The Center's work on 'Disability' Issues


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.

Our Take on Today’s Trustees’ Reports

July 28, 2014 at 4:34 pm

We just issued statements on the trustees’ 2014 reports on Social Security and Medicare.  Here are the openings:

  • CBPP President Robert Greenstein on Social Security:

    “Social Security can pay full benefits for close to two decades, the new trustees’ report shows, but will then face a significant, though manageable, funding shortfall that the President and Congress should address in the near future.

    “Specifically, the trustees estimate that Social Security can pay full benefits until 2033, at which point its combined trust funds will be exhausted.  After 2033, even if policymakers failed to act, Social Security would pay about 75 percent of scheduled benefits, relying on Social Security taxes as they are collected.  The exhaustion date is unchanged from last year’s report and is within the range that the trustees have projected for some time.  In the late 1990s, they projected the exhaustion date as early as 2029; at one point in the last decade, they projected an exhaustion date as late as 2042.

    “The trustees caution that their projections are uncertain.  For example, they estimate an 80 percent probability that trust fund exhaustion would occur between 2029 and 2038 — and a 95 percent chance that it would happen between 2028 and 2041.  The Congressional Budget Office (CBO) recently estimated that exhaustion would occur in 2030, largely because CBO expects somewhat faster improvements in mortality.  Fluctuations of a year or two in either direction are no cause for either alarm or celebration.  The key point is that all reasonable estimates show a manageable long-run challenge that policymakers must address, the sooner the better, but not an immediate crisis. . . .”

  • Senior Fellow Paul Van de Water on Medicare:

    “Medicare has grown somewhat stronger financially in both the short and long term since last year but continues to face long-term financing challenges, today’s report from its trustees shows.  The projected date of insolvency for Medicare’s Hospital Insurance (HI) trust fund is 2030 — four years later than projected last year.

    “Health reform, along with other factors, has significantly improved Medicare’s financial outlook, boosting revenues and making the program more efficient.  The HI trust fund’s projected exhaustion date of 2030 is 13 years later than the trustees projected before the Affordable Care Act.  And the HI program’s projected 75-year shortfall of 0.87 percent of taxable payroll is down from last year’s estimate of 1.11 percent and much less than the 3.88 percent that the trustees estimated before health reform. . . .”

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.

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.