Social Security Financing Reform: Lessons From the 1983 Amendments

Social Security Financing Reform: Lessons From the 1983 Amendments

97-741 EPW
CRS Report for Congress
Received through the CRS Web
Social Security Financing Reform: Lessons
From the 1983 Amendments
July 24, 1997
David Stuart Koitz
Specialist in Social Legislation
Education and Public Welfare Division
Congressional Research Service ˜ The Library of Congress

Social Security Financing Reform: Lessons
From the 1983 Amendments
Summary
In April 1997, the Social Security board of trustees released its latest appraisal
of Social Security’s financial condition. As in earlier reports, the board projected that
the system will face long-range problems under its “best guess” or middle-of-the-road
forecast. When changes were last made to Social Security in 1983, the prognosis was
that it would be solvent for 75 years. Since that time, actuarial deficits have re-
emerged and grown worse. The current report projects insolvency in 2029.
As the prospects grow for another round of reform, a number of observations
can be made about the 1983 amendments that may be helpful in considering future
changes. Various misperceptions of their intent have developed over the years,
among them being that Congress wanted to create surpluses to “advance fund” the
benefits of post World War II baby boomers. This view has affected congressional
debates ranging from cutting Social Security taxes to adopting a constitutional
amendment to balance the budget. Some would argue that the budget deficits the
government has run since 1983 have subverted the amendments. There is, however,
little evidence to support the view that the surpluses were intended to pay for the baby
boomers’ retirement. The record suggests that the goal was to assure that the system
would not be threatened by insolvency again, not to advance fund future benefits.
Other little-understood aspects of the amendments include how Social Security’s
financing problem was measured. While using pessimistic assumptions was
considered prudent in dealing with the near term, using them to assess the long run
would have been seen as exaggerating the problem. However, using middle-of-the-
road assumptions left no room for a later worsening of assumptions, which in fact
occurred. Moreover, discussions in the key congressional committees revolved
around the average 75-year deficit and how much the various options would affect
it. There was little understanding that a period of surpluses would be followed by a
period of deficits — or that solvency was not achieved on a pay-as-you-go basis.
The role of a select panel formed by President Reagan and congressional leaders
in an attempt to reach a bipartisan solution also is not well understood. The
1982/1983 National Commission on Social Security Reform is often cited as a model
for resolving otherwise intractable political problems. Although the Commission
brought various factions together and served as a framework for later action, its plan
may have been the product of only a few of its 15 members working with officials of
the Reagan Administration. Moreover, the threat of insolvency — projected then to
occur in less than 6 months — may have been the real catalyst for action.
Finally, while today there is widespread recognition that looming demographic
shifts may significantly raise federal entitlement spending early in the next century, this
was much less of a concern in 1983. This is not to suggest that the demographic
bulge of retiring baby boomers was not observed. It was, but Social Security’s
financing problems were viewed and tackled in isolation. Today, they are seen much
more as a segment of the strain that total federal retirement and health care spending
may create. Hence, to some extent the context for reform may have shifted.

Contents
The Emergence of Social Security Surpluses — by Accident or Design? . . . . . . 2
The Amendments Provided Little Cushion for Misestimates in the Long Run . . . 6
The Use of “Average” 75-Year Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Role of the National Commission on Social Security Reform . . . . . . . . . . 12
Social Security Within the Larger Context of Federal Entitlements . . . . . . . . . . 13
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Tables
Table 1. Projected Reserve Cushion of the Social Security Trust Funds Made
Upon Consideration of the 1983 Amendments . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Comparison of Actual Social Security Trust Fund Balances to
Those Projected After Enactment of the Social Security
Amendments of 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 3. Long-Range Impact of 1983 Amendments Projected at
Various Stages in Their Legislative Development . . . . . . . . . . . . . . . . . . . . 7
Table 4. Comparison of Major Assumptions Underlying Long-Range
Social Security Projections in 1983 and 1997 Trustees’ Reports . . . . . . . . . 8
Table 5. Long-Range Actuarial Status of the OASDI Trust Funds as
Shown Under the Intermediate Assumptions in the Trustees’ Reports
Issued Over the Period From 1983 to 1997 . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 6. Social Security Projections Made After Enactment of the
Social Security Amendments of 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Social Security Financing Reform: Lessons
From the 1983 Amendments
In April 1997, the Social Security board of trustees released its latest annual
appraisal of the Social Security system’s financial condition. Like their previous 7
reports, the 1997 report projected that the system would face significant long-range
financing problems. Under the central (or best guess) forecast in the report, the
system would have an average actuarial deficit of 2.23 percentage points of taxable
payroll.1 In layman terms, it would need, on average, 17% more income than
projected to cover its costs over the next 75 years. The trustees estimated that the
Social Security trust fund balances would peak in 2019 and decline thereafter until
they were exhausted in 2029. At that point the system’s ongoing income would cover
only 75% of its projected outgo.
When major changes were last made to Social Security in 1983, the prognosis
was that it would be solvent both in the near term and long run. The actuaries of the
Social Security Administration (SSA) estimated that on average the system’s income
and outgo would be closely matched over their 75-year valuation period. Since that
time, actuarial imbalances have re-emerged and have progressively worsened.
Although income is projected to exceed outgo for the next 2 decades, the costs of
supporting an increasingly elderly population is projected to lead to the program’s
insolvency in 2029.
As the prospects grow for another round of reform, there are a number of
observations that can be made about the 1983 amendments that may be helpful in the
consideration of future changes. Over the years a number of misperceptions of the
goals of those amendments have developed, among them being their purported intent
to create surpluses to “advance fund” the benefits of post World War II baby boomers
and later retirees. This particular misperception has affected congressional debates
on a wide variety of issues — ranging from reductions in Social Security taxes,
investment of the trust funds, raising the federal debt ceiling, adoption of a balanced
budget amendment to the Constitution, to passage of annual budget resolutions and
reconciliation measures. Other little-understood aspects of their development include
(1) how Social Security’s problem was perceived and defined in 1983; (2) what
measurements of the problem were considered critical in reaching a consensus; (3)

