Social Security Trustee Charles Blahous warns:
The problem in a nutshell is that Social Security’s disability trust fund is running out of money. The latest trustees’ report projects a reserve depletion date in late 2016. By law Social Security can only pay benefits if there is a positive balance in the appropriate trust fund (there are two: one for old-age and survivors’ benefits (OASI), the other for disability benefits). Absent such reserves, incoming taxes provide the only funds that can be spent. Under current projections, by late 2016 there will only be enough tax income to fund 81 percent of scheduled disability benefits. In other words, without legislation benefits will be cut 19 percent.
Some are proposing that the difference be re-allocated from the Social Security retirement trust fund:
Some have suggested that DI’s funding problem be addressed merely by giving DI some of the taxes now going to OASI (currently DI receives 1.8 points of the 12.4 percent payroll tax, OASI 10.6 points). As I have explained before, this suggests a misdiagnosis of the problem. The problem is not that DI commands too small a share of the tax relative to its obligations; to the contrary, OASI actually faces the larger actuarial imbalance. DI is hitting the wall first largely because the baby boomers hit their peak disability years before their retirement years; it is the first crisis triggered by the unsustainable financing arrangements threatening DI and OASI alike.
I’m not sure his diagnosis is right, either. I think that the real problem is the lack of grown in jobs that pay good wages. When you’re laid off your unemployment insurance eventually runs out. If you still can’t find a job, applying for disability is worth a try. It’s the unemployment insurance of last resort. A lot of the jobless qualify for disability, especially the older ones.
I think that people are going to need to resign ourselves to one of just a handful of solutions. Either
- We need to figure out how to produce more jobs that pay decent wages
- We need to abandon the fund accounting approach to disability and Social Security retirement and pay the benefits from general funds or
- We need to raise FICA max or eliminate it altogether (which has problems of its own)
Absent one of those a lot of people will very soon be in really desperate circumstances.
And what happens when DI and OASI “hit the wall” at the same time?
Keep the benefit max but eliminate the contribution cap on FICA. Or eliminate it all together.
And there are times I wish I was on disability – an extra twelve to fifteen thou. a year would remove a lot of financial uncertainty. But I know that the gravy train is coming to an end and I’ve got two friends n the program that have earned it the hard way. (They’ve got the missing body parts to prove it, too.) Wouldn’t feel right.
But I’m sure all these problems will be helped considerably by our immigration policies, right?
There’s more than one way of looking at it. One way is that more workers means more people paying into the system. The way the fund accounting works that means that present workers pay the benefits for past workers and reduce the amount by which the federal government extends credit to pay for other programs.
The other way is that the more people who pay into the system the greater the total liability. Note that many of the beneficiaries of the amnesty program of the 80s are nearing or over retirement age now. Assuming that most are low wage workers and given the way the plan is designed, they’ve paid less into the system than they’ll take out. The Europeans are way ahead of us on that at least in part because of their more generous benefits systems.
As I’ve said any number of times, I think that the idea of importing low wage foreign-born workers to pay the benefits of higher paid workers is a form of perpetual motion. No matter how good it sounds on paper it won’t work.