Alarmist Stories Misportray Social Security Disability Insurance

August 23, 2011 at 11:20 am

Social Security’s disability-insurance program is forecast to run short of money in 2018, more than six years from now, and policymakers can plug the hole for several decades by reallocating some taxes from the related old-age program as they have done in the past.  But that’s not the impression you’d get from some alarmist reports.  “Social Security disability on verge of insolvency” blares a Fox News story, a theme echoed by other outlets (see here and here).

Here are the facts.  In December 2010, 8.2 million people received disabled-worker benefits from Social Security.  (Payments also went to some of their family members:  160,000 spouses and 1.8 million children.)  Demographic and economic factors have pushed more people onto the disability rolls in recent decades; the number of disabled workers has doubled since 1995, while the working-age population — conventionally described as people age 20 through 64 — has increased by only about one-fifth.  But that comparison is deceptive.  Over that period:

  • Baby boomers aged into their high-disability years. People are roughly twice as likely to be disabled at age 50 as at age 40, and twice as likely to be disabled at age 60 as at age 50.  As the baby boomers (people born in 1946 through 1964) have grown inexorably older, disability cases have risen.
  • More women qualified for disability benefits. In general, workers with severe impairments can get disability benefits only if they’ve worked for at least one-fourth of their adult life and for five of the last ten years.  Until the great influx of women into the workforce in the 1970s and 1980s, relatively few women met those tests; as recently as 1990, male disabled workers outnumbered women by nearly a 2 to 1 ratio.  Now that more women have worked long enough to qualify for disability benefits, the ratio has fallen to just 1.1 to 1.
  • Social Security’s full retirement age rose from 65 to 66. When disabled workers reach the full retirement age, they begin receiving Social Security retirement benefits rather than disability benefits.  The increase in the retirement age from 65 to 66 has delayed that conversion.  Over 300,000 people between 65 and 66 now collect disability benefits; under the rules in place a decade ago, they’d be receiving retirement benefits instead.

The Social Security actuaries express the number of people receiving disability benefits using an age- and sex-adjusted disability prevalence rate that controls for these factors.  Over the 1995-2010 period, that rate rose from 3.5 percent of the working-age population to 4.4 percent.  That’s certainly an increase, but not nearly as dramatic as the alarmists paint (see graph).  And it’s no surprise that the rate creeps upward during periods of economic distress.

While legally separate, Social Security’s Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds are both funded by a payroll tax on the first $106,800 of earnings (a ceiling that’s updated annually).   The DI trust fund is expected to run dry in 2018, but the two funds combined could pay full benefits until 2036.  Congress has often reallocated payroll-tax revenue in the past — in either direction — to shore up the OASI or DI trust fund.

Disability benefits are an integral part of Social Security, closely woven into its package of retirement and survivor protections.  Policymakers should act soon to restore solvency to all of Social Security and make any necessary tax-rate reallocations between the two trust funds at that time.

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More About Kathy Ruffing

Kathy Ruffing

Kathy Ruffing is a Senior Fellow at the Center on Budget and Policy Priorities, specializing in federal budget issues.

Full bio | Blog Archive | Research archive at CBPP.org

4 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Thomas Jenkins #
    1

    I found the article to be an insightful and food for thought. What the GOP is howling about is nothing but smoke and mirrors. It is their desire to raise taxes on individuals but not on all individuals. Simply by removing the income limits on social security taxation, we would then have evert citizen contributing his/her share, at flat rate basis as opposed to the graduated method on which the income tax is calculated. Since social security is based on pre tax income, payment, regardless of income level, would essentially the need for any more “new” taxes on the blue collar and middle classes.
    Demographics do suggest that while the boomers replaced themselves growth has occurred with increased numbers of new immigrants who are having larger families. I seriously doubt that has been included in the calculations of those crying wolf.

  2. Lenny Moore #
    2

    Thanks Kathy for another insightful piece. The forefathers of this country knew that an informed electorate was necessary for a healthy democracy. My concern is that the electorate is fast becoming willfully ignorant. We should not allow the politicians to confuse deficit reduction talk with the health of the OASI and DI trust funds. By doing this, the politicians are able to achieve deficit reduction on the backs of lower and middle classes without the uninformed electorate knowing it.

  3. Dick Boyd #
    3

    Are members of Congress so rich that they do not recognize the finances of the people they represent?

    Let them eat cake.

    Are the members of Congress so out of touch that they leave the details of government to staff? Instead concentrating on the next election?

  4. Don Levit #
    4

    When yu wrote about the Disability Fund running out of money in 2018, it would be morte accurate to state that it is running out of numbers.
    There is no store of wealth in the disability reserve fund.
    The excess FICA taxes were loaned to the Treasury to pay for current expenses.
    The same process was handled with the interest, even though the interest was unfunded debt, not cash.
    Therefore, the entire trust fund is unfunded, for how can the dollars be in the Treasury (and spent) and in the trust fund, simultaneously?
    Don Levit



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