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TABLE 1.-Estimated benefit payments as percent of taxable payroll 1 for bill, by

type of benefit, high-employment assumptions

[In percent)

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1 Taking into account lower contribution rate for self-employed as compared with employer-employee rate.

2 Includos husband's and widower's benefits, respectively.
3 Excluding effect of railroad coverage under financial interchange provisions.

4 At 2.6 percent interest. Level premium contribution rate for benefit payments after 1955 and in perpetuity, not taking into account (a) existing trust fund and (b) administrative expenses. These levelpremium rates assume that benefits and payrolls remain level after the year 2050.

Table 2 shows the estimated operations of the trust fund under the committee-approved bill on the basis of a 2.6-percent interest rate. This rate is higher than the 2.4-percent rate used in the previous estimates, reflecting the change in the interest basis of the trust fund under the provisions of the committee-approved bill, although it is slightly above what would currently be earned under such provisions. Under the low-cost estimate, the trust fund builds up quite rapidly and even some 45 years hence is growing at a rate of about $6 billion per year and at that time is about $180 billion in magnitude; in fact, under this estimate, benefit disbursements do not exceed contribution income during the next 60 years. On the other hand, under the highcost estimate the trust fund builds up slowly to a maximum of about $41 billion in 1980, but decreases thereafter until it is exhausted in the year 1999. Benefit disbursements exceed contribution income during 1958–59, 1962–64, 1967–69, and in 1974 (in each case, just before a scheduled rise in the contribution rate), and again in and after 1980. In each of these periods before 1975, however, the interest receipts are more than sufficient to offset such excesses.

TABLE 2.- Estimated progress of trust fund under committee-approved bill, 2.6 percent interest, high-employment assumptions

[In millions)

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These results are consistent and reasonable, since the system on an intermediate-cost estimate basis is intended to be approximately selfsupporting, as will be indicated hereafter. Accordingly, a low-cost estimate should show that the system is more than self-supporting, whereas a high-cost estimate should show that a deficiency would arise later on. In actual practice, under the philosophy in the 1950, 1952, and 1954 acts, as set forth in the committee reports therefor and as continued in this bill by your committee, the tax schedule would be adjusted in future years so that neither of the developments of the trust fund shown in table 2 would ever eventuate. Thus, if experience followed the low-cost estimate, the contribution rates would probably be adjusted downward—or perhaps would not be increased-in future years according to schedule. On the other hand, if the experience followed the high-cost estimate, the contribution rates would have to be raised above those scheduled. At any rate, the high-cost estimate does indicate that under the tax schedule in present law, which is retained in the committee-approved bill there would be ample funds to meet benefit disbursements for several decades even under relatively high-cost experience.

D. RESULTS OF INTERMEDIATE-COST ESTIMATE

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The Congress, in enacting the 1950, 1952, and 1954 acts, was of the belief that the old-age and survivors insurance program should be on a completely self-supporting basis, or, in other words, actuarially sound. This belief is reiterated in this report. Therefore, a single estimate is necessary in the development of a tax schedule intended to make the system self-supporting. The intermediate-cost estimate is developed from the low-cost and high-cost estimates, by averaging them (using the dollar estimates and developing therefrom the corresponding estimates relative to payroll) and is used for this purpose. Any specific schedule will necessarily be somewhat different from what will actually be required to obtain exact balance between contributions and benefits. This procedure, however, does make the intention specific, even though in actual practice, future changes in the tax schedule might be necessary. Likewise, exact self-support cannot be obtained from a specific set of integral or rounded fractional tax rates increasing in orderly intervals, but rather this principle of self-support should be aimed at as closely as possible.

The contribution schedule contained in the present law is left unchanged by the committee-approved bill since no change is needed to provide for the benefit liberalizations made. The following table compares this schedule with the higher rates provided under the House-approved bill:

[Percent)

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Table 3 gives an estimate of the level-premium cost of the committee-approved bill, tracing through the changes in cost from the present act according to the major changes proposed. For both the present act and the bill, the level-premium costs are based on benefit payments from 1956 on.

TABLE 3.—Changes in estimated level-premium cost 1 of benefit payments as percent

of payroll, by type of change, intermediate-cost estimate, high-employment assumptions

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1 Level-premium contribution rate for benefit payments after 1955 and in perpetuity, taking into account (a) lower-contribution rate for self-employed as compared with employer-employee rate, (6) existing trust fund, and (c) administrative expenses.

It should be emphasized that in 1950 the Congress did not recommend that the system be financed by a high, level tax rate from 1951 on, but rather recommended an increasing schedule, which, of necessity, ultimately rises higher than the level-premium rate. Nonetheless, this graded tax schedule will produce a considerable excess of income over outgo for many years so that a sizable trust fund will develop, although not as large as would arise under a level-premium tax rate; this fund is invested in Government securities (just as are much of the reserves of life insurance companies and banks, and is also the case for the trust funds of the civil-service retirement, railroad retirement, national service life insurance, and United States Government life insurance systems), and the resulting interest income will help to bear part of the increased benefit costs of the future. .

As will be seen from table 3, based on 1955 earnings assumptions, the level-premium cost of the benefits of the present act-based on 2.4 percent interest—is 7.45 percent of payroll, while the corresponding figure for the committee-approved bill—based on 2.6 percent interestis 7.50 percent.

The level-premium contribution rates equivalent to the graded schedules in the present law and in the bill may be computed in the same manner as level-premium benefit costs. It should be noted, as indicated previously, that the schedule in the House-approved bill is higher by 1 percent (on the employer-employee combined rate) than present law and the committee-approved bill. These are shown in the table below for income and disbursements after 1955 (on the basis of the intermediate-cost estimate, at 2.4 percent interest for present law and the House-approved bill and at 2.6 percent interest for the committee-approved bill):

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1 Including adjustments (a) to reflect lower contribution rate for self-employed as compared with employer-employee rate, (b) for existing trust fund, and (c) for administrative expenses.

9 As shown in H. Rept. No. 1189, 84th Cong., 1st sess., p. 17. Based on 1954 earnings assumptions; if 1955 earnings assumptions were used, the lack of actuarial balance would be 0.16 percent for present law and 0.08 percent for the House-approved bill.

3 Based on 1955 earnings assumptions.

Thus, the actuarial balance of the program as it would be revised under the committee-approved bill is only slightly different than was the present law when the House first began its consideration of this legislation.

Table 4 shows the year-by-year cost of the benefit payments according to the intermediate-cost estimate for the House-approved bill, the committee-approved bill, and the present law. These figures are based on a future level-earnings assumption and do not consider business cycles which over a long period of years tend to average out. The benefit disbursements under the bill for 1957, the first full year of operation, are estimated at about $6.5 billion, with a range of from $6.3 to $6.7 billion (as contrasted with contribution income of about $7 billion). Most of the increased cost of the committee-approved bill would arise from the provision to lower the minimum eligibility age for widow's benefits from 65 to 62. Such change would add approximately 200,000 beneficiaries to the roll before the end of 1957 and would result in increased benefit disbursements of about $120 million in 1957. The new provision for paying child's benefits in the case of those aged 18 or over who are totally and permanentlydisabled would add about 20,000, disabled children to the benefit rolls before the end of 1957 with additional disbursements in 1957 amounting to approximately $15 million (including additional payments to widowed mothers).

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