By this time next year, a crucial federal safety-net program could be out of cash, or almost out of cash. We refer to Social Security Disability Insurance, which paid benefits to 9 million disabled workers (and 2 million of their dependents) in 2014, at a total annual cost of $141 billion.
There’s no mystery why this has happened: Growth in beneficiaries has outstripped the accumulation of payroll taxes in the Social Security trust fund dedicated to disability benefits. There’s also no doubt about what will happen if Congress fails to act: a sudden 19 percent benefit cut, possibly right in the middle of the 2016 election campaign.
Those are the cold, hard facts, according to the newly published 2015 annual report of the Social Security system’s trustees. What to do about those facts, however, is controversial. It would be relatively simple to adjust the share of payroll taxes that flows into Social Security’s two trust funds, so that the old age and survivors’ fund gets less and the disability fund gets more. That’s essentially how Congress handled the last disability funding crisis in 1994. And it’s how the White House, in a new paper released by the Office of Management and Budget, is recommending that lawmakers address this one.
This recommendation reflects the White House’s view that SSDI’s growth has slowed in the past couple of years and that most of it reflected demographic factors — such as population aging and the entrance of women into the workforce — rather than the design of the program itself. Therefore, no immediate reforms are needed beyond a shift of resources into SSDI “while policymakers develop longer-term policies,” as the OMB report puts it.
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The problem is that SSDI is far from functioning optimally; while most of the program’s rising cost is, indeed, due to demographics, not all of it is. As recent research in labor economics has shown, some of the growth is due to post-1984 program rules that made it easier to claim disability on the basis of mental or musculoskeletal ailments.
Perversely, SSDI provides employers no incentive to keep individuals at work, earning wages, while providing those who get benefits no incentive to return to the workforce. As economist David Autor of MIT has written, “the SSDI program spends too few societal resources helping individuals with disabilities to remain employed and too many resources supporting the long-term dependency of individuals who could be self-sufficient with ... appropriate accommodation and support.”
Though hardly the sole, or leading, cause of declining labor-force participation in the United States, SSDI is nevertheless a factor. Reforming it could raise the economy’s potential growth, as well as millions of people’s life prospects. The pending crisis creates an opportunity for bipartisan compromise, in which Congress diverts more money to SSDI — linked to structural changes. The last tax reallocation, 20 years ago, “was intended to create the time and opportunity for such reforms,” as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here.