The New York Times Editorial Board's Teresa Tritch posted a piece last week on short-term solutions to avert next year's depletion of the Social Security Disability Insurance (SSDI) trust fund reserves. She opposes interfund borrowing that would loan money from the Old-Age and Survivors' Insurance (OASI) trust fund and instead supports reallocating tax revenue from one to the other. Although we don't have a stance on which is better, we couldn't help but notice that Tritch used many misleading claims to support her position, many of which we previously discussed in Dispelling Common Myths in the SSDI Debate and Debunking 8 Social Security Myths on its 80th Birthday.
Below, we correct the record where Tritch relied on myths:
- Reallocation "would enable both funds to pay full benefits until 2033, plenty of time" for action on long-term program health.
Tritch is basically correct that reallocation would ensure combined solvency for about 20 years, with the Social Security Trustees estimating insolvency in 2034 and the Congressional Budget Office estimating around 2029. But there is not "plenty of time" for long-term action. The earlier that a plan is enacted, the more it can protect vulnerable beneficiaries, introduce changes gradually, and give people time to prepare. As the deadline gets closer, it becomes more difficult to avoid steep benefit cuts or tax increases. As we explained in Delaying Social Security Changes Ties Policymakers' Hands, a shortfall that could be solved with a 2.6 point tax increase or 16 percent benefit cut today would require a 4.0 point tax increase or 23 percent benefit cut if delayed until the date of insolvency. Indeed, if lawmakers wanted to protect current beneficiaries, it would be impossible to achieve solvency – even with fully eliminating benefits for new beneficiaries – by 2034. Even waiting ten years will hamstring the ability of lawmakers to make gradual changes which give beneficiaries time to plan and adjust.
The Bipartisan Policy Center (BPC) recently convened a Disability Insurance Working Group and released their recommendations to address the upcoming exhaustion of the Social Security Disability Insurance (SSDI) trust fund. The group brought together diverse stakeholders that spanned from disability community advocates and former policymakers to academics and business leaders to find consensus recommendations that involved tradeoffs from all perspectives of the situation in order to make a comprehensive proposal.
The Working Group, guided by 11 principles for their decision-making process, agreed that the immediate funding need would need to be addressed by reallocating payroll tax revenue from the Old-Age and Survivors' Insurance trust fund to the SSDI trust fund, and they also suggested the following program recommendations:
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. As it turns out, however, the situation could be notably better or notably worse depending on how policymakers handle a few outstanding matters – many a part of the gathering fiscal storm Congress will face this fall.
If lawmakers ignore fiscal responsibility as they have been recently, debt will rise much more rapidly. In our paper we estimated an Alternative Fiscal Scenario (AFS) based on past assumptions CBO has used. The AFS extends expired and expiring tax provisions and permanently repeals the sequester-level discretionary spending caps. And under the AFS, debt will rise continuously every year from about 74 percent of GDP today to 78 percent by 2020 and 85 percent by 2025. Earlier this year, CBO estimated that this level of debt growth could shrink the economy by as much as 7 percent by 2040 compared to the baseline.
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.