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Mr. Chairman:

Two years ago, the Congress passed the Social Security Amendments of 1977, following a period of concern about the effects of inflation and recession on the Social Security trust funds. At that time, the annual flow of revenues into the trust funds was not sufficient to cover expected expenditures, and the trust fund balances were eroded. The possibility arose that these balances could fall to an unacceptably low level. In order to avert this possibility, the amendments increased the payroll tax rate and the covered earnings base in a number of steps beginning in 1979.

At the time of the 1977 Amendments, the Congressional Budget Office (CBO) examined the impact of these increased taxes on the trust fund balances, and found that the short-run outlook for the trust funds was good. The funds were projected to have a balance of 35 percent of outlays by 1983. Unfortunately, this assessment was based on an economic outlook that has proved to be overly optimistic. In July of this year, CBO reexamined the status of the Social Security trust funds. These more recent estimates indicate a potential problem in the Old Age and Survivors trust fund in 1983 or 1984.

My statement today will cover three points:

• CBO's most recent five-year estimates;
  
  
• The changing economic outlook that is responsible for the revised estimates; and
  
  
• Several options the Congress might consider to ensure adequate reserves in the trust funds even under the projected slowdown in economic activity.

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