By Mark Miller
CHICAGO, Sept 5 (Reuters) - The year 2035 is far off in the future - and that’s one reason Congress has kicked the can down the road so many times when it comes to Social Security reform.
The program’s retirement trust fund is projected to be depleted that year, requiring sharp cuts in benefits if nothing is done. Closing the shortfall calls for tough choices that invite political procrastination - revenue increases, benefit cuts or some combination of the two.
Then there’s 2016, which is just around the corner. Congress will need to take action by then if it wants to avert painful benefit cuts in the retirement program’s first cousin - Social Security Disability Insurance, or SSDI.
SSDI and the Old-Age & Survivors (OAS) retirement programs really are joined at the hip. Both are social insurance programs designed to protect against the risk of lost income - one in the event of retirement, the other, disability. They also share a funding source: the payroll tax. The retirement program is much larger; currently, workers and employers pay a combined 12.4 percent employees’ payroll, with 10.6 percent going to the retirement fund and 1.8 percent toward disability.
SSDI’s trust fund will be depleted in 2016, which would translate into a 20 percent cut in benefits to nine million disabled people and an additional 2 million dependents who rely on benefits from it.
The problem, and its solution, are right in front of us, but easily avoided. All Congress needs to do is reallocate a small portion of payroll tax revenues from the retirement to the disability program. Reallocations have been done at least six times in the past- most recently in 1994 - with funds moving in both directions. These reallocations have not been controversial, and this time around, a shift of just 1/10th of 1 percent would equalize the long-range outlook of the two trust funds, according to Stephen Goss, the Social Security Administration’s chief actuary.
But this time could be different. Congress is headed toward another dangerous game of chicken over the debt ceiling, and Republicans likely will try to insist on entitlement program cuts as part of a deal.
The disability program already has been the target for a barrage of criticism from the right and some media outlets, which have argued that SSDI is running amok. The basic narrative is that SSDI is rife with fraud and that out-of-work baby boomers too young for retirement benefits are freeloading by getting disability benefits.
All of which suggests that SSDI could fall victim to polarized fiscal politics in Washington, with very real and difficult consequences for disabled Americans.
There’s no doubt that a program the size of SSDI is subject to some abuse. There also may be some sensible ways to reform the program to give people incentive to get back to work following a disability.
It’s also true that the disability rolls have been growing. This year, the program is paying benefits to 9 million disabled workers, up from 5.9 million in 2003.
Most of the growth is due to simple demographics. The boomer cohort has moved into the years when they are more likely to be disabled. The rates double from age 40 to 50, and again from 50 to 60, and the sharp jump in female labor force participation rates means more women are covered by SSDI, as well.
SSDI’s costs also have been boosted by the retirement program’s rising eligibility age. SSDI beneficiaries automatically move to the retirement program when they reach full retirement age. That age is rising gradually, from 65 to 67. The current retirement age of 66 kept an additional 400,000 people age 65 to 66 on the SSDI rolls for an additional year in 2011, according to the Center on Budget and Policy Priorities.
Contrary to the freeloader narrative some Social Security opponents want to promote, many SSDI recipients are just struggling to make ends meet.
A recent Urban Institute paper found that the SSDI population has lower lifetime income and accumulates less wealth. SSDI provides a majority of family income for nearly half of all recipients and more than two-thirds of unmarried beneficiaries. The average monthly check in 2011 was $1,399 for men and $1,078 for women. SSDI replaces, on average, half of what beneficiaries earned before they entered the program.
Poverty rates are highest for younger disability recipients - 31 percent of beneficiaries age 31-49 had family income below the federal poverty line. Older recipients (age 60-64), were 1.6 times more likely to live below the poverty line.
Reallocation is the right thing to do - it won’t worsen the combined OAS/SSDI long-range short-fall and it would give Congress more time to take a considered approach to the program’s overall financial needs. Lawmakers have to act no later than 2015 to avert sharp disability benefit cuts.