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 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.
WHO IS ON DISABILITY
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.
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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 http://link.reuters.com/qyk97s
(Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance.
Editing by Lauren Young and Steve Orlofsky)
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