Social Security Is One Part of the Long-Term Fiscal Challenge

Our work on Social Security reform has emphasized the need for change  not only because future program revenues are expected to fall short of  what is needed to pay currently scheduled benefits in full but because  Social Security, Medicare, and Medicaid taken together will consume an  increasing share of the budget and the economy. It is different from OCACT’s  definition, which is focused solely on the trust fund, for which they are  responsible. OCACT Scoring Memos Are Primary Source of Information on Reform Proposals, but Detailed Tables Are Difficult to Use for Understanding General Revenue and Federal Budget Effects

OCACT scoring memos are the primary source of information on recent  Social Security reform proposals. The type and amount of  information included in the tables has increased over time. General revenue transfers specified by formula or amount. None of the five general revenue mechanisms in the plans we examined  would come from new revenue sources and hence would bring no new  revenue to the federal budget; the four payroll tax mechanisms would  bring new revenue to the budget as a whole. Additional Revenue Improves Trust Fund Solvency but Effects on the Federal Budget May Differ Greatly

The effect of a reform proposal on federal budget balances and debt  cannot be determined from its effect on trust fund solvency. Four of the 17  proposals we reviewed for this report included this type of provision; 3 of  the 4 also provided for unlimited transfers of reallocated general revenue  to maintain trust fund solvency. Although raising taxes (payroll or other) or cutting benefits would have  tangible consequences for taxpayers and beneficiaries, e.g., less take-home  pay or smaller benefit checks, the consequences of transfers from the non- Social Security budget in the form of reallocated general revenue are less  likely to be clearly observable. Regardless of how general revenue is provided to Social  Security, it must be paid for at some point. The question is when, and by  whom. Recommendation for Executive Action

To improve public understanding of proposed changes to Social Security,  we recommend that the Commissioner of SSA direct the Office of the  Chief Actuary at SSA to include a summary presentation of its analysis in  future scoring memoranda that will enable policymakers and the general  public to quickly and easily compare Social Security reform proposals  especially with respect to proposed use of general revenue and federal  budget implications. This report also does not address the effects of general revenue use  on program equity.
Why GAO Did This Study

Absent reform, Social Security's financing gap will grow until currently scheduled benefits can no longer be paid in full. Recent reform proposals often include general revenue (GR)--a major change that can have significant implications for the budget as a whole. This report addresses these issues: (1) What information is available about GR in recent proposal scorings by Social Security's Office of the Chief Actuary (OCACT)? (2) What common mechanisms, especially GR mechanisms, are used to increase program revenue? (3) What are the implications of GR for the trust fund and the federal budget? We have prepared this report under the Comptroller General's statutory authority to conduct evaluations on his own initiative as part of a continued effort to assist Congress in addressing the challenges facing Social Security.

What GAO Found

Although focused on the trust fund, OCACT scoring memos are also the primary source of information on how proposals would impact the federal budget. Memos provide information on GR use and its effects, but experts said comparing proposals on this element presents challenges, requiring extensive efforts to understand complex tables shown at the end of the memos. Fourteen of 17 proposals GAO reviewed provided GR (1) as needed to maintain trust fund solvency or (2) as specified by formula, amount, or source. Nine of the 17 achieved "sustainable solvency" under OCACT's definition using the first approach. This type of unlimited transfer poses the greatest potential risk to the federal budget, especially when combined with benefit guarantees. In proposals reviewed, amounts of GR under both types of approaches ranged up to about twice program shortfall. In all proposals using GR, the GR was reallocated from the non-Social Security budget. While any additional revenue to the trust fund will help solvency, unified federal budget effects depend on the type of revenue--whether it is new revenue (additional payroll tax revenue or GR that is new to the federal budget) versus reallocated GR. Absent other changes, new revenue would improve the long-term fiscal imbalance while reallocated GR would do nothing to address it. Although raising taxes (payroll or other) or cutting benefits would have tangible consequences for taxpayers and beneficiaries, e.g., less take-home pay or smaller benefit checks, the consequences of transfers from the non--Social Security budget in the form of reallocated GR are less likely to be clearly observable. Reallocated GR, however, is not free. Regardless of how GR is provided to Social Security, it must be paid for at some point. The question is when, and by whom.