1 Its average costs would equal 15.60 percentage points of taxable payroll; its average income
would be 13.37 percentage points; leaving an average deficit of 2.23 percentage points.
Taxable payroll represents the total amount of wages, salaries, and self employment income
in the economy subject to Social Security taxation. It is estimated to be $3.2 trillion in 1997.
Thus, having an average deficit of 2.23% of taxable payroll would be the equivalent of having
a $71 billion shortfall in 1997 and correspondingly larger amounts in each of the next 74
years.

CRS-2
what the role was of a blue-ribbon panel established by President Reagan and
congressional leaders in an attempt to reach a bipartisan solution (the National
Commission on Social Security Reform) ; and (4) how the future financing needs of
2
Social Security were perceived within the context of the potential strain of future
entitlement spending generally.
This report discusses these aspects of the amendments.
The Emergence of Social Security Surpluses — by
Accident or Design?
The last major reform of the Social Security system occurred in 1983 with
enactment of the Social Security Amendments of 1983 (P.L. 98-21). In response to
the system’s imminent insolvency and a long-range actuarial imbalance (as reported
by the system’s trustees), Congress made major changes to the system’s taxing and
benefit provisions. In fact, it has
become conventional wisdom
that Congress deliberately
The goal of the 1983 Social Security
intended to built up large
amendments was not to create
balances in the trust funds, not
just for the near term, but to
surpluses, but to assure that the
help finance the benefits of the
system would not be threatened by
post World War II baby boomers
insolvency again in the event
and later retirees. Moreover,
adverse conditions arose.
some would contend that by
running deficits in the rest of the
government over the past 14
years, this goal of the 1983 amendments has been (and is being) subverted.
There is, however, very little evidence to support the view that the surpluses
arising after passage of the amendments were intended, and that they were designed
to be on top of a balanced budget in the rest of the government. To the contrary, a
review of the record of congressional proceedings would suggest that the goal was
not to create surpluses, but to assure that the system would not be threatened by
insolvency again in the event adverse conditions arose.
In the 2-year period leading up to the amendments, the system’s immediate
financial outlook had deteriorated rapidly. This occurred in spite of major remedial
2 President Reagan proposed the creation of the Commission in September 1981 after a
summer of heated partisan debate over the necessity of changing the system. It had been
precipitated by a controversial set of changes, mostly benefit reductions, proposed by the
Administration four months earlier to address the system’s financing problems. After
bipartisan consultations with congressional leaders, the Commission was established by
executive order on December 16, 1981. It was comprised of 15 members, seven of whom
were then sitting members of the House or Senate. Alan Greenspan, currently chairman of
the Board of Governors of the Federal Reserve System, served as its chairman.

CRS-3
changes enacted in 1977 and other changes enacted in 1980 and 1981. As th
3
e
system’s outlook worsened in 1981 and 1982, a great deal of skepticism developed
about the effectiveness of the previous steps that had been taken, particularly the 1977
changes. The common perception was that they had failed, at least initially, since the
expectation upon enactment was that they would assure solvency until early in the
next century. Their failure was particularly troublesome to many Members of
Congress who had voted for tax increases that had already taken place by 1982.4
Moreover, there was still considerable uncertainty about economic conditions as the
nation was just emerging from back-to-back recessions in 1980 and 1982. As a result,
there was a general feeling that a cushion of sorts needed to be built into the next set
of Social Security changes.
Congress largely accomplished this in 1983 by assessing the potential impact of
the changes it was considering using fairly pessimistic assumptions for the near future.
The House Ways and Means and Senate Finance Committees had asked SSA’s
actuaries for projections of the impact of their proposals under both the Social
Security trustees’ traditional middle-of-the-road assumptions — the so-called
“intermediate II-B” assumptions — and their pessimistic ones (and neither expressed
interest in projections under optimistic conditions). Their primary concern was
whether solvency would be maintained in the 1980s under pessimistic conditions.
Surpluses of income over outgo were projected using the intermediate II-B
assumptions but not using the pessimistic ones.5 In his memorandum transmitting
estimates to the House Ways and Means Committee (of the impact of the committee’s
bill), SSA’s deputy chief actuary stated “The projections... indicate that the OASDI
program would be in a very borderline situation under H.R. 1900, if future economic
conditions were to follow the [pessimistic] assumptions. It is not possible to state
with certainty whether benefits could or could not be paid on time under these
assumptions... it is very possible that the OASDI trust funds would be unable to pay
benefits on time in late 1987 and early 1988...”6
3 The Social Security Amendments of 1977, P.L. 95-216; the Social Security Disability
Amendments of 1980, P.L. 96-265; the Reallocation of Social Security Tax Receipts Act,
P.L. 96-403 (providing for a 2-year tax reallocation from DI to OASI); the Omnibus Budget
Reconciliation Act of 1981, P.L. 97-35; and P.L. 97-123 (providing for interfund borrowing
among the trust funds, including the Medicare Hospital Insurance (HI) trust fund).

