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 and recent public appearances | Research archive at CBPP.org


Boosting Disability Share of Payroll Tax Wouldn’t Threaten Retirees

December 2, 2014 at 12:44 pm

Policymakers need to replenish funding for the Disability Insurance (DI) program — a vital part of Social Security — by late 2016 to avert a sudden, one-fifth cut in benefits to a group of severely impaired and vulnerable Americans.  Some critics claim that replenishing DI by reapportioning payroll taxes between the DI and retirement trust funds would jeopardize retirees, but that’s not the case, as our new paper explains.

Reallocating the shares of payroll taxes that go to the separate DI and Old-Age and Survivors Insurance (OASI) trust funds is a traditional and noncontroversial way to even out the programs’ finances.  Lawmakers have enacted 11 such shifts, in both directions.

Here’s why another reallocation wouldn’t hurt retirees:

  • The last two reallocations have shortchanged DI, underfunding it compared with the retirement program.  Congress redirected a big chunk of payroll taxes from DI to OASI in 1983 and only partly offset that in a 1994 law.  If DI’s tax rate had remained at its pre-1983 level, we wouldn’t need to replenish the fund today.  Yet nobody claims that the 1983 reallocation, which helped stave off OASI’s imminent depletion, “robbed” DI — nor could they reasonably claim that reallocating in the other direction would “rob” OASI.
  • A reallocation would have only a tiny effect on the retirement program’s solvency.  Reallocating taxes to put the two trust funds on an even footing would prolong the DI trust fund by 17 years (from 2016 to 2033), while advancing the OASI fund’s depletion by just one year (from 2034 to 2033).  The reason is simple: OASI is much bigger than DI, so a modest reallocation barely dents OASI.  And before then, policymakers will almost surely address Social Security solvency in a comprehensive fashion.
  • Most DI recipients are older people, so helping DI helps seniors.  The risk of disability rises with age, and most DI beneficiaries are older.  Seventy percent of disabled workers are age 50 or older, 30 percent are 60 or older, and 20 percent are 62 or older and would actually qualify as early retirees under Social Security.  (See graph.)

Neutral experts like the American Bar Association and the National Academy of Social Insurance, as well as retiree advocates like AARP and the National Committee to Preserve Social Security & Medicare, agree that reallocating payroll taxes is necessary and reasonable.

Policymakers should do so by 2016 to avert an unacceptable cut in DI benefits while working on the main goal:  ensuring solvency for all of Social Security.

Happy 79th Birthday, Social Security!

August 13, 2014 at 2:04 pm

Social Security marks its 79th birthday tomorrow.  This highly successful program pays benefits to more than 58 million Americans.  It’s the single most important source of income for its elderly beneficiaries, contributing on average two-thirds of income for recipients over age 65.  For more than one-third of them, Social Security constitutes at least 90 percent of income (see graph).

Reliance on Social Security is especially high among the oldest — those who can no longer work and may have outlived their savings — and elderly blacks and Hispanics. Without Social Security, nearly half of elderly Americans would live below the official poverty line; instead, fewer than 10 percent do.

But Social Security isn’t just for the elderly.  It protects workers who suffer a severe medical impairment and children whose breadwinner dies, retires, or becomes disabled. We estimate that in 2012 — the latest year for which we have data — it lifted more than 22 million Americans of all ages above the official poverty line (see table).

Social Security benefits are modest.  The average retired worker or elderly widow collects only $1,300 a month, and disabled workers even less.  Nobody gets rich from Social Security: only 10 percent of retired workers get more than $2,000 a month (and fewer than 2 percent get more than $2,500).  Social Security benefits are low by international standards, too.

With the continued decline of the traditional defined-benefit pension, Social Security is the only retirement income most Americans will collect that’s indexed to inflation and guaranteed to last as long as they live.  And because it’s not means-tested, Social Security encourages people to supplement their retirement income by working part-time or by saving money.

Social Security faces a long-term shortfall that’s predictable and manageable, as our new paper on the trustees’ latest annual report explains.  Those who fear that Social Security won’t be around when today’s young workers retire misunderstand the trustees’ projections.  Even if policymakers did nothing, the program could still pay three-quarters of scheduled benefits after the trust funds run out in 2033.

Of course, policymakers should act well before then to place this extremely popular program (see here and here) on a sound long-term footing.  The best proposals would protect vulnerable workers and beneficiaries and give all participants ample notice of future changes.  A well-crafted package would also make targeted improvements to Supplemental Security Income, which is distinct from Social Security but has important overlaps.

Social Security is the most effective and successful income-security program in the nation’s history.  The President and Congress should design reforms judiciously so that it remains that way.

CBPP Updates Chart Book and Paper on Disability Insurance

August 5, 2014 at 10:06 am

We’ve updated two important pieces about Disability Insurance (DI), an integral part of Social Security that protects workers who can’t support themselves anymore because of a severe medical impairment, to reflect the recent Social Security trustees’ report.

The first of those pieces, our popular chart book, presents nearly two dozen graphs that tell policymakers and citizens key DI facts:  why it’s important, why the DI rolls have grown, who receives benefits, and what financing issues the program faces.  The chart below, for example, shows that nearly 9 million workers receive benefits from DI, while DI protects 150 million if a devastating disability strikes them.

