Total income and cost are summarized 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 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 rises rapidly from 2023 to about 2040. During this period, the aging of the baby-boom generation will increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower-birth-rate generations continue to replace the baby-boom generation at working ages. During the 2040s, the cost rate continues to increase, but at a relatively slower pace, because the aging baby-boom generation is gradually replaced at retired worker benefit eligibility ages by the lower-birth-rate generations that followed. The OASI cost rate then has another period of relatively faster growth, largely because of a period of low birth rates starting in about 2010. The OASI cost rate reaches a maximum of 16.87 percent for 2080 and then generally declines to 16.32 percent for 2098.
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 changing age distribution of the adult population with the retirement of the baby-boom generation and entry of lower birth-rate generations into working ages. 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 generally decline from 2010 to 2023. 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 actuarial status of the Social Security program as a whole. As seen in figure
IV.B1, the magnitude of each of the positive annual balances is the distance between the appropriate cost-rate curve and the income-rate curve above it. The magnitude of each of the annual 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 for the OASDI program has not changed and will not under current law, with only small variations in the allocation between DI and OASI except for changes due to the 1994 and the 2016-18 payroll tax rate reallocations.
Long-range OASDI cost and income are most often expressed as percentages of taxable payroll. However, cost and income are also presented 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 OASDI cost increases from about 5.2 percent of GDP for 2024 to about 6.4 percent for 2078. After 2078, OASDI cost as a percentage of GDP generally declines, reaching about 6.1 percent by 2098. 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 153.
