Our recent analysis of the Congressional Budget Office's (CBO) August baseline focused on CBO's official current law baseline projections, which show debt declining very slightly in the near term from 74 percent of Gross Domestic Product (GDP) this year to 73 percent by 2018 and then rising to 77 percent by 2025.
On Tuesday, August 4, 2015, the McCrery-Pomeroy SSDI Solutions Initiative hosted its SSDI Solutions Conference, presenting the 12 papers commissioned by the initiative as well as various discussions around improvements that can be made both to the program and to the larger role that government plays in supporting people with disabilities. The day-long conference, attended by nearly 200 people and watched via livestream by over 900, featured remarks from Senate Finance Committee Chairman Orrin Hatch (R-UT) and Center for Budget and Policy Priorities (CBPP) President Bob Greenstein, panel discussions with the authors and disability research experts, and a closing panel discussion with the Co-Chairs and Social Security experts. With the Social Security Disability Insurance (SSDI) trust fund set to exhaust its reserves by the end of 2016, many experts have begun discussing long-term changes that could be paired with short-term funding options that alleviate the impending 19-percent across-the-board cut to benefits if nothing were to be done. The program for the event can be found here.
The event kicked off with opening remarks from Congressmen Jim McCrery (R-LA) and Earl Pomeroy (D-ND), co-chairs of the initiative, discussing the opportunity presented by the imminent legislative action needed on SSDI. Both stressed that no idea would be perfect nor would any idea alone solve the problems facing the program, but they envisioned these ideas as part of a broader discussion to improve SSDI both financially and effectively for the people who rely on it. While avoiding trust fund exhaustion may be the reason for the congressional action that will take place in the next year, the co-chairs reiterated their commitment to making the SSDI Solutions Initiative about helping people with disabilities.
With Social Security’s recent 80th birthday behind us, a debate has arisen over whether or not Social Security benefits are "modest" for a typical retiree. Although this is not one of the 8 Social Security myths we addressed last week, it is a claim worth considering.
On one side of the debate is Bryann DaSilva of the Center on Budget and Policy Priorities (CBPP), who recently made the case that Social Security benefits are modest both in absolute terms and by international standards. On the other side is former Social Security Deputy Commissioner Andrew Biggs, who responded that Social Security's actual replacement rates – the amount of one's pre-retirement income it provides – are much higher than the numbers provided by SSA's chief actuary.
While much has been written on the right way to measure replacement rates,* there has been relatively little discussion about how Social Security compares internationally.
DaSilva's claim that benefits in the U.S. are “modest by international standards” stems from a 2013 piece by CBPP’s Kathy Ruffing that compares replacement rates provided by Social Security to those provided by similar programs in other Organisation for Economic Co-operation and Development (OECD) countries. Ruffing includes an excellent graph that shows the U.S. ranks “31st place among the 34 OECD member countries.”
Adam Rosenberg, a policy analyst with the Committee for a Responsible Federal Budget, wrote a guest post that appeared on the RealClearPolicy blog. It is reposted here.
This month marks the 80th birthday of the Social Security program. For decades, the program has been a vital lifeline for retirees, the disabled, and their families and has lifted tens of millions of Americans out of poverty.
The program faces financial problems, though. The Disability Insurance trust fund is expected to deplete its reserves in late 2016, and even if its finances are intermingled with the old age program, the combined Social Security trust funds are projected to go insolvent by 2034. When these trust funds run out of money, benefit payments will need to be cut or delayed to hold spending to incoming revenue.
Making Social Security financially secure will require an informed debate about the choices involved, but myths are often recited to obstruct progress on reform. Here are 4 common myths.
The McCrery-Pomeroy SSDI Solutions Initiative newly released an issue brief on the financial state of the SSDI program, the third primer in its series on the Social Security Disability Insurance (SSDI) program. After the 2015 Social Security Trustees' Report, more attention has focused on the upcoming shortfall in SSDI funding at the end of 2016 when the program will only be able to pay out 81 percent of scheduled benefits with the payroll tax revenue it receives. This is one of the Fiscal Speed Bumps that lawmakers will need to navigate by the end of the 114th Congress.
The brief examines how SSDI is funded, analyzes the short-term funding gap facing the program, and explores the long-term funding challenges due to the evolving composition of the SSDI program. While there is an immediate funding need through the next few years, there is also a long-term shortfall that parallels the situation facing its Old-Age and Survivors' Insurance counterpart: insufficient revenues to pay out scheduled benefits.
