You hear it often: Social Security is going broke. What you hear less often is an analysis of Social Security’s components -- its old-age retiree program and its disability program.
Sen. Rob Portman discussed both parts during a newsmaker breakfast on April 9 sponsored by Politico, the Washington-based newspaper and website. Portman’s remarks on the disability program could be considered jarring to those who don’t pay close attention, so we thought we’d take a step back to check them out.
Portman said, "The Social Security disability fund is going belly up in 2016." And 2016, he noted, is "right around the corner."
Portman is correct -- from an accounting standpoint, and as of right now. According to the Congressional Budget Office (CBO) and the most recent Social Security trustees’ annual report, the Social Security account that disburses monthly disability payments will not only pay out more money in 2016 than it takes in through taxes, but also will spend the last dollar it has in reserve by the end of that year.
As budget documents put it, the Disability Insurance, or DI, Trust Fund -- the account that held surpluses and was tapped to help make up any recent shortfall -- will be "exhausted" that year. This is the "disability fund" Portman was referring to.
The same fate isn’t expected to hit the other piece of the Social Security pie, Old Age and Survivors Insurance, until 2036 (or 2038 under a different analysis). Disabled workers and their spouses and dependents account for 18 percent of overall Social Security payments, according to the Congressional Budget Office.
The coming shortfall will occur because disability payments have exceeded the program’s noninterest income since 2005. This occurred for several reasons, including a liberalization of the Social Security screening process with a 1984 law that made certain non-fatal conditions such as back pain, arthritis and mental illness potential qualifiers; a rise in the program’s income-replacement computation, "which strengthened the incentives for workers to seek benefits," and an increase in the female labor force that expanded the pool of insured workers, according to a 2006 analysis by economists for the National Bureau of Economic Research. The latter provided more tax money but also expanded the pool eligible for benefits.
But there is another reason, cited by the CBO last July: the aging of the baby boom generation.
"More older people suffer from debilitating conditions; moreover, the program’s qualification standards for older workers are less strict than those for younger workers because older people are assumed to be less able to adapt to new types of work," the CBO reported. It noted that "between calendar years 1996 and 2009—the approximate period during which the baby-boom generation entered their 50s—the share of disabled worker benefits awarded to older workers (age 45 and older) rose from 67 percent to 76 percent."
But if payroll tax income to the program is insufficient already, why isn’t the DI program broke now?
The answer is that the program still has money left from better days -- held in the Trust Fund in the form of government securities. That makes it still possible to pay 100 percent of all benefits. But in 2016, those savings will be depleted.,
A few numbers make this clearer. In 2011, the DI program paid out $132.3 billion, including $2.9 billion in administrative expenses. But it only took in $81.9 billion in dedicated payroll taxes and $1.6 billion in income taxes that some beneficiaries must pay (depending on their incomes).
To make up the rest, it tapped the Trust Fund. It will not be able to do that and pay full expected benefits in 2016.
From a practical standpoint, Congress and the White House are likely to act before then. A number of proposals provide ways to avoid a retiree and disabled-worker calamity, some with changes to the payroll tax, some with benefit cuts, some with both. That makes the odds slim that Social Security’s disability fund will actually go broke.
But until that happens, all anybody has are the projections. And they are clear. So is this doomsday for Social Security?
Not at all. Social Security will still take in enough money to pay a percentage of the claims. Although federal law says the Trust Fund must have assets for claims to be paid, Congress can change the law. More likely is a broader fix from Congress.
Portman recognizes this, as he makes clear often -- and did so again at the Politico breakfast -- in his calls for entitlement reform. The Social Security trustees report in 2012 recognized this too, saying, "The DI program faces the most immediate financing shortfall of any of the separate trust funds; thus lawmakers need to act soon to avoid reduced payments to DI beneficiaries four years from now."
So yes, we can hope or expect that the problem will be solved before 2016. But as of right now, Portman’s claim -- that the "disability fund is going belly up in 2016" -- is accurate, or as accurate as Social Security’s trustees and the CBO can be. We rate the claim True.