Wednesday, April 8, 2015

New paper: “Social Security's Disability Insurance Financing Crisis: Why Another "Quick Fix" Funds Transfer May Cost Far More than Advertised”

Social Security's Disability Insurance Financing Crisis: Why Another "Quick Fix" Funds Transfer May Cost Far More than Advertised
By Charles Blahous, Jason J. Fichtner, and Mark J. Warshawsky

Social Security’s trustees have long warned Congress to address the troubled finances of the Disability Insurance (DI) program. Given the DI trust fund’s projected exhaustion date of 2016, legislation will be required during this Congress to prevent large, sudden benefit cuts. Will Congress take this opportunity to begin the critical reforms necessary to put DI on a sustainable fiscal path?


JoeTheEconomist said...

Andrew, can you explain the title of this piece. The article explains that the reallocation of funds is a bad idea, but I don't know that it really explains how the reallocation would 'cost far more than advertised'. It simply says :

"Absent near-term, fundamental reform, Social Security’s broader financing problem could grow too large to solve at all. "

There is a level of comedy in that statement considering that the size of the unfunded obligations grew more last year than the system collected in its entirety.

WilliamLarsen said...

The larger cost I think is attributed to what I read as an implied belief that shifting payroll tax from OASI to DI would lead to a delay in any fix. I believe this has been the case every time; 1950, 1965, 1976 and 1983.

In each of these years Social Security was on deaths door step. However, they SSA had identified the needed changes years earlier. In every case, they waited to do anything.

Letting DI actually reduce benefits by 20% would be an actual eye opener to all on social security and those that are paying. The perception that Social Security is gaurenteed would shown to be false.

Social Security likes to state they have never missed a payment. This again creates a myth there is no problem.

By breaking the myth, actual reform may take place sooner, than waiting until 2029-2033.

I do not support changing the payroll tax. I think it is best to finally put the foot into the water so to speak to test how cold it really is.

This would actually make people think about the true cost and benefit of Social Security.