Monday, February 2, 2015

Does Obama Budget Proposal Kick the Disability Can?

The Obama administration’s FY 2016 budget proposes a temporary transfer of payroll tax revenues from the Social Security retirement program to the Social Security disability program, which otherwise would become insolvent in 2016.

The budget states that this step is designed to buy time “while a longer-term solution to overall Social Security solvency is developed with the Congress.” I sure hope so. The budget does include a number of trial programs to help workers with disabilities remain on the job rather than going on DI benefits, from which they are unlikely ever to emerge.

But I’ve not heard much about developing fully-fledged reforms to actually address the DI program’s very serious funding and structural issues. Congress might take up some of the administration’s proposals, extending or expanding them if they prove promising. But if this is merely an effort to delay  dealing with the DI program’s problems, Congress shouldn’t play along.


WilliamLarsen said...

How many hundreds of times are we gong to fall for this type of response? Here is another effort to spin the "can." to misdirect us from the actual root cause.

$160 Billion in Savings from Immigration Reform. This year’s Budget again reflects the President’s support for commonsense, comprehensive immigration reform along the lines of the bipartisan Senate-passed bill. In part because it helps balance out an aging population, immigration reform helps both the Budget – by almost $1 trillion over two decades – and the Social Security Trust Fund, closing about 8 percent of the Trust Fund shortfall and moving insolvency out two years. It also strengthens the economy by boosting GDP growth, reducing the deficit, raising average wages for U.S.-born and immigrant workers, increasing the size of the labor force, and raising productivity.

The Presidents plan would also plan on billions of dollars to Social Security from immigration. The problem with this is simple. It is no different than the 1950 patch that enrolled millions of US workers into Social Security who were not covered in 1937. This patch increased short term revenue, but created very large unfunded liabilities. These workers payroll taxes would fall inside the 75 year solvency period, but their benefits would fall outside the 75 year solvency period

Bruce Webb said...

Hi Andrew, long time no see.

Per the Trustees DI's long term (75 year) actuarial imbalance is 0.37% of payroll (2014 Report). It would certainly be possible to propose dual track legislation that would simply raise the DI portion of FICA 0.4% (taking the total to 12.8%) and then on paper solve the programs 75 year actuarial gap AND demand an increased focus on rooting out what fraud and abuse there is in the system. Now if it turns out that up to 50% of DI recipients are actually just scamming the system because of phony back pain and 'anxiety' as Rand Paul suggests, then the savings would actually allow that portion of the 0.4% NOT needed to backfill actual gaps and pay for increased enforcement could then actually be used to address the larger yet not immediate challenges of OAS.

So why NOT just advocate for a straight out increase in FICA of 0.2% in 2016 and 0.2% in 2017 with a directive to use some of that funding to reduce current backlogs in DI applications (which of course if correctly done would weed out fraud). Not only would this be a win/win for true advocates for the disabled and for those who would target fraud it would also satisfy the requirements of the recently passed House Rule. Because even if it turned out that fraud was in the larger scheme insignificant and that actual DI expenses including fraud detection just about evened out with the combined 0.4% FICA increase the arithmetic result of that increase would be an improvement in solvency numbers for OASDI. Not a lot perhaps but literally and numerically enought to satisfy the requirements of the House Rule.

0.37% of payroll is right on 1/7th the impact of first the implementation of the payroll tax holiday and then its revocation a few years back. Which seemed to be a non-event. So if we all really care about the health of Social Security (and as an ex-high official at SSA I am sure that you do) why wouldn't this modest intermediate step of a two year phase in result in a win-win-win?

Bruce Webb said...

William your arithmetic leaves me puzzled.

In 1950 Social Security was indeed expanded to include many many workers not originally included in the 1935 Act and 1939 Amendments. But if we, like the Trustees, define 'Current Participants' as everyone 15 and older (and so at least theoretically at risk of having 'contributions' imposed on them) then it would seem that the only such new 'Current Participants' in 1950 that would be paying in and yet having benefits out that would be outside the 75 year actuarial window would be those who expected to live longer than 90 years (15 + 75). Which in 1950 was a pretty small percentage of then current workers.

Now I get the idea of Unfunded Liability but frankly the following is nonsensical:
"These workers payroll taxes would fall inside the 75 year solvency period, but their benefits would fall outside the 75 year solvency period"
Because even defining 'workers' as 'current participants' and setting that as 15 and older almost all their benefits (starting 50 years after contributions started) would be paid out WITHIN the 75 year actuarial window. I mean who may new workers in 1950 actually wouldn't start drawing benefits until 2025? Or even draw a significant portion after?

Can you do a brother a solid and explain your arithmetic here?