A looming crisis is facing Social Security’s Disability Insurance (DI) program: Unless Congress takes action, the DI trust fund will run out next year and beneficiaries will suffer an across-the-board cut of 19 percent.
Some advocates suggest that a “simple fix” would be for Congress to shore up the DI trust fund by reallocating a portion of Social Security’s payroll tax revenue from the Old Age and Survivors Insurance program (OASI). But this approach would ignore the fact that OASI has growing problems of its own.
A looming crisis is facing Social Security’s Disability Insurance (DI) program: Unless Congress takes action, the DI trust fund will run out next year and beneficiaries will suffer an across-the-board cut of 19 percent.
Some advocates suggest that a “simple fix” would be for Congress to shore up the DI trust fund by reallocating a portion of Social Security’s payroll tax revenue from the Old Age and Survivors Insurance program (OASI). But this approach would ignore the fact that OASI has growing problems of its own.
Last week, as part of a rules package marking the start of a new Congress, House Republicans included a rule that would prohibit reallocating payroll taxes from OASI to DI unless steps are also taken to strengthen both funds.
While House rules are easily waived, this one points policymakers in the right direction. Social Security as a whole is on an unsustainable course, with its larger piece, OASI, running a cash deficit that is projected to grow larger and larger as the population ages and workforce growth slows.
Disability Insurance is depended on, primarily by workers over age 50 because they are more vulnerable to medical conditions that impede work. This demographic continues to grow with the aging of the baby boomers and now consists of almost three in four DI beneficiaries. Many experts argue for this reason that the disability program’s impending insolvency is caused mostly by demographic pressures (combined with a tight labor market) rather than fraud or abuse. A GAO report in 2013 found that just 0.4 percent of payments in 2010 went to beneficiaries who should not have been eligible for them.
These interrelated cost drivers, along with inadequate financing, are why the Social Security trustees have repeatedly urged Congress to approve reforms in both DI and OASI, warning that further delays will only make the necessary repairs more difficult.
Advocates of redirecting money from OASI to DI to cover deficits often say that this is a “routine” procedure that has occurred many times in the past. But this was last done in 1994, long before members of the baby boom generation began retiring or collecting disability benefits in large numbers. Back then, OASI had an annual cash-flow surplus equal to $43 billion in today’s dollars. Last year, however, it ran a cash-flow deficit of $34 billion — a number that will only get worse unless Congress takes action.
This cash-flow trend will see the entire Social Security program run deficits of $180 billion in 10 years up to $305 billion in 2030 (in today’s dollars) and will increase pressure on the rest of the federal budget, where “discretionary spending” on everything from medical research to environmental protection to defense spending is already on a path to drop far below its historical average.
The Concord Coalition called attention to this problem last year, when the Social Security and Medicare trustees released their annual report.
In that report, the system’s public trustees wrote: “Of the two funds, OASI faces the larger long-term imbalance between income and obligations. As baby boomers receiving DI benefits reach Social Security’s full retirement age, the costs of their benefits shift from DI to OASI, increasing costs for the latter trust fund. The DI Trust Fund’s impending reserve depletion signals that the time has arrived for reforms that strengthen the financing outlooks for OASI and DI alike.”
So there is nothing “routine” about DI’s current problem — it’s the canary in the coal mine for Social Security as a whole. Under current law, by 2034 the OASI trust fund itself is projected to be exhausted and retirees will face even larger benefit reductions than disability beneficiaries are threatened with today. Congress should not ignore this warning.
Which brings us back to the rule passed by the House last week. Draconian cuts in disability benefits would be unacceptable, as many members of both parties agree. Given the deep hole in DI’s finances, some reallocation of payroll taxes may be necessary. But as the new House rule suggests, this should be done within the context of a broader plan to address Social Security’s overall finances.
It’s time for lawmakers to engage in a serious conversation about strengthening the finances of both DI and OASI in a way that can help protect other important federal budget priorities as well.
Social Security is at a crossroads, and those who truly care about it should be doing everything they can to ensure that it remains strong for today’s workers as well as future generations.
