The Center's work on 'Social Security' Issues

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.

Social Security’s Backlog Rooted in Underfunding, Not Incompetence

October 30, 2014 at 2:26 pm

House Majority Leader Kevin McCarthy suggests the Social Security Administration’s (SSA) large backlog of uncompleted continuing disability reviews reflects government incompetence.  Actually, the backlog in these reviews, which determine whether recipients of disability benefits through Social Security or Supplemental Security Income (SSI) remain eligible, is really about underfunding.

In fact, it’s the House’s refusal in recent years to fully fund this type of program integrity work under the 2011 Budget Control Act (BCA) — part of an unfortunate pattern of congressional underfunding of these types of activities in a host of agencies — that has contributed to the backlog that the majority leader now deplores.

Continuing disability reviews are labor intensive, requiring expert evaluation of the recipient’s medical condition.  SSA must balance this workload against its other responsibilities, such as processing new benefit applications, handling Medicare enrollment, issuing Social Security numbers and replacement cards, and recording workers’ earnings (for calculating their future Social Security benefits).  Without adequate funding, SSA can’t hire the staff needed to complete the reviews on a timely basis while conducting these other essential tasks.

The BCA imposes caps on annual appropriations but allows specified amounts of extra funding each year for SSA program integrity activities and activities to fight health care fraud and abuse.  These special funding increases, which come on top of the base funding for these activities, are outside the BCA caps.  Policymakers allowed for these funding increases because the Congressional Budget Office, the Administration, and most experts agree that certain program integrity activities save much more money than they cost.  Continuing disability reviews conducted in 2012 saved an estimated $14.60 for every $1 they cost, by ending payments to beneficiaries who’ve recovered from their impairments.

In 2012 and 2013, however, Congress approved considerably less money for Social Security program integrity than the BCA allowed.  While the funding bills for those years approved by the Senate Appropriations Committee made full use of the BCA allowances, the amounts shrank in negotiations with the House.  As Kathy Ruffing noted last year, full funding in those two years would have saved an estimated $2.5 to $3.5 billion in future costs for Social Security, SSI, Medicare, and Medicaid.

Only in 2014 did Congress enact the full amount allowed by the BCA, which SSA estimated would allow it to conduct 81,000 more continuing disability reviews than the previous year.

Program integrity activities related to health care have fared even worse.  These activities address erroneous payments and outright fraud in Medicare and Medicaid, including hospitals and doctors that improperly bill these programs; in 2011-2013 they returned $8.10 in savings for each dollar spent.  For the past three years, the Senate Appropriations Committee approved the full additional funding allowed under the BCA but all of it was eliminated during final negotiations with the House (see chart).

The House’s penny-wise, pound-foolish approach also extends to tax enforcement.  The President has proposed giving the Internal Revenue Service extra funding to step up tax enforcement and reduce the “tax gap” (the hundreds of billions of dollars in taxes that are legally owed each year but go unpaid).   Here again, funding these activities would reduce the deficit.  The Treasury estimates that every additional dollar invested in IRS tax enforcement activities yields $6 in increased revenue.  And, here again, the House has consistently refused.

We strongly agree with Majority Leader McCarthy that SSA should reduce its backlog of continuing disability reviews.  Fortunately, when Congress returns, it can do something to reduce deficits and improve program integrity — not only at SSA, but also in health care programs — by approving the full funding allowed for these activities for fiscal year 2015.

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.

Social Security’s #1 Priority: Raise Share of Payroll Tax Going to Disability Insurance

July 29, 2014 at 4:49 pm

The Social Security trustees’ new report shows why the program’s immediate priority should be to raise the share of payroll taxes allocated to Disability Insurance (DI) and lower the share allocated to Old-Age and Survivors Insurance to keep the DI trust fund from running out in 2016.  Nine million disabled workers face a 20 percent across-the-board cut in DI benefits if the trust fund is depleted.

Social Security’s disability and retirement programs are closely linked, so ideally Congress would address DI’s finances as part of a long-term solvency package for Social Security as a whole — one that extends the solvency of both trust funds well beyond 2033, when the combined trust funds face exhaustion.  Enacting a balanced solvency package before late 2016, however, is highly unlikely.

Surveys find that Americans are willing to pay higher Social Security taxes to preserve and strengthen Social Security for future generations.  Yet some politicians argue for preserving solvency solely through benefit cuts.  Bridging such sharp divisions will be difficult, and holding DI beneficiaries hostage by refusing to reallocate payroll taxes wouldn’t make the task any easier — or success more likely.

Reallocation is unavoidable.  Even if policymakers miraculously agreed on a balanced solvency package by 2016, any changes in DI benefits or eligibility would phase in gradually and hence do little to replenish the DI trust fund by 2016.

Reallocation is a historically noncontroversial action that policymakers have often taken to shift resources between the two trust funds, in either direction.  Both the Bush and Clinton Administrations endorsed it in the early 1990s, and Congress enacted it in 1994 without a single dissenting voice.

Reallocation isn’t a “patch” or “kicking the can down the road,” as some contend — descriptions appropriate for the recent House-approved bill to extend the Highway Trust Fund by ten months, or Congress’ repeated one-year delays in implementing scheduled cuts in Medicare payments to doctors.  A payroll tax reallocation will keep Social Security’s disability and retirement programs solvent for another 15 to 20 years.

And reallocation doesn’t preclude additional actions to strengthen Disability Insurance.  Reversing the recent decline in Social Security’s administrative funding would allow the Social Security Administration to process claims more quickly and ensure that recipients remain on the rolls only as long as they are eligible.  Changes in the process for approving or denying claims might improve the accuracy and consistency of those disability determinations.  We could also test new strategies to help people with disabilities remain in the workforce, as the President’s 2015 budget proposed.