Because of the recent rescue of the SSDI (Social Security Disability Insurance) program, they can celebrate at their 60th birthday party during August 2016.
Whereas Social Security was established under FDR in 1935, its disability provisions were not added until the Eisenhower Administration in 1956. Quite limited when it started, SSDI has become a gargantuan program that spent more than $145 billion in 2014. The problem is that the 1.8 percent of the payroll tax that goes to SSDI is not enough. By the end of this year, SSDI could have funded only 81 percent of scheduled DI benefits.
Where are we going? To why entitlement spending is a continuing problem.
Funding Social Security
Called pay-as-you-go, Social Security revenue comes from current workers’ payroll taxes. The three primary recipients of that revenue are retirees, SSDI, and survivors of deceased workers. Right now it appears that the retirees’ slice of the Social Security pie can remain solvent until 2034. Even if it pays out more than it receives from current workers, its trust fund makes up the shortfall.
But not SSDI.
So Congress and the President agreed on an SSDI fix. The basic idea was reallocation. Instead of the 1.8 percent, now 2.37 percent of the payroll tax will flow to SSDI so it can meet all of its obligations. In addition, Congress said it would try to control costs through an initiative to cut fraud and encourage disability recipients to return to work.
Based on the problems that we described last May, the Congressional solution sounds like a band-aid for a much bigger problem. This is what we said:
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. Suggesting the solution that the Congress implemented, she added that more women in the work force and aging baby boomers are the reasons for escalating disability claims.
An Economics Professor’s Concern
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.
The number of recipients is soaring:
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.
Less quantifiable disorders are also way up:
Disorders per 1000 people receiving SSDI. (Musculoskeletal includes back pain.)
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.