The second, our recent paper, explains why, as my colleague Paul Van de Water reminded us, lawmakers must allocate a slightly bigger share of the current payroll tax to DI by 2016.  The Social Security payroll tax, which is 6.2 percent of wages up to $117,000 in 2014, which both employers and employees pay, finances the retirement and survivor programs (5.3 percent) and the disability program (0.9 percent.)  Simply revising that split — as policymakers have done 11 times in the past, in either direction — would avert a sharp and wholly unnecessary benefit cut in 2016 while policymakers work on the more important issue:  ensuring overall Social Security solvency.

These are just two of the many analyses we’ve done on this vital program.  Check out our collection here and related blog posts here.

Awaiting the 2014 Social Security Trustees’ Report

July 25, 2014 at 1:25 pm

Social Security’s trustees will release their annual review of the program’s finances on Monday, and while we’re not sure what the report will say, the trustees last year estimated that Social Security’s combined trust funds will be exhausted in 2033.  That was well within the range that the program’s trustees have projected in their reports for the past two decades (see table).

Even after the combined trust funds — the Old-Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund — are exhausted, Social Security could still pay about three-fourths of scheduled benefits using its tax income, which is a fact that news stories often overlook.

Fluctuations from year to year in the trustees’ long-term estimates are normal.  A variety of demographic factors (such as fertility, mortality, and immigration) and economic variables (including wage growth, inflation, and interest rates) affect Social Security, and the actuaries constantly improve their methods.

Because of these fluctuations, revisions of a year or two, in either direction, are not a cause for alarm (or for celebration).  In fact, the trustees caution that their projections are uncertain.  For example, last year they judged that there was an 80 percent probability that trust fund exhaustion would occur sometime between 2029 and 2039 — and a 95 percent chance that it’d happen between 2028 and 2044.  More recently, the Congressional Budget Office (CBO) estimated that exhaustion would occur in 2030, largely because CBO expects somewhat faster improvements in mortality.  In short, all reasonable estimates show a manageable long-run challenge that needs to be addressed but not an immediate crisis.

The new report will note that the DI trust fund, which is legally separate from the much larger OASI trust fund, will need to be replenished sooner.  (Last year the trustees forecast that would be necessary in calendar year 2016; CBO projects that it’ll be necessary early in fiscal year 2017, which begins in October 2016.)  Traditionally, Congress has reallocated tax rates between the OASI and DI funds to address such challenges.  That’s why analysts usually focus on the outlook for the combined trust funds.

Legislators should boost DI’s share of the payroll tax by 2016 to avert a harsh and unnecessary cut in benefits to its severely impaired recipients.  And policymakers should work on a balanced package of Social Security reforms that achieves overall long-term solvency while preserving and even strengthening the program’s vital role in protecting breadwinners and their families.

You can find our analysis of last year’s report here, and our other Social Security analyses here.

We’ll be back on Monday with our initial reaction to the new Social Security and Medicare reports.

SSI Should Be Strengthened, Not Cut

March 27, 2014 at 11:22 am

House Budget Committee Chairman Paul Ryan’s misleading review of the safety net attacks Supplemental Security Income (SSI) — an important program that provides cash income to seniors, the blind, and people with severe and long-lasting disabilities who have little income and few assets.  This vital program aids some of the poorest and most vulnerable Americans and, rather than attack it, policymakers should strengthen it.

In December 2013, 8.4 million people collected SSI:  2.1 million seniors age 65 or older, 4.9 million disabled adults age 18-64, and 1.3 million disabled children under age 18.  Until the deep recession caused a modest uptick, SSI participation had generally been flat or falling as a share of the population since at least the mid-1990s (see graph).

SSI benefits alone don’t lift recipients living independently out of poverty; the maximum benefits for individuals ($721 a month) and couples ($1,082, if both spouses qualify) are about three-fourths of the poverty level.  But SSI greatly reduces the number of people in extreme poverty and lessens the burden on other family members.  A Social Security Administration study found that, in 2010, the poverty rate (based on family income) of recipients would be 65 percent without counting SSI payments; the actual rate, including SSI, was 43 percent.  Most families with an SSI recipient remained below 150 percent of the poverty threshold.  SSI benefits fall when recipients have other income (or live in a Medicaid facility or with relatives who provide support), so the average payment is just $529 a month.

Because SSI participants are elderly or have severe disabilities, it’s no surprise that relatively few of them work, even though program rules allow and encourage them to do so.  Nevertheless, nearly one-third of SSI recipients age 18-64, and three-fifths of elderly beneficiaries 65 or older, have worked enough — at least one-fourth of their adult lives — to qualify for Social Security benefits.  And two-thirds of children with disabilities who receive SSI and live in two-parent families — and one-third of those in single-parent families — have a working parent.

Severe disability in childhood — exacerbated by poverty — hampers adult outcomes (see here, here, and here), and about two-thirds of child beneficiaries reaching age 18 continue to qualify for SSI based on disability.  It’s not appropriate, as Ryan’s report implicitly does, to compare statistics like high school graduation rates and job-holding for young people who received SSI as children with statistics for those who didn’t.  The two groups differ in fundamental ways.  Similarly, there’s no basis for calling the adult struggles of those who received SSI as children an “effect” of their benefit receipt, as Ryan does.  Their underlying health problems coupled with their low incomes play an important role in their academic achievement and adult employment prospects, and at least one study suggests that childhood SSI benefits improve adult outcomes.

Special SSI program rules — like the Student Earned Income Exclusion — are designed to encourage a successful transition to adulthood for child beneficiaries, and the agency is rigorously testing even more targeted efforts.  Early results are mixed, but if the pilots are successful, such interventions would require more funding, not less, for this special group of young adults.