CHICAGO (REUTERS) - President Barack Obama signaled on Monday that he wants to keep 11 million disabled Americans out of a looming brawl over Social Security reform by shifting revenue between the program’s disability and retirement insurance trust funds.
It’s a sensible step to take while Congress works on long-term solutions to Social Security’s possible insolvency two decades from now.
At issue is the program’s disability insurance trust fund, which is on track to be depleted at the end of 2016. At that point, revenue would be sufficient to pay only 80 percent of benefits to disabled beneficiaries.
The president’s 2016 budget, released by the White House on Monday, calls for fixing that problem through 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.
The proposal could be the start of a fight with the Republican-controlled Congress. House Republicans last month adopted a rule that effectively forbids the House from approving any financial fix to the disability trust fund unless it is coupled with broader reforms.
“By including rebalancing in his budget, the president is making clear where he stands, and sending a message that our nation’s Social Security system is too important to the American people to hold it hostage to congressional politicking,” said Rebecca Vallas, director of policy for the Poverty to Prosperity Program at the left-leaning Center for American Progress, which has been advocating for disability reallocation.
The budget calls for 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.
Reallocation has occurred 11 times in the past, with funds flowing in both directions. And, despite a flurry of media coverage that focuses on abuse and fraud, the main sources of pressure on the disability program are straightforward and have been long predicted.
The aging of the baby boom generation means more people are entering the years when the risk of disability rises. Another key factor is the interaction of the disability and retirement programs.
Seventy percent of disability insurance beneficiaries are in their 50s and 60s. 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. But under reforms enacted by Congress in 1983 the full retirement age has risen from 65 to 67 for individuals born in 1960 or later, and to 66 for people born before 1960.
The increase in retirement age keeps beneficiaries on disability rolls for longer periods of time. Some 400,000 people ages 65 and 66 spend an additional year on the disability rolls annually, according to the Center on Budget and Policy Priorities.
The pressure on disability insurance is expected to wane as more boomers shift to retirement in the years ahead. So the need for a fix is temporary, and should be dealt with as part of a more thoughtful Social Security financial reform process that takes into account the retirement program.
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 on 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.
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.
(The opinions expressed here are those of the author, a columnist for Reuters.)
For more from Mark Miller, see link.reuters.com/qyk97s
Follow us @ReutersMoney or here Editing by Lauren Young and Steve Orlofsky