Social Security's Looming $230 Per Month Benefit Cut: Where's The Plan To Stop It?
The Social Security Disability Trust Fund has about two years left to go before all the reserves in the trust fund are depleted. If Congress takes no corrective action before then, the Social Security Trustees say there will only be enough cash revenues coming into the program to cover 77% of scheduled benefits. Benefits of some 11 million disabled beneficiaries and their dependents would be reduced about 23% to adjust to the level of payroll tax received— a cut of about $230 per month with average benefits of about $1,000.
Congress has known of the disability fund's insolvency for years, yet voters are going to the polls in November without the benefit of knowing the candidates' or their part's plans, if any, for preventing this cut. Congress needs to do better - voters have a right to know.
Even though the Social Security Trustees report Social Security as one combined trust fund that is solvent until 2033 (theoretically), in reality there are two separate trust funds. Each has separate operations, separate accounting, and separate insolvency dates. One fund cannot borrow or reallocate funds from the other without action from Congress.
The Social Security Disability Trust Fund gets its revenue from the 6.2% payroll tax that workers and employers each pay. Of the 6.2%, 5.3% goes to the trust fund that pays retirement and survivors benefits, 0.9% goes to the disability insurance trust fund. U.S. Treasury Secretary Jacob Lew recently said Congress should "reallocate" payroll tax revenue from the retirement and survivors trust fund, to support the disability insurance fund, saying "I think if you look from now until 2016, there is probably no alternative which could produce the desired results between now and then. So I think it's going to be important for there to be legislation that does reallocate the payroll tax to support the disability fund."
There are problems with this proposal for several reasons.
1. The retirement trust fund is also in deficit. Since 2010 the retirement trust fund has paid out more in benefits than it receives in taxes. A reallocation of payroll taxes would mean the retirement fund would have to dip deeper into its reserves, the non-marketable bonds or I.O.U.s from the U.S. Treasury that are earning interest. Interest income to the trust fund would be lost and the fund would become depleted faster by cashing out the reserves.
2. Social Security recipients don't support the idea. A recent poll by TSCL found that 99% of respondents thought that shifting money from the retirement program to pay disability benefits was a bad idea. Congress is likely to find constitutes take a dim view of reallocating the taxes meant for their own retirement benefits to another program.
3. The proposal is only a temporary fix. Reallocation does nothing to address the core problem of insufficient taxes to cover the benefits paid out.
TSCL’s recent poll suggests that a fix does exist, but Congress would have to drop partisan politics to work together-something that may be extremely difficult before the next presidential election in 2016. About half of TSCL poll respondents think that Congress should tighten disability eligibility criteria, and conduct more annual eligibility reviews to reduce fraud. The other half of respondents think that Congress should require high wage earners to pay Social Security taxes on all of their earnings. TSCL believes that, to gain passage, any legislation would probably have to do both.
The cost of continued inaction, however, means that Congress will have fewer options between benefit cuts and tax increases to choose from. Running out the clock without taking timely action puts the benefits of all Social Security recipients in jeopardy and Congress under pressure to find a fast "quick fix." That’s likely to keep COLA cuts high on the radar in the months to come. We urge you to vote this November for the candidate you most trust to protect your Social Security benefits.