Congress last year unanimously closed a loophole that allowed surviving Nazi war criminals to claim Social Security benefits, but that’s where the entitlement reform consensus ends. Now the political left is melting down over a modest budget change that could require Congress to be honest about the Social Security disability program’s fiscal problems and employment distortions.
Republicans are “inventing a Social Security crisis that will threaten benefits for millions and put our most vulnerable at risk,” wrote Senator Elizabeth Warren , in one of her subtler commentaries. AARP and other left-leaning groups are also war-whooping that a procedural rule the House adopted last week will mean about a 19% cut in disability-insurance benefits.
If only. Social Security payroll taxes finance traditional income transfers for the elderly and disability payments, and an ever-larger share is going to the latter for what amounts to promoting middle-age retirement. What used to be last-resort insurance has come to apply to ailments like back pain or anxiety. More and more workers are leaving the labor force permanently and substituting disability for wages.
In 1990 about one of every 10 Social Security dollars flowed to disability. Now it’s nearly one of five. The disability rolls doubled between 1990 and 2008, and then they spiked 21% in the Obama era to 10.2 million Americans and their dependents. Only about one-third of this growth can be explained by the underlying health, size and demographic composition of the working-age population.
WSJ
Payments have exploded 32% since 2008 to $140.1 billion. And every year since 2009 disability payments have exceeded the revenues dedicated to disability by a portion of the Social Security payroll tax. The nearby chart tracks the decline in the so-called trust fund that is scheduled to run dry in 2016.
Like the separate trust fund for seniors, this does not mean that some pool of money in the Treasury is running down. All current Social Security payments are financed by current payroll taxes. Trust funds are an accounting fiction that Congress invented to give the appearance that payroll taxes are being saved and invested.
There is one legal catch: When a trust-fund balance reaches zero and current revenue can’t cover current claims, the Treasury isn’t allowed to pay out full benefits. The projected disability shortfall for 2016 is 19% of liabilities, which is how the same liberals who created this shortfall get their figure for phantom cuts.
In practice Congress always protects entitlements for current beneficiaries. Eleven times since 1968, most recently in 2000, Congress has reallocated balances back and forth between the disability fund and the old-age trust fund to disguise Social Security’s financial shortfall. Liberals want to do it again to fill the growing disability hole.
But this bookkeeping maneuver would be especially reckless now, given that the long-term shortfall for payments to the elderly is much larger in absolute and relative terms. The crisis merely arrives later—about 2030—than the immediate disability shortfall.
The best analogy is to an underwater borrower transferring debt from one maxed-out credit card to another with a higher balance but also a higher spending limit. The new House Republican rule merely bars this accounting ruse, on the sensible grounds that Congress shouldn’t keep lying to the public. It may even force Congress to confront each of the two Social Security programs on its own terms.
Reforming disability insurance needn’t mean slashing benefits. It does require setting priorities that help the genuinely disabled while encouraging people who can work to remain on the job.
The subjective eligibility criteria for disability haven’t been updated in 35 years despite advances in medicine and rehabilitation, and they are enforced at the discretion of administrative judges. Applicants often use a shadow industry of lawyers, doctors and bureaucratic fixers to qualify. And as former Senator Tom Coburn amply documented, fraud is rampant.
If the GOP’s truth-in-advertising change forces Congress to fix the disability mess and protect the most vulnerable, so much the better.
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