4 When the 1977 amendments are viewed as a whole, the tax increases were a relatively small
part. Most of the major provisions involved changes in Social Security’s benefit computation
rules designed to remove a flaw that threatened to greatly inflate the system’s future costs.
The tax increases, however, went into effect immediately. They were mostly short-run in
nature, whereas the benefit changes were mostly long-range in nature. After enactment, there
were tax rate increases in 1978, 1979, 1981 and 1982, and by 1982 the maximum level of
earnings subject to the Social Security tax had been raised by $8,100 more than it would have
under the old law ($32,400 versus $24,300).

5 These were preliminary 1983 trustees’ report estimates given to the House Ways and Means
and Senate Finance Committees (identical letters dated February 18 and 22, 1983 from Social
Security Commissioner John Svahn to Representative Daniel Rostenkowski and Senator
Robert Dole).
6 Memoranda from Richard Foster, Deputy Chief Actuary, SSA, “Estimated Short-Range
(continued...)

CRS-4
Apprehension about the estimates was so strong, particularly in the Senate
Finance Committee, that Congress ultimately adopted various “fail-safe” measures.
Although modified in the final bill, one such measure reported from the Finance
Committee was estimated under pessimistic assumptions to result in $100 billion in
benefit reductions in the 1985-1989 period alone.7
Table 1. Projected Reserve Cushion of the Social Security Trust Funds
Made Upon Consideration of the 1983 Amendments
House bill (H.R. 1900)
Senate bill (S. 1)
Intermediate
Pessimistic
Intermediate
Pessimistic
Calendar year
II-B projections
projections
II-B projections
projections*
(Balance of funds at beginning of year as % of outgo during the year)
1983
15%
15%
15%
15%
1984
22%
21%
22%
21%
1985
21%
18%
22%
20%
1986
22%
16%
23%
21%
1987
22%
12%
25%
22%
1988
22%
9%
23%
19%
1989
29%
12%
33%
32%
1990
38%
15%
43%
46%
1991
50%
20%
59%
61%
1992
64%
26%
76%
76%
Source: Series of Memoranda from Richard Foster, Deputy Chief Actuary, SSA, Estimated Short-
Range Financial Effects of H.R. 1900 and S. 1, March 4, 7 and 15, 1983. (Reflect bills as reported
from the House Ways and Means and Senate Finance Committees).
* The reason these figures appear as large as those under the Intermediate II-B projections is that
they assume large benefit constraints would be triggered by the various “fail safe” measures
proposed by the committee. See footnote 7 below.
(...continued)
6
Financial Effects of H.R. 1900 as Reported by the Committee on Ways and Means on March
4, Based on the 1983 Alternative II Assumptions,” March 7, 1983. OASDI is the acronym
for Old-Age, Survivors, and Disability Insurance, the title in the law for Social Security cash
benefits.

7 The reductions would have gone on indefinitely. As reported out of Committee, the provision
required cutting back benefit increases to the extent necessary to keep the balances of the trust
funds from falling below 20% of annual expenditures. In the final bill, a so-called “stabilizer”
provision was enacted requiring that benefit increases be based on the lower of wage or price
growth if the trust funds’ balances fell below 15% of annual expenditures before 1989 and
20% for 1989 and thereafter. The measure has never been triggered.

CRS-5
As it happened, the surpluses of income over outgo and the corresponding
increases in trust fund balances that arose during the first 10 years after enactment
greatly exceeded even those projected under the intermediate II-B projections (as
shown in Table 2 below). The economy went though a sustained growth period after
the 1982 recession — Gross Domestic Product (GDP) grew at rates ranging from 3%
to 6.8% a year from 1984 through 1989 (rates of 3% to 3.9% had been projected) and
the inflationary spike of the late 1970s and early 1980s subsided to a much greater
degree than projected (the Consumer Price Index rose at rates ranging from 1.6% to
4.8%; rates of 5% to 6.2% had been projected). As a result, surplus Social Security
8
income exceeded the projections made in 1983 and the balances of the trust funds
grew to $331 billion by the end of 1992, $86 billion more than projected.9
Table 2. Comparison of Actual Social Security Trust Fund Balances
to Those Projected After Enactment of the Social Security
Amendments of 1983
1983 Intermediate II-B
Projections
Actual
Trust fund
Balance at
Trust fund
Balance at
balances, end
beginning of
balances, end
beginning of
of year ($s in
year as % of
of year ($s in
year as % of
Calendar year
billions)
annual outgo
billions)
annual outgo
1985
$34
22%
$42
24%
1990
$134
39%
$225
75%
1992
$245
64%
$331
96%
Source: 1997 OASDI trustees’ report, and Memorandum from Richard Foster, Deputy Chief
Actuary, SSA, “Short-Range Financial Status of the Social Security Program Under the Social
Security Amendments of 1983,” April 6, 1983.
Hence, while trust fund balances of some magnitude were shown to be possible
under one set of projections provided to Congress in 1983, these were not the
projections around which the 1983 amendments were designed. To suggest that these
balances were intended to finance or “advance fund” the benefits of the baby boomers
and subsequent retirees presumes that the authorizing committees (and the Congress
generally) designed the measures deliberately to create significant excess income and
8 Assumption used in 1983 derived from memorandum from Harry C. Ballantyne, Chief
Actuary, SSA, “Short-range OASDI Estimates Based on 1983 Assumptions,” February 14,
1983.

