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Choosing the Nation’s Fiscal Future
the situation in the meanwhile, benefits would have to be reduced for all beneficiaries; those reductions would be about 25 percent from their currently scheduled levels.5
The financial outlook for Social Security has also been problematic in the past. Two circumstances have contributed to the need for periodic fiscal adjustments to maintain the program’s solvency. First, legislation has expanded Social Security coverage and increased the level of benefits. Second, the evolution of work, longer average life spans, and other demographic and economic changes have resulted in the need to reestimate how many retirees will be supported in the future by those still working.
When enacted in 1935, Social Security provided only retirement benefits: that is, the program did not cover widows or widowers, children, or disabled workers whose own work experience did not qualify them for retirement benefits. And it was only for workers in commerce and industry, about 60 percent of the workforce.6 The program (today formally known as Old Age, Survivors, and Disability Insurance or OASDI) was expanded periodically to cover additional categories of people. Benefits for surviving spouses and dependents were added early in the program’s history. Later, in the 1950s, coverage was extended to those unable to work due to total and permanent disability (and for their dependents). This part of the program, although it has grown rapidly, is much smaller than the OAS part. The overall OASDI expansion greatly increased the scale of the future commitments to retirees and their dependents and survivors as well as to disabled persons and their families. And these commitments also grew after benefits were indexed for inflation. (Monthly retirement benefits were increased by legislation 10 times before automatic cost-of-living adjustments were enacted in 1972 and then periodically modified.)7
By the late 1970s, Social Security had all of the basic features it has today. Thereafter, legislative changes focused primarily on shoring up the program’s long-run financial stability. These changes included increases in the payroll tax rate and the maximum earnings subject to the tax, future increases in the age—previously 65—at which retiring workers would be eligible for full benefits, and other minor adjustments to benefits and revenues (for details, see Apfel and Flowers, 2007).
The biggest changes that affected the program’s future finances were enacted in 1983 when it appeared that the program’s trust fund would soon be depleted and across-the-board benefit cuts were imminent. Payroll tax rates were increased. For certain higher-income beneficiaries, benefits became subject to the income tax, with those proceeds dedicated to the trust fund. Beginning that year, the annual cost-of-living adjustment was delayed from June to December. And the 1983 reforms provided for gradual increases in the age at which a person could retire with what are called full