Why White House disability insurance fix makes sense

Advocates for disabled Americans got some welcome news today in the White House budget for 2016: The plan asks Congress to keep the 11 million disabled Americans now receiving Social Security disability insurance out of a looming brawl over broader Social Security reform (for more, see my column today at Reuters Money).

The budget plan would shift revenue to Social Security’s disability from its retirement insurance trust funds. This is the only sensible way to approach the looming exhaustion of the DI trust fund at the end of 2016; at that point, revenue would be sufficient to pay only 80 percent of benefits to disabled beneficiaries. Yet House Republicans have signaled that they may hold reallocation hostage to broader Social Security reform, e.g. cuts in the retirement program.

The administration has been signaling for some time that it wants to do a reallocation, but placing it into the budget plan puts a stake in the ground.

The budget calls for a small reallocation of existing payroll tax revenue from the Social Security retirement trust fund while long-term solutions are debated for the program’s overall health. There would be a five-year reallocation of payroll taxes from the Old-Age and Survivors Insurance (OASI) trust fund to the disability fund (DI), starting in January 2016 and ending in December 2020. The plan would increase the payroll tax allocated to DI by 0.9 percentage point, with a corresponding decrease in funds received by OASI. The change would have no overall effect on the longevity of the combined trust funds, which are expected to be exhausted in 2033. The chart below, prepared by Social Security’s actuaries, shows what that would look like.

SSDI-reallocation-OACT-table

 

SSDI-chartThis fight is critical for anyone currently on disability – but it’s important for a much larger group of Americans – especially those closing in on retirement age. Seventy percent of disability insurance beneficiaries are in their 50s and 60s, and the likelihood of needing to file rises with age, as the chart at right by researchers at the Urban Institute shows. Let’s say you injure your back or suffer a debilitating stroke in your late fifties – still too young to file for retirement benefits. You would file for a disability insurance benefit, and if the application is approved, you would begin receiving a benefit equal to the amount of a full retirement benefit, based on the work credits earned to that point. Your benefit payment would shift over to the retirement program when you reach full retirement age. (for a thorough review of the issues involved in this debate, see this overview at the Center for American Progress).

The White House reallocation proposal is good news for disability beneficiaries – if lawmakers are willing to go along. But the House seems poised to insist that reallocation won’t happen without changes to the retirement program.

That would be an appalling development, considering that many disability beneficiaries are economically vulnerable. Older recipients (age 60-64) are 1.6 times more likely to live below the poverty line than people not receiving disability, according to the Urban Institute; 31 percent of beneficiaries age 31-49 had family income below the federal poverty line.

The White House reallocation proposal is good news for disability beneficiaries – if lawmakers are willing to go along. But the House seems poised to insist that reallocation won’t happen without changes to the retirement program.

That would be an appalling development, considering that many disability beneficiaries are economically vulnerable. Older recipients (age 60-64) are 1.6 times more likely to live below the poverty line than people not receiving disability, according to the Urban Institute; 31 percent of beneficiaries age 31-49 had family income below the federal poverty line. The average benefit, about $1,140 per month, replaces about half or less of a worker’s earnings. The average benefit, about $1,140 per month, replaces about half or less of a worker’s earnings.

Disability-recipient-wealth

 

Cutting benefits for the disabled would be the latest evidence – should you need any – that lawmakers are completely out of touch with their constituents. Poll data consistently shows strong support across ideological, party and demographic lines for bolstering Social Security benefits – not cutting them.

And it’s completely unnecessary. Social Security has $2.8 trillion in reserves, enough to pay full benefits for two decades while we figure out a long-term solution.
Let’s do a reallocation – now.

Comments

  1. bob franks says:

    Why raid Social Security? Reallocate some of the wasteful expenses in other programs!!!

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