9 It is worth noting that the trust funds’ balance is now fairly close to that projected under the
intermediate II-B assumptions in the 1983 trustees’ report. Although not published in that
report, projections of long-range, dollar denominated balances were included in an actuarial
note published by SSA’s chief actuary in October 1983. They showed estimated trust fund
balances reaching $589 billion at the end of 1996. The actual level was $567 billion. (See
Actuarial Note #117, “Long-Range Projections of Social Security Trust Fund Operations in
Dollars,” by Harry C. Ballantyne, Chief Actuary, Office of the Actuary, SSA).

CRS-6
believed that this excess income would be isolated from the financial operations of the
rest of the government such that it would have accumulated as a “nest egg.” Neither
of the reports from the House Ways and Means and Senate Finance Committees made
any reference to such “advance funding.” A lengthy discussion of the potential for
substantial trust fund accumulations under pre-1983 law did take place among
members of the National Commission on Social Security Reform on September 20,
1982, but considerable skepticism was expressed about the projections because of
their “vulnerability to economic fluctuations,” i.e., that they might be too optimistic
(from unpublished minutes of the proceedings of the Commission). No record exists
showing that Congress seriously considered “advance funding” the system in 1983 or
how such action would actually save resources.
The Amendments Provided Little Cushion for
Misestimates in the Long Run
Estimates made in 1983 of the long-range condition of the system, as well as
estimates of the impact of various measures to improve it, were expressed as 75-year
“averages” and as percentages of taxable payroll. At the time that the amendments
were considered, the system’s average 75-year cost was estimated to be 14.38% of
taxable payroll; its average income was 12.29%; and its average deficit, 2.09%.
The general approach taken by the
Little cushion for long-range
Ways and Means and Finance Committees
was to enact enough changes to the
misestimates was built into
system so that (1) the possibility of near-
the 1983 amendments.
term insolvency (i.e., the trust funds
running down to a zero balance) would be
remote and (2) the long-range average
actuarial imbalance of 2.09% of taxable payroll would be eliminated in subsequent
trustees’ reports. While both the intermediate II-B and pessimistic assumptions were
used to measure near-term effects, only the more optimistic (intermediate II-B)
assumptions were used to measure long-term effects. The precedent for the two
different approaches had largely been set by the National Commission. There had
been a lengthy and contentious debate during the preceding 18 months both in the
Commission and in Congress over the extent of the long-term problem and the
underlying assumptions. Reaching a consensus on how to view and measure it had
been considered a major accomplishment of the Commission.
By using only the middle-of-the-road, intermediate assumptions, a framework
had been established for working toward a long-range solution. The earlier remedial
changes enacted in 1977 had not eliminated the long-range problem. A projected
shortfall of 1.45% of payroll had been left unresolved at the time of enactment, and
in the intervening years between 1977 and 1983, that gap had not increased
significantly (i.e., growing to 2.09% of payroll by early 1983). It was the short-range
situation that had markedly deteriorated. In essence, the failure of the 1977 changes
was viewed more as a short-run phenomenon than a long-range one. Whereas the use
of pessimistic assumptions in 1983 was generally seen as an act of prudence in dealing
with the near term problem, planning for the long run on a pessimistic basis would
have been seen as “exaggerating” the problem and as an “assault” against the system.

CRS-7
There was so much skepticism during that period that some of the system’s
supporters suggested shortening the valuation period, for instance, from 75 to 50
years (or to an even shorter period). This would have eliminated or greatly reduced
the problem (the presumption being that the estimates would inevitably be wrong
anyway). Thus, the use of these middle-of-the-road projections for measuring long-
range changes was both a political and substantive compromise.10
Table 3. Long-Range Impact of 1983 Amendments Projected at
Various Stages in Their Legislative Development
House Action on H.R. 1900
Senate action on S. 1
Amount of
Actuarial
Amount of
Actuarial
Stage of
improvement
balance (+) or
improvement
balance (+) or
process
created by bill
imbalance (-)
created by bill
imbalance (-)
(% of taxable payroll)
Long range
imbalance
before
amendments
-2.09
-2.09
With changes
passed by
Committees
+2.12
+0.03
+2.17
+0.08
With changes
passed by
House or
Senate
+2.08
-0.01
+2.17
+0.08
With passage
of conference
agreement
+2.07
-0.02
+2.07
-0.02
Source: House Ways and Means and Senate Finance Committee reports to their respective
chambers on the Social Security Act Amendments of 1983 (House report no. 98-25, March 4,
1983 and Senate report no. 98-23, March 11, 1983); Comparison of Provisions of H.R. 1900,
the Social Security Act Amendments of 1983, March 23, 1983; memoranda from Francisco
R. Bayo, Deputy Chief Actuary, SSA, “Long-Range OASDI estimates for H.R. 1900 as Passed
by the Congress,” March 25, 1983, and “Final Estimated Long-Range OASDI Cost Effect of
Social Security Act Amendments of 1983 (P.L. 98-21),” April 26, 1983. The estimates in the
table were based on preliminary intermediate II-B assumptions of the 1983 trustees’ report.
The actual 1983 trustees’ report, issued on June 24, 1983, showed the system as having an
actuarial balance of +0.02% of taxable payroll under its intermediate II-B projections.

10 In 1981, the Reagan Administration had introduced “worst case” projections. These were
6-year projections based on more adverse economic assumptions than contained in the
trustees’ pessimistic scenario. While they may have been designed from the perspective of a
prudent manager, many viewed them as an attempt to make Social Security’s financial
condition look worse than it was to justify making deep cuts in benefits. An atmosphere of
distrust emerged and persisted throughout the period leading up to the 1983 legislation.

