The House Ways and Means Social Security Subcommittee held a hearing last week on the impending crisis of the insolvency of the Social Security Disability Insurance program. The Senate Budget Committee held a similar hearing earlier in February.
These hearings are happening as the Disability Insurance (DI) program is running toward insolvency before the end of 2016. Absent congressional action, beneficiaries of DI and their dependents will see a 19 percent indiscriminate cut in their benefits. The average monthly benefit received in December 2013 was $1,146. A 19 percent cut in benefits would decrease the average monthly benefit to $928, leaving many beneficiaries and their dependents—many of whom rely on the disability insurance program as their only source of income—below the poverty line.
Congress is holding hearings to identify solutions to address the disability program’s imminent funding shortfall without worsening the finances of Social Security’s retirement program. A responsible Congress would adopt meaningful reforms to improve Social Security’s retirement and disability programs to protect seniors and the disabled from indiscriminate benefit cuts without burdening younger, working generations with a higher tax or larger debt burden.
Much work remains to be done for Congress. At the most recent hearing, ranking member Xavier Becerra (D–CA) suggested shifting a percentage of the payroll tax from the Old-Age and Survivors Insurance (OASI) trust fund to the disability trust fund, echoing a proposal in the President’s budget. Adopting the Administration’s proposal would transfer nearly $330 billion over five years from the retirement program to the disability one. This transfer threatens to delay comprehensive Social Security reform until 2033 when both trust funds would become insolvent at the same time.
To avoid this scenario, the House passed the Johnson rule at the beginning of the congressional session, specifying that no funds shall be transferred between the two trust funds unless this transfer is accompanied by savings to the combined Social Security system.
Representative Mike Kelly (R–PA) emphasized that in the five years he has been in Congress, he has been disappointed with Washington’s inability to address long-term problems. Representative Kelly argued that “serious structural changes” are necessary to address the imminent Social Security shortfall.
Lawmakers heard a similar message from their witnesses. Dr. Charles Blahous, public trustee of the Social Security and Medicare Boards of Trustees, pointed to the Section 709 letter in which the trustees wrote that “lawmakers should take prompt action to strengthen the actuarial status of the DI Trust Fund.” Moreover, the letter warns that “[solely reallocating the payroll tax rate between OASI and DI…as they did in 1994] might serve to delay DI reforms and much needed financial corrections for OASDI as a whole.”
Ed Lorenzen, senior advisor on the Committee for a Responsible Federal Budget, also suggested that Congress should respond to the crisis with comprehensive Social Security reform. Lorenzen emphasized the consequences of delay in his written testimony:
Unfortunately we have seen an increasing trend of policymakers failing to deal with issues until we reach a crisis. If we paper over the imminent crisis facing the DI trust fund with reallocation and delay action until we face the crisis of impending depletion of the combined OASDI trust fund, the consequences will be dire for beneficiaries, taxpayers and the Social Security program.… If we continue to delay action for another twenty years the magnitude of changes necessary to restore solvency will be 50% greater than if we act today.
Instead of solely focusing on the financial crisis in the disability program, Congress should consider the system as a whole and ask why we are facing this crisis in the first place. If Congress wants to preserve disability and retirement benefits for those most vulnerable in society, Congress should adopt reforms that strengthen both programs at this critical decision point.
The Heritage Foundation recently held an event on Capitol Hill to reveal some of the shortcomings in the current disability program and to recommend reforms, including adopting a needs-based period of disability and reducing incentives for using DI as an early retirement program to preserve benefits for those who need them the most while improving incentives to work for those who are able to work.
Sophie Simunek is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.