Why the Social Security Crisis Has Begun

Years ago, the Social Security Trustees said their disability trust fund would run dry in 2016. That day is almost here.

Where are we going? To one example of the explosion in entitlement spending.

Some Background

Called pay-as-you-go, Social Security payments come from current workers’ payroll taxes. The revenue travels in 3 directions: To retirees, the biggest segment; to people with disabilities, a growing and massive part of the program; and to survivors of deceased workers. On a pie graph of government expenditures Social Security is the largest slice.

Right now, it appears that old age insurance can remain solvent until 2033. Even if it pays out more than it receives from current workers, its trust fund makes up the shortfall. But for SSDI– the program that supports people with disabilities–spending exceeds revenue by 26 percent.

The SSDI Problem

The Acting Commissioner’s Perspective

In her February 11, 2015 congressional testimony the Acting Commissioner of Social Security said not to worry. All we need to do is transfer Social Security old age trust fund dollars over to the Federal Disability Insurance Trust Funds. By combining the two, the disability fund will not be depleted next year. Instead both will remain solvent until 2033. She added that more women in the work force and aging baby boomers are the reasons for escalating disability claims.

An Economics Professor’s Opinion

At the same time, in his congressional testimony, Stanford economics professor Mark Duggan was much more concerned. Reminding us that the number and proportion of the population receiving SSDI benefits has skyrocketed, he says the reason is about much more than aging baby boomers. From 2.3 percent of all adults aged 25-64 in 1989, the program ballooned to 5 percent of all adults, 25-64, in 2013.

You can see below that the proportion of the adult population aged 25 to 64 receiving SSDI has more than doubled.

From: Stanford economics Professor Mark Duggan

Reasons For Growth

Agreeing that the baby boomers and working women play a role, Dr. Duggan adds unskilled workers with disabilities, how the program retains beneficiaries instead of encouraging them to re-enter the labor force, and how the legal system supports applicants. But it does not end there. Presenting an increasingly complex network of causes, he reminds us of the relevance of easier eligibility requirements and the great recession.

Below, for 1983, 1989, 1999 and 2009, you can see the shifting character of award rates to less quantifiable disorders per 1000 people receiving SSDI. (Musculoskeletal includes back pain.)

From: Stanford Economics Professor Mark Duggan

Thinking of the great recession, you can see below that fluctuations in the unemployment rate and SSDI applications correlate.

From: Stanford Economic Professor Mark Duggan

Our Bottom Line: Entitlement Spending

Unless we are saved by an increase in economic growth that spikes payroll tax revenue, Social Security funding challenges will involve lowering benefits, raising taxes, increasing the eligibility age and rethinking the current incentives for the disability system.

The disability program is but one example of how controlling entitlement spending will require some tough tradeoffs.