Below is an excerpt from the brief:
Source of Revenue and Spending in the SSDI Program
The Social Security Disability Insurance (SSDI) program is largely a self-funded, pay-as-you-go program which funds current benefits with tax revenue from current workers. Revenue for the program comes primarily from a 1.8 percent payroll tax on a worker’s first $118,500 in earnings (indexed to average wage growth) – 0.9 percent is paid each by the employee and employer. These funds, along with a small amount of money from the partial income-taxation of benefits and interest on trust fund assets, are used to pay benefits to workers with disabilities and their dependents and fund the program’s modest administrative costs.
Today marks Social Security's 80th birthday, celebrating the anniversary of the establishment of the old-age portion of the program in the Social Security Act of 1935. To kick off the celebration, CRFB released a new report yesterday, "Debunking 8 Social Security Myths on Its 80th Birthday," that seeks to clear up the conversation about the program.
The 8 myths are:
- Myth #1: Social Security does not face a large funding shortfall
- Myth #2: Today’s workers will not receive Social Security benefits
- Myth #3: Social Security would be fine if we hadn’t “raided the trust fund”
- Myth #4: Social Security cannot run a deficit
- Myth #5: Social Security has nothing to do with the rest of the budget
- Myth #6: We don’t need to worry about Social Security for 20 years
- Myth #7: Social Security reform is code for slashing benefits, especially for the poor
- Myth #8: Social Security is too hard to fix
Charles Blahous, one of the public trustees for Medicare and Social Security, has released a Guide to the 2015 Social Security Trustees Report. The summary explains why Social Security's finances are unsustainable, citing rising beneficiary-to-worker ratios and growth in per-capita benefits, and urges policymakers to act now to fix the problem so that the required changes are not as sudden or burdensome.
Why are Social Security's Finances Unsustainable?
The summary outlines two underlying reasons for the unsustainability of Social Security's finances.
- The beneficiary population is forecast to grow faster than the worker population. This rise is driven by the decline in birth rates over the past 50 years and because people are living longer but retirement ages have not been increased commensurately.
- Per-capita benefits are scheduled to grow faster than inflation. This is because initial benefits grow with average wages, which tend to rise faster than inflation.
Last week, the Social Security and Medicare Trustees released their annual reports on the long-term finances of each program, showing that those programs remain financially unsound and on the road toward insolvency. As part of the reports the public trustees, who are appointed members of the public rather than agency heads, release a statement highlighting their thinking around key issues surrounding the trust funds. Three issues stand out in this year’s statement: the need for prompt action to solve the impending exhaustion of the Social Security Disability Insurance (SSDI) Trust Fund; the need for near-term action to solve the imbalance in the Old-Age and Survivors Insurance (OASI) Trust Fund; and the importance of maintaining and building on measures to control Medicare cost growth.
The Impending SSDI Crisis
"It is impracticable to reduce DI costs sufficiently to prevent imminent Trust Fund depletion (and thus, sudden benefit reductions for highly vulnerable individuals) without at least a temporary increase in DI Trust Fund resources, irrespective of its source or combination with other measures."
The Washington Post yesterday issued Congress "a wise prescription for Social Security Disability Insurance," urging lawmakers to use the program's impending insolvency as an opportunity to enact longer-term structural reforms. The Social Security Disability Insurance (SSDI) trust fund is slated for depletion by the end of 2016, at which point benefits would be cut across the board by 19 percent. Lawmakers have repeatedly stated their intent to avert the cut for the nearly 9 million disabled workers and their nearly 2 million dependents who receive SSDI. Many expect that lawmakers will extend solvency by redirecting some of the funds currently going into the Old-Age and Survivors' Insurance (OASI) trust fund to SSDI, extending SSDI's solvency by 17 years according to the Social Security Trustees, while bringing forward OASI's insolvency date by 1 year.
The Post by contrast called on Congress to go beyond just clean reallocation and enact a reallocation “linked to structural changes” that would address flaws they see in the core design of the program:
The problem is that SSDI is far from functioning optimally; while most of the program’s rising cost is, indeed, due to demographics, not all of it is. As recent research in labor economics has shown, some of the growth is due to post-1984 program rules that made it easier to claim disability on the basis of mental or musculoskeletal ailments. Perversely, SSDI provides employers no incentive to keep individuals at work, earning wages, while providing those who get benefits no incentive to return to the workforce. As economist David Autor of MIT has written, “the SSDI program spends too few societal resources helping individuals with disabilities to remain employed and too many resources supporting the long-term dependency of individuals who could be self-sufficient with . . . appropriate accommodation and support.”