Social Security

GAO discussed the key elements of the social security system. The Social Security Act of 1935 created a variety of new economic security programs including: (1) a national program of needs-based benefits for the aged; and (2) the Old-Age Insurance Program which is the cornerstone of today's social security program. The needs-based program was built on pre-existing State programs for which the Federal Government had offered to finance one-half of the costs incurred by each State. The Old-Age Insurance Program was viewed as the response to the longer range retirement income needs of the Nation's aged. The Social Security Act provided that benefits would be financed entirely from a payroll tax and that payments would be shared equally between employers and workers. Since 1935, social security programs have been modified and extended. In 1939, the benefit computation structure was changed and benefits were added for dependents of retired workers and for widows and children of workers who died before they reached retirement age. However, Federal, railroad, and State and local government employees were excluded from the program. Several amendments to the act in the 1950's reduced the number of workers not covered by the program. Two major expansions of the scope of the program have been the additions of disability insurance and Medicare. The social security benefit formula currently is structured to provide higher benefits to workers with high average career earnings, but the formula is weighted so that with those with lower average income are provided benefits which represent a higher fraction of their earnings. The vast majority of the necessary revenues for the cash benefit programs are derived from the proceeds of the social security payroll tax which is deposited in a special trust fund. The program is financed on a current-cost basis and, although the balance between revenues and expenditures will be very close between now and the end of 1987, the program's financial condition is projected to improve dramatically beginning in 1988.