CRS-8
However, the downside of using them was that they left no room for
misestimates. The projections furnished to the committees at each step in the process
repeatedly showed that the bills would achieve actuarial balance, but the margin was
narrow. Simply stated, there was no room for a later worsening of assumptions.
When the effect of the amendments was shown under pessimistic assumptions
three months after enactment (with the release of the 1983 trustees’ report), i
11
t
reflected an average long-range deficit of 3.51% of taxable payroll and projected that
the trust funds would become insolvent in 2027. As a matter of interest only, this
insolvency point is remarkably close to that shown in the latest trustees’ report, i.e.,
2029. As the following table shows, however, this is by accident only, since the
assumptions underlying the two sets of projections are very different.
Table 4. Comparison of Major Assumptions Underlying Long-Range
Social Security Projections in 1983 and 1997 Trustees’ Reports
Long-range
1983 Intermediate
1983 Pessimistic
1997 Intermediate
assumptions
II-B projections
projections
projections
Annual increase in:
—wages in covered
employment
5.5%
6.0%
4.4%
—Consumer Price
Index
4.0%
5.0%
3.5%
Unemployment rate
5.5%
6.5%
6%
Annual interest rate
6.1%
6.6%
6.2%
Fertility rate (births
2.0
1.6
1.9
per woman)
Life expectancy in
2060 (at birth):
—women
84.4
89.7
83.5
—men
76.3
81.3
78.1
Annual net
immigration
400,000
350,000
900,000
Source: 1983 and 1997 OASDI Trustees’ Reports.
In the years following the 1983 legislation, the long-range projections have
progressively worsened. Starting in 1984, annual trustees’ reports again showed
long-range actuarial imbalances. Although small at first, for the past 4 years they have
11 The conference committee on the amendments met and reached agreement on March 24,
1983. The 1983 trustees’ report was issued on June 24, 1983.

CRS-9
reached a level comparable to the imbalance that Congress addressed in 1983 (see
Table 5 below and chart of page 10).
Table 5. Long-Range Actuarial Status of the OASDI Trust Funds as
Shown Under the Intermediate Assumptions in the Trustees’ Reports
Issued Over the Period From 1983 to 1997
Average
Actuarial
Imbalance
income rate
Average
balance or
as % of
(income
cost
imbalance
average tax
Year that trust funds were
Year of report from taxes)
rate
(-)
income
projected to become insolvent
(% of taxable payroll)
OASI
DI
Combined
1983 preliminary*
12.29
14.38
-2.09
17.01%
1983
**
1983
1983 final*
12.87
12.84
0.02
***
**
**
**
1984
12.90
12.95
-0.05
0.39%
**
2050
**
1985
12.94
13.35
-0.41
3.17%
2050
2034
2049
1986
12.96
13.40
-0.44
3.40%
2054
2026
2051
1987
12.89
13.51
-0.62
4.81%
2055
2023
2051
1988
12.94
13.52
-0.58
4.48%
2050
2027
2048
1989
13.02
13.72
-0.70
5.38%
2049
2025
2046
1990
13.04
13.95
-0.91
6.98%
2046
2020
2043
1991
13.11
14.19
-1.08
8.24%
2045
2015
2041
1992
13.16
14.63
-1.47
11.17%
2042
1997
2036
1993
13.21
14.67
-1.46
11.05%
2044
1995
2036
1994
13.24
15.37
-2.13
16.09%
2036
1995
2029
1995
13.27
15.44
-2.17
16.35%
2031
2016
2030
1996
13.33
15.52
-2.19
16.43%
2031
2015
2029
1997
13.37
15.60
-2.23
16.68%
2031
2015
2029
Source: 1983-1997 OASDI Trustees’ Reports, intermediate or intermediate II-B projections.
Figures for 1983-1990 represents the intermediate II-B forecast. There were two intermediate
forecasts made annually from 1981-1990 — II-A and II-B. The II-B forecast was considered
the one most closely aligned with traditional “intermediate” forecasting.

* 1983 “preliminary” are estimates made prior to enactment of 1983 amendments; 1983 “final” are
estimates appearing in the 1983 trustees’ report published in June 1983 (after enactment).

** The fund was not projected to be exhausted within the 75-year projection period, i.e., from 1983-
2058.
***There was a positive balance, representing 0.16% of average tax income.

CRS-10
Projected 75-Year Average OASDI Deficit as % of
System's Total Tax Income
1 8 %
1 6 %
1 4 %
1 2 %
1 0 %
8 %
6 %
4 %
2 %
0 %
1984
1986
1988
1990
1992
1994
1996
Year of trustees' report
1983 before
1983 after
1983 before
Source: OASDI trustees' report, 1983-1997, intermediate projections
(1983 "before" represents the forecast made prior to enactment of the
1 9 8 3 a m e n d m e n t s )
The Use of “Average” 75-Year Estimates
The reports on the 1983
amendments from the House Ways
The use of “average” 75-year
and Means and Senate Finance
Committees contained year-to-year
estimates obscured the deficits
estimates of the impact of their
projected to arise in the latter
respective bills only through 1992 as
half of the projection period.
did the materials submitted to the
Committees by SSA’s actuaries
prior to their deliberations. There
12
was only minimal recognition that there would be trust fund surpluses after 1992
under projections of “current law” and no projections or discussion of the year-to-
year funds flow after 1992 resulting from any of the measures being considered.13
Those estimates first appeared in the 1983 trustees’ report (which came out 3 months
12 The eventual report from the conferees for the two bodies contained no estimates of the
impact of the bill, and the “markup” document used by the conferees contained year-to-year
estimates only through 1989. Average 75-year impacts, provision by provision, expressed as
a percent of taxable payroll, were used to show long-range effects.

