More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

Full bio and recent public appearances | Research archive at CBPP.org


New Chart Book Paints Picture of Disability Insurance

July 21, 2014 at 1:53 pm

The Senate Finance Committee will hold a hearing this Thursday on Social Security Disability Insurance (DI).  We’ve just released a new chart book about DI.  Its more than 20 figures illustrate the essential facts and dispel some common misperceptions about this vitally important program.

For example, the following graph shows how growth in DI’s benefit rolls has slowed sharply.

The growth in the number of DI beneficiaries in recent decades stems largely from well-known demographic factors.  These include the growth of the population; the aging of the baby boomers into their 50s and 60s, which are years of peak risk for disability; growth in women’s labor force participation, which makes women much more likely to earn insured status for DI; and the rise in Social Security’s full retirement age from 65 to 66.

Both demographic and economic pressures on DI are easing.  In recent months, growth in the number of DI beneficiaries has slowed to its lowest rate in 25 years.  Social Security’s actuaries project that the program’s costs will level off as the economy continues to mend and baby boomers move from the disability rolls to the retirement rolls.

DI costs are projected to exceed revenues, however, and the program’s trust fund needs to be replenished in 2016.  Unless Congress increases the share of the Social Security payroll tax devoted to DI, beneficiaries would then face a 20 percent cut in benefits.

Reallocation between the DI trust fund and Social Security’s much larger Old-Age and Survivors Insurance (OASI) fund is a traditional method of addressing shortfalls in one program, and Congress should do so to avoid a harsh and unacceptable cut in benefits for an extremely vulnerable group.

For the full chart book, click here.

Congress Needs to Boost Disability Insurance Share of Payroll Tax

July 17, 2014 at 2:29 pm

Congress should increase the share of the Social Security payroll tax that’s devoted to Disability Insurance (DI) and reduce the share allocated to Old-Age and Survivors Insurance (OASI).  We explain in a new paper why that’s essential to avoid a 20 percent across-the-board cut in DI benefits in 2016, how Congress has reallocated payroll tax revenues many times in the past, and that reallocation has not been controversial.

The current Social Security tax is 6.2 percent of wages up to $117,000 in 2014, which both employers and employees pay.  Of this total, 5.3 percent of covered wages goes to the OASI trust fund, and 0.9 percent goes to the DI trust fund.

Traditionally, lawmakers have divided the total payroll tax between OASI and DI according to the programs’ respective needs.  Congress has reallocated payroll tax revenues many times — sometimes from OASI to DI, sometimes in the other direction — to maintain the necessary balance.

The current allocation reflects policymakers’ decision in 1994, when they last reallocated taxes between the programs.  The 1994 reallocations only partly mitigated the effects of the 1983 Social Security amendments, which slightly raised DI’s cost and cut DI’s share of the payroll tax.

Lawmakers expected that the 1994 reallocations would keep DI solvent until 2016.  Despite fluctuations in the meantime, current projections still anticipate that the trust fund will be depleted in 2016 as forecast.

DI’s anticipated trust fund depletion does not indicate that the program is out of control or that it’s “bankrupt;” that is, if the trust fund were depleted and policymakers took no action, the program could still pay about 80 percent of benefits.  But, at the same time, cutting benefits by one-fifth for an extremely vulnerable group of severely disabled Americans is unacceptable.

Ideally, Congress would address DI’s finances in the context of legislation to restore overall Social Security solvency, as we’ve previously pointed out.  But even if policymakers make progress toward a well-rounded solvency package before late 2016, which seems unlikely, any changes in DI benefits or eligibility would surely phase in gradually and hence do little to replenish the DI fund by 2016.  Consequently, reallocating payroll tax revenues between the two programs would still be necessary.

There is nothing novel or controversial in such a step, and failing to take it would be irresponsible.

Click here to read the full paper.

New CBO Long-Term Budget Projections Tell Familiar Story

July 15, 2014 at 2:47 pm

The Congressional Budget Office (CBO)’s new long-term budget projections, released today, are very similar to those that CBO published in September 2013 and to ones that we released in May 2014.  They show that the nation’s fiscal outlook is stable for the rest of this decade and then worsens gradually.

CBO projects that, under current policies, the federal debt in 2020 will amount to 74 percent of GDP — the same level as in 2014.  The debt will rise slowly thereafter, reaching 106 percent of GDP by 2039.

Other recent budget projections have told the same familiar story.  CBO projected last year that the debt-to-GDP ratio would reach 102 percent in 2039, and CBPP recently projected a debt-to-GDP ratio of 101 percent in 2040.

For the 2014-2024 period, CBO’s new long-term projections are identical to its April 2014 baseline.  Beyond the first ten years, CBO has made some small revisions in assumptions that, on balance, leave the projected path of debt largely unchanged.

When we released our long-term estimates in May, we said:  “No deficit or debt crisis looms, and the weak labor market remains the nation’s most immediate economic concern. But policymakers and the public should not ignore the long-run budget problems, which remain challenging.”  That conclusion still holds.

A stable — or declining — debt-to-GDP ratio is an appropriate goal for fiscal stability.  Although a rising debt ratio may be advantageous when the economy is operating well below its potential, as it has been since 2008, a rising debt ratio in good times reflects an unsustainable budget policy that ultimately poses threats to financial stability and long-term growth.  Policymakers should reduce projected debt-to-GDP ratios through carefully designed policies that strengthen (rather than weaken) the slow economic recovery in the near term, while putting in place equitable and balanced deficit reduction that grows over time.

Washington Post Misses the Mark on Federal Credit Accounting

June 4, 2014 at 4:58 pm

A Washington Post editorial today mistakenly implies that policymakers omit from the federal budget some of the costs of government loans by putting them “off-budget.”

In fact, the current accounting method for federal credit programs fully accounts for all the cash flows associated with loans and loan guarantees over their lifetimes.  The budget estimates include all expected defaults, late repayments, changes in interest rates, and other factors that affect a loan’s cost to the government.

The approach that the Post favors — so-called “fair-value accounting” — would add a cost to the budget on top of the actual cash flows.  The add-on would equal the extra amount that private lenders would charge if they, rather than the government, issued the loans or loan guarantees.  It would reflect the fact that private individuals are risk-averse and dislike a loss more than they like an equal gain.

Risk-aversion doesn’t belong in the federal budget because it isn’t a cost that the federal government actually incurs.  It never has to be covered by additional taxes or borrowing.

“Whatever decisions the government makes, its books should reflect their actual costs fully and realistically,” the Post says.  That’s precisely what existing credit accounting already does, as we have explained.  Adding a risk-aversion penalty that represents a cost that the government doesn’t bear would mean that the government’s books would diverge from actual costs.

Former Congressional Budget Office Director Robert Reischauer strongly supports the current approach to credit accounting.  He writes, “A society’s aversion to risk may be an appropriate factor for policymakers to take into account in a cost-benefit assessment of any spending or tax proposal but adding a cost to the budget does not make sense.”

The Week Misuses CBPP Analysis of Health Reform’s Employer Requirement

May 16, 2014 at 11:38 am

A recent column in The Week incorrectly used a 2009 CBPP paper about health reform’s employer responsibility requirement, under which large employers must offer their workers health coverage or pay a penalty.  As we’ve explained, that paper described an early version of the so-called “employer mandate” that’s very different from the one enacted in 2010.  In fact, Congress overhauled the provision specifically to deal with the criticisms we raised, so our paper doesn’t apply to the enacted version.  For details, see here.