This section presents long-range projections in dollars of the operations of the combined OASI and DI Trust Funds and in some cases the HI Trust Fund. Meaningful comparison of current dollar values over long periods of time can be difficult because of the effect of
inflation. Some means of removing inflation is thus generally desirable. Several economic series or indices are provided to allow
current dollars to be adjusted for changes in prices, wages, and certain other aspects of economic growth during the projection period.
The selection of a particular index for adjustment of current dollars depends upon the analyst’s decision as to which index provides the most useful standard for adjusting dollar amounts, over time, to create values that are appropriately comparable. Table
VI.F6 presents five such indices for adjustment. Adjustment of any series of values is accomplished by dividing the value for each year by the corresponding index values for the year. This adjustment removes the inflation in the index from the series of values.
One of the most common forms of standardization is based on some measure of change in the prices of consumer goods. One such price index is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W, hereafter referred to as
CPI), which is published by the Bureau of Labor Statistics, Department of Labor. This is the index used to determine annual increases in OASDI monthly benefits payable after the year of initial eligibility. The CPI is assumed to increase ultimately at annual rates of 1.8, 2.8, and 3.8 percent for the low cost, intermediate, and high cost sets of
assumptions, respectively. Constant-dollar values (those calculated by dividing by the adjusted CPI in table
VI.F6) indicate the relative purchasing power of the values over time.
Constant-dollar values are provided in table
VI.F7.
Another type of standardization combines the effects of price inflation and real-wage growth. The wage index presented here is the
national average wage index, as defined in section 215(i)(1)(G) of the Social Security Act. This index is used to make annual adjustments to many earnings-related quantities embodied in the Social Security Act, such as the
contribution and benefit base. The average annual wage is assumed to increase ultimately by 3.4, 3.9, and 4.4 percent under the low cost, intermediate, and high cost assumptions, respectively. Wage-indexed values indicate the level of a series relative to the standard-of-living of workers over time.
The taxable payroll index adjusts for the effects of changes in the number of workers and changes in the proportion of earnings that are taxable, as well as for the effects of price inflation and real-wage growth. The OASDI taxable payroll consists of all earnings subject to OASDI taxation, adjusted for the lower effective tax rate on multiple-employer
excess wages. Values adjusted by dividing by the taxable payroll indicate the percentage of payroll that each value represents, and thus the extent to which the series of values increases or decreases as a percent of payroll over time.
The GDP index adjusts for the growth in the aggregate amount of goods and services produced in the United States. Values adjusted by GDP (see Appendix
VI.F.2) indicate their relative share of the total output of the economy. No explicit assumptions are made about growth in taxable payroll or GDP. These series are computed reflecting the other more basic
demographic and
economic assumptions, as discussed in sections
V.A and .
V.B, respectively.
Discounting at the rate of interest is another way of adjusting current dollars. The series of interest-rate factors included here is based on the average of the assumed annual interest rates for special public-debt obligations issuable to the trust funds for each year. This series is slightly different from the interest rates used to create summarized values elsewhere in this report, where the actual yield on currently-held trust fund assets is used for each year. Ultimate nominal interest rates, which, in practice, are compounded semiannually, are assumed to be approximately 5.4, 5.7, and 5.9 percent for the low cost, intermediate, and high cost assumptions, respectively.
Table VI.F7 shows estimated operations of the combined OASI and DI Trust Funds in constant 2008 dollars (i.e., adjusted by the CPI indexing series as discussed above). Items included in the table are: income excluding interest, interest income, total income, total cost, and assets at the end of the year. Income excluding interest consists of payroll-tax contributions, income from taxation of benefits, and miscellaneous reimbursements from the General Fund of the Treasury. Cost consists of benefit payments, administrative expenses, net transfers from the OASI and DI Trust Funds to the Railroad Retirement program under the financial-interchange provisions, and payments for vocational rehabilitation services for disabled beneficiaries. These estimates are based on the low cost, intermediate, and high cost sets of assumptions.
Figure VI.F1 provides a comparison of annual cost with total annual income (including interest) and annual income excluding interest, for the OASDI program under intermediate assumptions. All values are expressed in constant dollars, as shown in table
VI.F7. The difference between the income values for each year is equal to the trust fund interest earnings. Thus the figure illustrates the fact that, under intermediate assumptions, combined OASDI cost will be payable from (1) current tax income alone through 2016, (2) current tax income plus amounts from the trust funds that are less than annual interest income for years 2017 through 2026, and (3) current tax income plus amounts from the trust funds that are greater than annual interest income for years 2027 through 2040, i.e., through the year preceding the year of trust fund exhaustion.
Table VI.F8 shows estimated operations of the combined OASI and DI Trust Funds in current dollars—that is in dollars unadjusted for price inflation. Items included in the table are: income excluding interest, interest income, total income, total cost, and assets at the end of the year. These estimates, based on the low cost, intermediate, and high cost sets of demographic and economic assumptions, are presented to facilitate independent analysis.
Table VI.F9 shows, in current dollars, estimated income (excluding interest) and estimated total cost (excluding the cost of accumulating target trust fund balances) of the combined OASI and DI Trust Funds, of the HI Trust Fund, and of the combined OASI, DI, and HI Trust Funds, based on the low cost, intermediate, and high cost sets of assumptions described earlier in this report. For OASDI, income excluding interest consists of payroll-tax contributions, proceeds from taxation of OASDI benefits, and miscellaneous transfers from the General Fund of the Treasury. Cost consists of benefit payments, administrative expenses, net transfers from the trust funds to the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries. For HI, income excluding interest consists of payroll-tax contributions (including contributions from railroad employment) and proceeds from the taxation of OASDI benefits. Total cost consists of outlays (scheduled benefits and administrative expenses) for insured beneficiaries. Income and cost estimates are shown on a cash basis for the OASDI program and on an incurred basis for the HI program.
Table VI.F9 also shows the difference between income excluding interest and cost, which is called the balance. The balance indicates the size of the difference between tax income and cost.