13 One table among a number furnished to Representative Rostenkowski and Senator Dole in
the February 18, 1983 letters from Commissioner Svahn (see footnote 5) showed long-range
projections in 5-year increments out to 2060. These preliminary 1983 trustees’ report
estimates showed some surpluses would arise under pre-1983 law during the 1990 to 2010
period. The letters also provided projections of the impact of the National Commissions’
recommendations, but they only showed the average 75-year impacts.

CRS-11
after the bill was enacted). The discussion in Committee markups revolved around
the average 75-year deficit and how much the various options would affect that
figure. Hence, there was very little understanding that a period of surpluses would
be followed by a period of deficits—or that “actuarial balance” was not achieved on
a pay-as-you-go basis.
If year-to-year or 5-year interval projections had been available, it might have
been observed that surpluses of income over outgo would arise for about 35 years,
followed by an indefinite period of deficits beginning in or around 2020 to 2025 (see
“excess income/ or deficit” column in Table 6 below). It also would have been
apparent that future projections of actuarial balance (i.e., the 75-year average) would
deteriorate in future trustees’ reports if for no other reason than the addition of a
deficit year at the back end of the projection period and the dropping of a surplus year
at the front end.
Table 6. Social Security Projections Made After Enactment of the
Social Security Amendments of 1983
Trust fund
balance as % of
Calendar
Excess income/ or
annual
year
Income
Outgo
deficit (—-)
expenditures
(% of taxable payroll)
1983
11.24
11.49
(0.24)
15%
1985
11.58
11.33
0.25
21%
1990
12.71
11.27
1.44
38%
1997
12.79
10.36
2.42
117%
2000
12.78
10.08
2.71
234%
2010
12.82
10.31
2.51
491%
2020
12.95
12.76
0.19
538%
2030
13.08
14.73
(1.65)
437%
2040
13.14
15.17
(2.03)
314%
2050
13.16
15.27
(2.11)
192%
2060
13.17
15.44
(2.27)
54%
Source: 1983 OASDI trustees’ report, intermediate II-B projections. In nominal dollars, the trust
fund balance was shown to grow steadily to a peak of $20.7 trillion in 2045 and then decline
to $6.8 trillion in 2060 (from Actuarial Note #117, loc. cit). Former SSA chief actuary, Robert
J. Myers, makes the point that if the projections had been extended out further, they would
have shown that the trust funds would have been exhausted just a few years beyond 2060).

CRS-12
The Role of the National Commission on Social Security
Reform
The 1982/83 National
While the 1982/83 National
Commission on Social Security
Reform is often cited as a model
Commission on Social Security
for lawmakers in achieving
Reform played an instrumental role
consensus about controversial
in bringing various factions
legislative matters. Although it
played an instrumental role in
together, and in the end, provided a
bringing various factions together
framework for congressional
in 1982 and, in the end, provided
action, it did not reach consensus
a framework for congressional
on a total solvency package.
action in 1983, the Commission
did not reach consensus on a
total solvency package. For
much of the period over which it met and deliberated (February 1982 to January
1983), it acted more as a fact-finding and “educational” forum in which the system’s
financing problems and related issues were identified and debated. It was only in the
final weeks, and by some accounts final days, of its existence that its members made
significant progress in putting together a package of changes that a majority could
agree on.
Moreover, it is not clear that the Commission itself was the forum in which the
solution evolved. Even as late as a week before the Commission was due to expire,
there were press accounts of stalemate and great likelihood that the Commission was
not going to be able to reach a consensus. By executive order the Commission’
14
s
report was due January 15, 1983.15 It may have been the actions of a few of the
Commission’s members working with the White House that permitted the basic
elements of a package to emerge. It was reported that members of the Reagan
Administration played an instrumental role in those final days in working out an
agreement with a small group of the Commission’s members.16

14 See, for example, Washington Post, “Social Security Panel Fails to Compromise,” January
9, 1983.

15 In the hope that a consensus plan could be reached with a little more time, on December 23,
1982 President Reagan extended the Commission’s reporting date by 15 days (making it
January 15, 1983 rather than December 31, 1982 as required by his original executive order
establishing the Commission). A consensus package was agreed to on January 15, 1983 and
the President extended the Commission for another 5 days to provide time to put the report
together. The report was transmitted to the President and congressional leaders on January
20, 1983.
By one account, Senator Robert Dole, Chairman of the
16
Senate Finance Committee and a
member of the Commission, stated that the Commission had come very close to failing to
come up with a compromise. He stated that the Commission would not have arrived at a
package without the active participation of President Reagan, through his intermediaries, and
Speaker of the House, Tip O’Neill (from a transcript of The MacNeil-Lehrer Report, January
(continued...)

