Will There Be a 2016 Lame-Duck Disability Bailout?

Terry Jeffrey
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Posted: Jan 07, 2015 12:01 AM
Will There Be a 2016 Lame-Duck Disability Bailout?

If you thought the lame-duck Congress that met in December -- in which House Speaker John Boehner cut a deal with President Barack Obama to fund almost all of Obama's programs through the rest of the current fiscal year -- was a bad deal for America, wait until the next lame-duck Congress convenes after the 2016 election.

That could be the "bipartisan" moment for a bailout of the federal disability program -- and perhaps Social Security with it.

The very dry, very long Annual Report of the Board of Trustees of Social Security, released in July, included two crucial predictions. Social Security's Old-Age and Survivors Insurance Trust Fund, which pays Social Security retirement benefits, can survive another 20 years. But the Disability Insurance Trust Fund, which pays disability benefits, will last just two.

"The Trustees project that the OASI Trust Fund and the DI Trust Fund will have sufficient reserves to pay full benefits on time until 2034 and 2016, respectively," the report concluded. "Legislative action is needed as soon as possible to prevent depletion of the DI Trust Fund reserves in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 81 percent of DI benefits."

Nor do the trustees expect disability to run dry in the middle of 2016. "The projected cost in excess of income results in the estimated depletion of the DI Trust Fund reserves in the fourth quarter of 2016," says the report.

That means October, November or December -- and the 2016 congressional and presidential elections will be on the first Tuesday in November.

After that, the outgoing Congress will be able to meet in a lame-duck session -- and pass legislation that lame-duck President Barack Obama can sign.

On the day the trustees released their report, Treasury Secretary Jacob Lew, who is one of the trustees, said of the disability program: "Legislation will be needed to avoid disruptive productions in benefit payments to this vulnerable population."

At the same press conference, Republican trustee Charles Blahous suggested acting on disability and Social Security together.

"To summarize, our longterm outlook for Social Security has not qualitatively changed," said Blauhous. "What is changing is that we are rapidly running out of time to legislate financial corrections before the disability trust fund reserves run out. Because disability and old age and survivors insurance are very closely linked in terms of their basic benefit structures and because they're being strained by similar factors, lawmakers would do well to act promptly to shore up the finances of Social Security as a whole."

If Congress does not enact some bailout of the disability program before the trust fund is depleted toward the end of 2016, the government will need to reduce the benefits paid to disability recipients.

The Inspector General of Social Security published a report last month highlighting this prospect.

"The Social Security Act also specifies that benefit payments shall be made only from the Trust Funds (that is, accumulated Trust Fund assets and current tax income)," said this report. "Consequently, if the Social Security Trust Fund reserves become depleted -- that is, if current tax income and accumulated assets are not sufficient to pay the benefits to which people are entitled -- current law would effectively prohibit full Social Security benefits being paid on time."

"The agency," the IG said, "would then have to decide whether to pay disabled beneficiaries 81 percent of their scheduled benefits on time, delay benefit payments until enough funds are available, or determine another alternative."

Would members of Congress prefer to legislate that "alternative" in the days immediately before the 2016 election? Or in a lame-duck session afterwards?

Some of the "options for Congress" cited by the IG for patching or fixing the problem include "temporarily reallocating payroll taxes," lifting the cap on income subject the payroll tax, and increasing the retirement age -- perhaps to as high as 70.

Reallocating payroll taxes means taking some of the payroll tax currently dedicated to paying Social Security retirement benefits and retargeting it to pay disability benefits.

In 2014, income up to $117,000 was subject to the payroll tax. Congress could eliminate that limit -- and increase taxes on "rich" families earning $130,000 per year. The money taken from these "rich" families would help pay benefits to people on disability.

Meanwhile, the inspector general also noted that the ratio of workers to disabled beneficiaries is declining.

"The number of disabled worker beneficiaries increased by 187 percent from 2.9 million in 1980 to 8.2 million in 2010 while the number of workers increased by just 39 percent," said the IG.

A central question for the new Congress -- whether it acts before the next election or in a lame-duck session -- is whether it will decrease or increase the redistribution of wealth from Americans who work to those who do not.