The Trustees summarize the total income and cost over valuation periods that extend through 75 years and over the infinite horizon.
1 This section presents several summarized measures, including the actuarial balance and the open- group unfunded obligation. The actuarial balance indicates the size of any surplus or shortfall as a percentage of the taxable payroll over the period. The open-group unfunded obligation indicates the size of any shortfall in present-value dollars.
The concepts of income rate and cost rate, expressed as percentages of taxable payroll, are important in the consideration of the long-range actuarial status of the trust funds. The annual income rate is the ratio of all non-interest income to the OASDI taxable payroll for the year. Non-interest income includes payroll taxes, taxes on scheduled benefits, and any General Fund transfers or reimbursements. The OASDI
taxable payroll consists of the total earnings subject to OASDI taxes with some relatively small adjustments.
2 The annual cost rate is the ratio of the cost of the program to the taxable payroll for the year. The cost includes scheduled benefits,
administrative expenses, net interchange with the
Railroad Retirement program, and payments for
vocational rehabilitation services for disabled beneficiaries. For any year, the annual income rate minus the annual cost rate is the annual “balance” for the year.
Table IV.B1 presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Table IV.B2 shows the separate components of the annual income rates.
The OASI cost rate declines from 12.47 percent of payroll for 2020 to 12.33 percent for 2021
3 due primarily to a relatively large increase in taxable payroll in 2021, with 2020 taxable payroll being lower than expected because of the COVID-19 pandemic and ensuing recession. From 2021 to 2038, the OASI cost rate rises rapidly because the retirement of the
baby-boom generation will continue to increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2041 to 2046, the cost rate declines because the aging baby-boom generation is gradually replaced at retirement ages by the lower-birth-rate generations that followed. The OASI cost rate then rises from 15.10 percent in 2046 to 16.45 percent in 2078, largely because of the period of reduced birth rates starting with the recession of 2007-09, and then declines to 15.70 percent in 2095.
Figure IV.B1 shows the patterns of the historical and projected OASI and DI annual cost rates. The patterns in projected OASI and DI cost rates are described earlier in this chapter. Historical annual OASI cost rates shifted upward starting in 2008 and have remained at relatively high levels since then, primarily due to the retirement of the baby-boom generation. Historical annual DI cost rates rose substantially between 1990 and 2010 in large part due to: (1) aging of the working population as the baby-boom generation moved from ages 25-44 in 1990, where disability prevalence is low, to ages 45-64 in 2010, where disability prevalence is much higher; (2) a substantial increase in the percentage of women insured for DI benefits as a result of increased and more consistent rates of employment; and (3) increased disability incidence rates for women to a level similar to those for men by 2010. As of 2010, these three factors have largely stabilized. Other factors that are not yet fully understood, including the changing nature of work, have caused age-sex-adjusted incidence rates and cost rates to decline from 2010 to 2020. Figure
IV.B1 shows only the income rates for alternative II because the variation in income rates by alternative is very small. Income rates generally increase slowly for each of the alternatives over the long-range period. Taxation of benefits, which is a small portion of income, is the main source of the increases in the income rate and the variation among the alternatives.
Table IV.B1 shows the annual balances for OASI, DI, and OASDI. The pattern of the annual balances is important to the analysis of the financial condition of the Social Security program as a whole. As seen in figure
IV.B1, the magnitude of each of the positive balances is the distance between the appropriate cost-rate curve and the income-rate curve above it. The magnitude of each of the deficits is the distance between the appropriate cost-rate curve and the income-rate curve below it. Annual balances follow closely the pattern of annual cost rates after 1990 because the payroll tax rate does not change for the OASDI program, with only small variations in the allocation between DI and OASI except for changes due to the 1994 and the 2016 through 2018 payroll tax rate reallocations.
Long-range OASDI cost and income are most often expressed as percentages of taxable payroll. However, the Trustees also present cost and income as shares of gross domestic product (GDP), the value of goods and services produced during the year in the United States. Under alternative II, the Trustees project OASDI cost to increase from about 5.1 percent of GDP for 2021 to about 6.0 percent for 2039. After 2039, OASDI cost as a percentage of GDP declines slightly through 2051, increases to a peak of 6.2 percent for 2077, and thereafter decreases slowly, reaching about 5.9 percent by 2095. Appendix
G presents full estimates of income and cost relative to GDP.
Table IV.B2 contains historical and projected annual income rates and their components by trust fund and alternative. The annual income rates consist of the scheduled payroll tax rates, the rates of income from taxation of scheduled benefits, and the rates of income from General Fund reimbursements. Projected income from taxation of benefits increases over time for reasons discussed on
page 154.