CRS-13
It also is not commonly understood that in its final report, the Commission was
quite fragmented. While 12 of its 15 members supported a so-called consensus
package, that package left one-third of the long-range deficit unresolved. That
portion was left to the respective authorizing committees of Congress and ultimately
was resolved only after a contentious floor debate. The largest faction proposing a
complete package consisted of only eight members.
Finally, in contrast to current circumstances, the Commission’s attention was
drawn more to the system’s short-range condition than to its long-range problems,
since the trust funds were expected to be depleted very quickly. It was only through
enactment of a tax reallocation in 1980 and interfund borrowing from the HI portion
of Medicare in late 1982 that the Social Security trust funds retained a balance
throughout the period in which the Commission and Congress deliberated on the
problem. Even with these measures, the trust funds were projected to be depleted by
the following July (1983). In es
17
sence, the Commission and later the Congress were
acting to forestall a crisis — imminent insolvency. This is in stark contrast to current
circumstances, in which the Social Security trust funds are projected, under the
intermediate estimates, to grow steadily until reaching a peak in 2018 or 2019 and
would not become insolvent until 2029.
Social Security Within the Larger Context of Federal
Entitlements
While today there is widespread recognition that looming demographic shifts
early in the next century may significantly raise federal entitlement spending, this was
much less of a concern in the development of the 1983 Social Security amendments.
This is not to suggest that the demographics of a retiring baby boom generation was
not understood. It was; there was considerable discussion of the future decline in the
ratio of workers to Social Security recipients. However, the potential impact of the
baby boomers on entitlement spending generally was not well understood and had
little effect on the development of the amendments.
As viewed in 1983, the projected strain on the Social Security system resulting
from retirement of the baby boomers and a progressively aging society was certainly
symbolic of the financial strain that retirement and other federal entitlement programs
would undergo early in the next century. However, it was newly emerging as
18
a
concern in congressional deliberations. Long-range estimates of budget expenditures
were for the most part non-existent. Even long-range Social Security estimates were
viewed with substantial skepticism, given their duration.
(...continued)
16
17, 1983). Also see New York Times, “Gain is seen on 2-party accord on Social Security,”
January 10, 1983.

17 The interfund borrowing provision was deliberately designed to assure adequate financing
only through June 1983.

18 For example, see two articles by Peter G. Peterson appearing in the New York Review of
Books: “Social Security: The Coming Crash” (Dec. 2, 1982) and “The Salvation of Social
Security” (Dec. 16, 1982).

CRS-14
The preparation of long-
range Social Security estimates
Where Social Security’s problems
dates back to the beginning of the
were viewed independently in
program; 75-year projections
19
1983, today they are seen much
date back to 1965. However,
budget estimates by the
more as a segment of the future
Administration and CBO rarely
strain entitlement spending
transcended more than 5 years
generally may create. Hence, to
into the future. Medicare
trustees’ estimates were routinely
some extent the context for reform
made for only 25-year periods,
has shifted.
and it was only about the time of
the 1983 amendments that
requests were made to take them out longer (the first trustees’ report to include 75-
year HI projections was the 1983 report, which came out after enactment of the
amendments). The SSA and Health Care Financing Administration (HCFA
20
)
actuaries typically resisted making longer-range Medicare projections because of the
greater uncertainty they saw with projections of health expenditures. But the failure
to make more than 25-year projections obscured the potential demographic shift
looming for the 2010-2030 period. Twenty-five year forecasts made in the period
1980 to 1983 ended in 2005 to 2008. The first cohort of baby boomers would reach
age 65 in 2011. Long-range projections for Medicaid, as well as national health
expenditures generally, also were non-existent.
Some members of the National Commission voiced concern that by “ignoring the
cost of the HI program, the potential tax burden of the entire Social Security program
might not be properly assessed when making reforms...” Two members made the
21
point that if the Medicare problem were taken into account, “the reserve needs of the
system would be considerably larger” than what the Commission was assessing.22
19 According to Robert J. Myers (who assisted in the development of the original program
estimates and was SSA’s chief actuary from 1947 to 1970), initially year-by-year figures were
developed for a 44-year period (from 1937 through 1980), and it was assumed for valuation
purposes that annual tax income and outgo remained constant thereafter. He states that the
valuation period was indefinite in duration (i.e., it went into “perpetuity”). This procedure
was used until 1965, at which point the valuation period was set at 75 years (from a
conversation with Mr. Myers, July 22, 1997).

20 Estimates prepared in November 1982 by the staff of the National Commission on Social
Security Reform (with assistance from the actuaries of the Health Care Financing
Administration) were among the first to portray 75-year HI forecasts. These estimates were
later arrayed in a Senate Finance Committee staff document to make the point that the
problem was much larger than reflected by the discussion of Social Security.
Report of the National Commission on Social Security Reform, pps. 3-2 and 3-3.
21
National Commission report,
22
supplementary statement #5 by Senator Robert J. Dole and
Representative Barber B. Conable, Jr. Also see supplementary statement #11 by former
Representative Joe D. Waggonner, Jr. He wrote that “Demographics is the long-term
problem... The baby-boom represents a tidal wave of future beneficiaries... While this
Commission has not addressed the financing problems facing Medicare, I recommend that the
(continued...)

