The Hill | May 1, 2012
Since the Social Security Trustees report was released last week, we’ve heard a lot about the year 2033. That’s the year when the Social Security trust funds as a whole will run out of money and will no longer be allowed to pay full benefits. The real year to pay attention to, though, is 2016, when the Social Security Disability Insurance fund runs out of money.
What does this mean? It means that within half a decade, during the next presidential term, the disability program will no longer have the legal resources to fully pay its 12 million beneficiaries. At that point, current law calls for an immediate 20 percent benefit reduction for all disabled individuals.
Most observers don’t worry much about this year. They assume that when 2016 comes around, politicians will simply reallocate money from the old age program into the Social Security program and viola, problem solved. I wouldn’t be so sure that transferring the money will be so easy – and I’m not sure it should be.
The Social Security disability system is broken in many ways. Not only is the program financial insolvent, but the system is wrought with fraud, needlessly complex, difficult to navigate, inconsistent and unfair in determining eligibility, inflexible to changes in the structure of the workforce, administratively overburdened, almost completely uncoordinated with other government policies, and unable to help or reward those who are interested in reentering the workforce.
Making the disability system solvent simply by taking money from the already-underfunded old-age system would represent a double policy failure by committing a disservice to both programs. Instead, policymakers should use the fast-approaching insolvency date in the same way they did when the trust funds ran low in 1983 – come together and fix both programs for this generation and the next.
Specifically, any plan which reallocates money from the old age program to the disability program should do the following:
Enact reforms to improve Disability Insurance over the short-term
When lawmakers worked to prevent the Social Security trust funds from running out of money in 1983, the primary focus was on identifying the $150 to $200 billion necessary to keep the program solvent through 1989. Similarly, they should work to identify savings approaching $200 to $300 billion through 2022 in order to keep the DI trust fund intact.
On the spending side, savings could come from enhanced anti-fraud efforts, reductions in duplicative benefits, limits to retroactive benefits, and changes to the way we treat beneficiaries who collect disability as an alternative to reduced early retirement benefits. On the tax side, one option would be to gradually increase or remove the “taxable maximum” on the 1.8% disability payroll tax in order to ask high earners to contribute more without dramatically increasing their marginal tax rates.
Take steps toward more structural reform
At the same time we identify short-term savings, we should be asking more fundamental questions about the program. How should disability be defined? How can we offer different types of support across various state and federal programs? Is there room for partial disability in the system? How can we help to train and reward beneficiaries to go back to work, or to avoid entering the disability system in the first place?
We need a disability system for the 21st century, a system which answers these and many more questions. Such a fundamental rethinking to the 55-year old program will take time, but we can more aggressively pilot new ideas starting today, and combine that with a study and review process to make bolder reform possible in the coming years.
Fix Social Security: Make it sustainable solvent
The 1983 reforms focused on the short term, but used the opportunity to enact long-term changes as well. The combined Social Security program is incredibly underfunded over the long-run -- by one to one and a half percent of GDP depending on how one measures it. We can eliminate this gap through a comprehensive plan which slows benefit growth for higher earners, gradually increases the retirement age, and makes other tax and spending changes to make the old-age and disability programs sustainable over the long run.
Undertaking such reforms today would give workers plenty of time to plan and make changes, and offer them the security of knowing the program will be there for them and the next generation.
Ideally, we wouldn’t need a looming insolvency to force action on this important issue. But if politicians need the threat of a crisis in order to act responsibly, there is no shortage of these in the months and years ahead. Hopefully they will act in time to avoid them.
CRFB has compiled a brief background on the scope of our nation's fiscal challenges and the drivers of our debt and deficits, while outlining some of the types of solutions available to address the problems. This Powerpoint is meant to offer an objective, non-partisan view of our country's fiscal situation as an educational tool meant to help foster open and honest debate about these issues.