The ABLE Act: A Model for PAYGO

The House passed the ABLE Act yesterday, a bill that helps those who have been disabled since youth accumulate savings. The bill, with an estimated cost of $2 billion over the next 10 years, would create tax-free savings accounts that do not count against the account holder for means-tested programs. The bill is an encouraging example of fiscal responsibility, since it is fully paid for with savings in other parts of the budget.

Currently, low-income individuals cannot accumulate more than a certain amount in their savings accounts without losing SSI and Medicaid payments. For instance, individuals with more than $2,000 or couples with more than $3,000 in savings and assets are ineligible to receive SSI payments. Many have pointed out that these limits prevent people with disabilities save for medical bills, education, or equipment they may need to stay in the workforce. 

To remedy this, the bill would allow any child or person who became disabled before the age of 26 to establish an ABLE account and contribute up to $14,000 annually (subject to other state caps). The balance of the account would not count against the asset limits for low-income programs. Contributions into the account are made with after-tax dollars but there is no tax on the account's accrued interest or dividends.

The funds can be used for qualified expenses, such as education, housing, employment support, health, transportation, and other necessities. When considering the bill in committee, Ways & Means Chairman Dave Camp (R-MI) said "the ABLE Act will allow those with disabilities and their caregivers to have the stability and security of knowing that they can save and provide for education, housing and medical expenses in the future."

If recipients leave the workforce, they may end up applying for Social Security Disability Insurance (SSDI) benefits – a program facing insolvency in 2016 without Congressional action. Policies that help individuals with disabilities remain independent and in the workforce provide benefits to the budget and the economy, in addition to the individuals with disabilities themselves. The SSDI Solutions Initiative co-chaired by former Congressman Jim McCrery and Earl Pomeroy is seeking to identify and promote other policies to further the goal of helping disabled individuals remain in the workforce instead of going on SSDI.

The Congressional Budget Office (CBO) estimates that the ABLE accounts would increase spending by $1.1 billion, due to newly eligible people for low-income programs, and decrease revenue by $0.9 billion over ten years, from the tax-free savings accounts, for a deficit increase of approximately $2 billion. Fortunately, policymakers are abiding by pay-as-you-go (PAYGO) rules, fully offsetting costs over ten years through other spending cuts and tax increases. The proposed bill would cut $1.4 billion of spending and raise $0.6 billion in revenue, so the total bill has no deficit impact.

Major offsets are included in the table below.

Many of the offsets reflect cost saving options that have been around for a while but may not have been considered by Congress were it not for the requirement to offset the costs of legislation. To be clear, these offsets aren't perfect. In particular, while they would cover the costs of the ABLE Act in the first decade, they are too small to cover the costs in future decades – and as a result this legislation would add modestly to the long-term debt. This concern could largely be addressed by implementing the proposed ESRD offset permanently instead of only in 2024. 

Despite these concerns, the ABLE Act is a victory for PAYGO and an example of how public policy making should work. Congress identified a policy it considered high-priority, refined the policy to limit its costs and identified for existing money-saving ideas to pay for it. Absent a commitment to the PAYGO requirement there would have been no incentive for lawmakers to limit the cost of the policy or act on the existing cost savings options used to offset the costs.