Social Security is facing a legislative reckoning, regardless of whether lawmakers want it.
The trust fund for the disability program will run out in late 2016, Social Security’s Board of Trustees warned in late July.
Without congressional action, disabled workers would immediately face a 25 percent cut in their benefits.
That is a prospect lawmakers cannot easily ignore. Social Security Disability Insurance, while not as politically sensitive as the retirement program, is massive.
There were roughly 11 million disability recipients in 2013, drawing an average of more than $1,100 in monthly benefits, according *to the Congressional Budget Office. The Social Security Administration expects that it will spend nearly $150 billion in fiscal 2015 on SSDI — a large sum even by federal spending standards.
The program's rolls have grown faster than anticipated, expanding sixfold, in the past three decades, leading to an imminent shortfall in the program's finances.
Lew and key congressional Democrats have advocated reallocating some payroll taxes from the Social Security retirement trust fund — which is due to run out after 2030 — to the disability program.
Such a shift would be “routine and non-controversial,” Senate Finance Committee Chairman Ron Wyden, D-Ore., said in a July hearing. Congress authorized such a shift most recently in 1994.
But the looming financing problems with disability insurance are nearer now than they were in 1994, and Republicans may be resistant to diverting funds from the retirement fund to the disability fund. “It is premature to agree on some payroll tax reallocation as a patch of convenience and to kick the can down the road yet again,” said Sen. Orrin Hatch of Utah, Wyden’s counterpart on the committee, at the hearing.
And some Democrats view any reform of the disability program as a threat to cut all of Social Security.
In a speech in his home state of Ohio in July, Sen. Sherrod Brown, one of the more progressive members of the Democratic caucus, went on the offensive against future attempts to revamp the programs, warning, "We need to recognize these attacks for what they are: backdoor attempts to dismantle and privatize Social Security by discrediting disability insurance,” according to the Cleveland Plain Dealer.
The disability program's financial woes are big enough to mean significant payroll tax hikes — more than $28 billion annually, according to the CBO — as well as cuts to stabilize its funding without touching other areas of the budget.
And that’s in a favorable scenario. But the reality might be even more daunting.
Social Security's actuary contends that the rapid increase in the size of the disability program was a predictable consequence of the population aging and women entering the workforce, and it is now finished.
Outside economists, however, have argued that the run-up in the rolls is instead the result of an easing of eligibility.
In 1984, Congress passed a law expanding the ways workers could qualify for benefits. The following years saw an increase in the number of recipients claiming “more subjective vocational or functional criteria” of disability, rather than easily verifiable injuries, according to researchers at the Federal Reserve Bank of San Francisco.
For example, a worker might gain disability benefits for back pain that he says prevents him from working as a forklift operator, whereas in the past he would have been denied benefits unless a doctor could verify his back was broken.
Furthermore, the researchers concluded, the Social Security Administration has “mostly underestimated" the growth in the number of recipients.
In other words, there's a possibility that Social Security has misunderstood the cause of the problem, namely the easing of eligibility, and has consequently underestimated the size of the issue.
In either case, Congress will have to address the program’s finances. But the possibility that the rolls are oversubscribed means that the policy and political stakes are high.