year 1995. Table I.D1 summarizes these transactions.

1. Income

Most OASDI income consists of the taxes paid by employees, employers, and the self-employed on earnings covered by the OASDI program. These taxes (also called contributions) represent a portion of the payroll taxes collected under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA). The balance of the FICA and SECA contributions are used to finance the Hospital Insurance (HI) program, commonly referred to as "Part A" of Medicare. The taxes for the OASDI program are paid on earnings up to a specified maximum annual amount (the contribution and benefit base), $62,700 for 1996. Prior to 1994, HI taxes were also paid on earnings up to a maximum amount each year but are now paid on total covered earnings, without limitation. Table I.D2 shows the allocation of the FICA and SECA tax rates by program for 1996.

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.

2. Expenditures

In 1995, benefit payments totaling $332.6 billion were made to retired and disabled workers and their families, and to survivors of deceased workers. Such payments represent 98 percent of all expenditures by the OASDI program. An additional $4.1 billion was transferred from the OASI and DI Trust Funds to the Railroad Retirement program in 1995, under provisions of the law requiring a financial interchange between the two programs. The cost of administering the OASDI program in 1995 was $3.1 billion, or about 0.9 percent of total benefits paid during the year.

3. Trust Fund Assets

In 1995, total income was $399.5 billion and total expenditures were $339.8 billion. The assets of the OASI and DI Trust Funds therefore increased by a net total of $59.7 billion during the year, from $436.4 billion to $496.1 billion. The invested assets of the trust funds are backed by the full faith and credit of the U.S. Government, in the same way as other public-debt obligations of the United States.

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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