Shortfalls in the Long Run: Predictions about the Social Security Trust Fund
Discussions of U.S. Social Security reform invariably begin by noting the gloomy long-run projections presented in the Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. For example, the 2004 report predicts (in its “intermediate” scenario) that the Social Security trust fund, formally known as the Old Age and Survivors Insurance (OASI) trust fund, will be empty and the program therefore unable to pay its full scheduled level of benefits for future years starting in 2044. If the Disability Insurance (DI) trust fund is included in the calculations with the Old Age and Survivors Insurance (OASI) trust fund, as is often done, the actuaries predicted in 2004 that the combined trust fund would be empty in 2042. But although the solvency of the trust fund dominates current discussion of the long run future of Social Security, the Social Security trust fund did not exist at the inception of the system. In 1935, when the original Social Security legislation passed into law, President Franklin Roosevelt was concerned that the U.S. Supreme Court might rule that the federal government lacked constitutional authority to levy taxes that were earmarked to pay benefits to individuals. Thus, one part of the original Social Security legislation authorized a payroll tax with funds flowing to an “Old-Age Reserve Account,” while a technically separate part of the legislation promised benefits to workers (Kollman, 2000; Achenbaum, 1986, pp. 28–30). But in 1937, the U.S. Supreme Court held that the benefit and tax structure of Social Security was constitutional in Helvering v. Davis (301 U.S. 619 ). Soon after, the Social Security Act Amendments of 1939 replaced the earlier payroll tax with the Federal Insurance Contributions Act and replaced the Old-Age Reserve Account with a trust fund. A trust fund requires trustees. The Social Security trust fund became effective on January 1, 1940, and promptly on January 3, 1941, the Board of Trustees sent its first annual report to the Speaker of the House and the President of the Senate (Social Security Administration, 1941). This report was not published at the time and has only recently become broadly available. Indeed, the complete set of trustees’ reports back to 1941 is available at (http://www.ssa.gov/history/reports/trust/trustreports.html).
Hines, James R., Jr. and Timothy Taylor. "Shortfalls in the Long Run: Predictions about the Social Security Trust Fund." Journal of Economic Perspectives 19, no. 2 (2005): 3-9. (Work published when author not on Michigan Law faculty.)