CRS-15
However, five members of the Commission objected to the preparation of 75-year HI
estimates, stating that “the trustees consider that the degree of uncertainty concerning
future hospital costs, relative to the remainder of the economy, is so great as to make
projections beyond 25 years thoroughly misleading.” In its final report th
23
e
Commission did not address HI’s problems, and specifically deferred attention to
them to an upcoming Quadrennial Advisory Council on Social Security.
Moreover, it had long been the practice of Congress to assess the financial
condition and needs of Social Security in isolation. Separate trust funds for Social
Security and Medicare had been in existence from the start of each program, and it
was not until 1969 that Social Security and other federal trust funds were aggregated
with other government program in a “unified” federal budget. In 1983, as was typical
in the past, the focus was on resolving Social Security’s troubles. It was the
possibility that its trust funds would be depleted in the short run and that the trustees’
were repeatedly projecting long-range actuarial imbalances that was most bothersome.
The trustees’ annual warnings were affecting public opinion. The fact that long-range
costs would progressively rise as the demographics changed was not really of primary
concern. The pattern of income and outgo was certainly important in the short run,
but the fact that long-run costs would rise even though the system was brought into
“average” balance was not even observed (since there were no estimates of such until
after the amendments were enacted).
Today there is much more appreciation and concern about the impact that the
demographic shifts looming early in the next century may have on entitlement
programs as a whole. Medicare estimates are now routinely prepared for 75-year
periods, and in recent years numerous estimates of the long-range cost of entitlements
and federal expenditures overall have emerged. Congressional Budget Office
projections made in 1996 suggest that the costs of Social Security, Medicare, and
Medicaid alone could rise from 8% of GDP today to the 15%-16% range in 2025.
Similar estimates are reflected in the 1997 Economic Report of the President.
24
A
1994 commission appointed by President Clinton — the Bipartisan Commission on
Entitlement and Tax Reform — spent nearly a year examining and debating the long-
term costs of federal entitlement programs and ways to curb them, including limiting
Social Security’s growth. And there are few congressional fiscal policy debates —
(...continued)
22
policy implications of Medicare be reflected in OASDI legislation. The long-term deficit for
the Hospital Insurance portion of Medicare is almost three times as large as the OASDI
deficit... That deficit occurs despite massive cost shifts and despite assumptions that predict
that health care costs will ultimately be controlled.”

23 National Commission report, supplementary statement #4 by Robert M. Ball, Martha Keys,
Lane Kirkland, Senator Daniel Patrick Moynihan, and Representative Claude Pepper.

24 See 1997 Economic Report of the President, Chapter 3: Economic Challenges of an Aging
Population, GPO, February, 1997 (See also the 1996 edition—Chapter 3: Making Fiscal
Policy Choices Within and Across Generations); Long-term Budgetary Pressures and Policy
Options, CBO, March 1997; The Economic and Budget Outlook: Fiscal Year 1997-2006,
CBO, May 1996; Bipartisan Commission on Entitlement and Tax Reform, Interim and Final
Reports, August 1994 and January 1995; and Eugene Steuerle and Jon M. Bakija, Retooling
Social Security for the 21st Century, The Urban Institute Press, Wash., D.C., 1994 (p. 59).

CRS-16
be they on annual budget resolutions or reconciliation bills, measures to raise the
Treasury’s borrowing authority, or constitutional amendments to require a balanced
federal budget — that fail to raise concerns about the present level of entitlement
commitments made to the baby-boom generation and subsequent retirees.
Where Social Security’s financing problems were viewed independently in 1983,
today they are seen much more as a portion of the overall strain that entitlement
spending may create. Hence, to some extent, the context for reform may have shifted.
Conclusion
With the completion of the work of the 1994-1996 Advisory Council on Social
Security following on the heels of the 1994 Bipartisan Commission on Entitlement
and Tax Reform, the prospects for reform of Social Security loom again. How
significant those prospects are is uncertain. Few who have followed the stream of
recent adverse trustees’ reports or polls showing public sentiment about the survival
of the system have suggested that the status quo can be maintained. Although three
different factions evolved within the Advisory Council, all proposed major changes
to address Social Security’s long-range financial problems. None said “do nothing.”
And while the Bipartisan Entitlement Commission was unable to reach a consensus
on whether and how to constrain future entitlements, 24 of its 32 members concluded
that “A bipartisan coalition of Congress, led by the President, must resolve the long-
term imbalance between the government’s entitlement promises and the funds it will
have available to pay for them.” They further concluded that balance needs to be
restored to the Social Security trust funds and confidence in the system
strengthened.25
Also apparent from the deliberations and reports of the advisory council and
entitlement commission is that there are a multitude of options for altering Social
Security that represent a wide range of ideological choices. This too was the situation
in 1983. However, unlike the situation in 1983, there is no urgency today that might
work to diminish ideological differences. Simply put, there is no immediate crisis that
might help policymakers to narrow the list of options around which a consensus can
be formed.
As important as the range of options might be, how the problem and options are
aired, debated, measured, and arrayed for congressional consideration are vital to
achieving a viable solution. It may seem obvious now, but the year-to-year pattern
of income and outgo that the options are projected to produce is more important in
achieving a lasting restoration of the system than measurements of its “average”
condition over 75 years. Moreover, the necessity of building a “cushion” against the
possibility that today’s projections may prove overly optimistic has been demonstrated
by repeated failures of past efforts to provide lasting remedies.
Similarly obvious is that a consensus for reform is likely only if emanating from
a bipartisan forum. Recognizing that political “windows of opportunity” may have
been lacking, the recent advisory council and the entitlement commission may have
Bipartisan Commission, final report, pps. 1-3.
25

CRS-17
been too large and unwieldy to achieve a consensus on reform. The 1983
commission, although reaching more of a consensus than these recent panels, also
may have suffered by its size. Whether Congress should set up yet another
independent panel, or simply work through the traditional committee process, is also
a relevant question. There are numerous examples of major bipartisan efforts that
have emanated directly from the legislative process.
Whatever the forum, the principal question is whether, in the absence of a crisis,
there is a will to consider reform. Two subtle forces are now stimulating the call for
change: (1) persistent skepticism about the survival of the current system among baby
boomers and younger segments of the population (driven in part by a rising battery
of criticism that the system may not be a good deal for them), and (2) growing
recognition that if the system’s long-range deficit is to be remedied, corrective action
can be implemented in small marginal — and even deferred — steps if begun today.
Whether these subtle forces are significant enough to trigger reform any time soon is
a matter of conjecture