One example of how the Administration's proposal could be

implemented is for the OASI trust fund to borrow enough to maintain a balance at the beginning of the fiscal year equal to 25 In this case, CBO esti

percent of the previous year's outlays.

mates roughly $60 billion would have

period fiscal years 1981 through 1985.

to be borrowed over the

An additional $30 bil

lion would probably have to be borrowed by the end of fiscal year 1990.

(CBO's projections are presented in Table 3.)

The DI trust fund alone is not expected to have sufficient balances to meet these borrowing needs, however. The OASI trust fund would probably also have to borrow from the HI fund in fiscal years 1982 through 1985 and during fiscal years 1983 and 1984 the HI fund's balance at the beginning of the year would probably fall slightly below 25 percent of its previous year's outlays. Although it appears that the HI loans could be repaid--with interest--from the DI trust fund by fiscal year 1990, it is less clear that the OASI fund would be able to repay the DI fund.

The Administration's plan would permit the OASI fund to borrow less than the maximum amount. If the OASI trust fund

borrowed only enough to raise its balance at the beginning of the fiscal year to 12 percent of its expected outlays during the year, total borrowing over fiscal years 1982 through 1985 would be about $40 billion, and additional borrowing during fiscal years 1986 through 1990 would be about $17 billion.

TABLE 3.

PROJECTIONS OF OASI

AND SUBSEQUENTLY HI,

BORROWING ON OCTOBER 1 FROM DI, TRUST FUNDS TO MAINTAIN BALANCE AT BEGINNING OF YEAR OF 25 PERCENT OF PREVIOUS YEAR'S OUTLAYS: TO FISCAL YEAR 1990, IN BILLIONS OF DOLLARS

SOURCE: Based on CBO's January 1980 economic assumptions.

NOTE: Details may not add to totals because of rounding.

a.

b.

C.

least as

Assumes that the DI fund maintains a balance at
large as 25 percent of its outlays in the previous year.

This assumes that the amount by which the DI trust fund balance exceeds 25 percent of the preceding year's outlays is used to repay the HI fund.

Interest could also be paid to the HI trust fund. In fiscal year 1990, after lending the necessary amount to the OASI trust fund, repaying the remaining amount owed to the HI trust fund, and setting aside 25 percent of the previous year's outlays, the DI trust fund would have available additional funds from which interest to the HI trust fund could be paid.

As in the first example, the DI

fund probably could not

Borrowing from the HI

lend all these amounts to the OASI fund.

trust fund would be needed in fiscal years 1983, 1984, and 1985. Loans from the HI fund could probably be repaid from the DI trust fund, with interest, by 1988, although repayment from OASI to DI appears more problematic (see Table 4).

The Administration's proposal would solve the short-run financing problems. An additional advantage is its flexibility; the plan would resolve additional difficulties that might arise should economic conditions be somewhat worse than anticipated. Furthermore, the proposal does not limit the Congress' future options to restructure the Social Security system in more fundamental ways to respond to long-term issues. Finally, allowing fund-to-fund borrowing would not affect the outlook for employment and inflation because the total payroll tax paid by emloyees and employers would not change. On the other hand, public concern about whether the OASI fund could repay the DI fund might develop.

A second means of reallocating revenues is to realign the payroll tax rates earmarked for the individual trust funds. A simple realignment could overcome the currently predicted shortrun financing problem and would not raise the question of whether one fund could repay another, but it would be less

TABLE 4.

PROJECTIONS OF OASI BORROWING ON OCTOBER 1 FROM DI,
AND SUBSEQUENTLY HI, TRUST FUNDS TO MAINTAIN BALANCE
AT BEGINNING OF YEAR OF 12 PERCENT OF EXPECTED
OUTLAYS: TO FISCAL YEAR 1990, IN BILLIONS OF DOLLARS

SOURCE: Based on CBO's January 1980 economic assumptions.

NOTE: Details may not add to totals because of rounding.

a.

b.

Assumes that the DI fund maintains a balance at the beginning of each year at least as large as 12 percent of the expected outlays.

Interest could also be paid to the HI trust fund. At the beginning of fiscal year 1988, after lending the necessary amount to the OASI fund, repaying the HI loan, and setting aside 12 percent of expected outlays, the DI fund is expected to have available additional funds from which interest to the HI fund could be paid.

flexible for adapting to changing economic conditions. Tax-rate realignment would increase the likelihood that additional legislative changes would be needed in the near future.

Some

A third alternative would be to merge the funds but retain separate analyses of expenditures for different types of benefits. This option shares the advantages of the Administration's proposal, but it is likely to be more controversial. people believe that it would make Congressional control of the three separate programs more difficult. It would certainly require joint consideration of funding for programs that are now assigned to different functional areas in the budget.

Partial Funding from General Revenues

A greater departure than altering the three trust funds would involve Social Security's use of general federal revenues, for example, through:

O Trust fund borrowing from the general fund;

Countercyclical financing from general revenues, with or without repayment; or

Use of other earmarked taxes to supplement OASDHI payroll tax receipts.

These approaches would solve the short-run financing problem without losing the distinctions among the three trust funds

and the system would be able to deal more easily with future fluctuations in economic conditions.

Furthermore, any of these

approaches could be expanded, if needed, to resolve longer-term