Recent changes to the Railroad Retirement Act.

Recent Changes to the Railroad Retirement Act* The Social Security taxes shown are the employee taxes only and are derived by applying the combined OASDI and HI tax rates in the present law to the projected earnings amounts. The Federal income taxes shown are approximate and are based on a summary of the provisions of The Economic Recovery Tax Act of 1981 (Public Law 97-34). For the years 1985 and later, when the income tax brackets, the zero bracket amounts (standard deduction), and the personal exemption will be adjusted for changes in the Consumer Price Index, the assumed changes in the CPI are those of Alternative II-B of the 1981 Trustees Report, adjusted to a 12month average basis for each fiscal year. The relationship between Social Security taxes and Federal income taxes in future years is expected to continue the recent trend in that Social Security taxes will exceed Federal income taxes only in those cases of married workers with low earnings. This is especially noteworthy considering the magnitude of the income tax reductions included in Public Law 97-34 and the fact that Social Security taxes are scheduled to increase significantly through 1990. The recently enacted Economic Recovery Tax Act of 1981 (Public Law 97-34) and the Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) make significant changes in the Railroad Retirement system to improve its financing situation. Public Law 97-34 provides for increased Railroad Retirement revenues through a new payroll tax on railroad employees and an increase in the payroll tax for railroad employers. Public Law 97-35 reduces the overall benefit outgo under the system, although certain minor benefit liberalizations are provided for. The changes made by these two acts were necessary because, under prior law, the Railroad Retirement system would have had insufficient funds to pay benefits by April 1982. The new legislation is expected to preserve the financial solvency of the Railroad Retirement system for at least the next 10 years. However, Public Law 97-35 also requires the President to report to Congress by October 1, 1982 (the start of the new fiscal year), on options to assure the system’s long-term actuarial soundness.