Overall Social Security Program is Fully Funded for 25 Years Despite Recent Stories About a Projected Social Security Disability Insurance Fund Shortfall in 2017

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Washington, DC – An Associated Press story earlier this week described how the Social Security disability insurance program is projected to experience a funding shortfall as early as 2017, meaning that benefits could not be paid in full and on time to those eligible to receive them. While the story struck an alarming tone – referring to the ”stampede for benefits” and “a program that’s been running in the red for years” – the basic financial soundness of Social Security has not changed, which permits benefits to be fully paid for the next 25 years or so.

A few basic facts about Social Security below to help better understand the implications of the Associated Press story:

  1. Social Security is comprised of two programs with their own trust funds – Old Age and Survivors Insurance (OASI) and Disability Insurance (DI). OASI represents about 82 percent of total Social Security spending and DI represents about 18 percent.
  2. OASI is fully funded through 2039, according to the Congressional Budget Office (2037 according to the Social Security Trustees); DI is fully funded through 2016, according to CBO (2017 according to the Social Security Trustees). Combined, both programs are fully funded through 2037, according to CBO, and through 2035, according to the Social Security Trustees.
  3. To avoid the near-term shortfall in the DI program, Congress can simply pass legislation to reallocate funds between the OASI and DI programs in order to extend the full funding of the DI program for two more decades, consistent with the program’s overall solvency that is projected for the next 25 years or so. Such reallocations occurred most recently in 1994, when funds were reallocated from OASI to DI, and in 1982 when funds were reallocated from DI to OASI.

“This Disability Insurance shortfall in 2017 is nothing but a green eyeshade issue for accountants and actuaries.  With a quick legislative correction involving no increased costs, Social Security’s disability benefits can continue to be paid for another quarter of a century,” said Nancy Altman, Co-Chair of the Strengthen Social Security Campaign.

“Social Security’s disability insurance, life insurance, and old-age annuities are seamlessly tied together. One benefit formula generates all benefits. In the past, when one of the two trust funds had insufficient income, Congress quietly and quickly reallocated the income to the two funds to ensure that they were on the same financial footing. It has six years to do it once again.”

Below is the full text of the fact sheet:

Disability Insurance News Flash: Nothing New

Concern has been raised that as early as 2017 the Social Security Disability Insurance Trust Fund will not be able to pay 100 percent of promised benefits. This is easily remedied by reallocating revenues from the much larger Old Age and Survivors Insurance Trust Fund to the Disability Insurance Trust Fund. Congress has done reallocations between trust funds several times before. Combined, both programs are fully funded for the next 25 years or more. Such a reallocation does not require any benefit cuts or revenue increases.

The projected shortfall in the Disability Insurance trust fund, projected to occur as early as 2017, is neither a surprise, nor a matter of great concern.

  • Social Security’s income and assets are held in two trust funds, the Old Age and Survivors Insurance Trust Fund (OASI) and the smaller Disability Insurance Trust Fund (DI).
    • OASI represents about 82 percent of total Social Security spending; DI represents about 18 percent.
    • Social Security’s major source of income is from a 12.4 percent levy on wages up to $106,800, assessed on both employers and employees. Of those payroll tax contributions, 10.6 percent goes to the OASI Trust Fund, and 1.8 percent goes to DI. Neither fund can pay benefits unless it has sufficient income and assets to cover costs.
  • Because Social Security’s old age, survivors, and disability programs are so intertwined and their income is from the same sources, policymakers traditionally have viewed them as one.
  • According to the Congressional Budget Office (CBO), the combined Social Security trust funds, can meet all obligations through 2037 (the Social Security Trustees say through 2035). The OASI trust fund is projected to be able to cover all benefits in full through 2039 (2037 according to the Trustees), while DI can cover all benefits only through 2016 (2017 according to the Trustees).
  • Historically, in this kind of situation Congress simply reallocated the percentage of the payroll tax contributions assigned to each program, so they could be dealt with simultaneously with due deliberation.

There is nothing new here. In 1994, Congress reallocated 0.6 percent of the payroll tax contributions from OASI to DI, which was projected to permit DI to pay all benefits in full and on time for an additional 12 years, until 2016. Those projections remain largely accurate today, even though they were made without knowledge of the effects of the Great Recession on the program. Most Americans, including most members of the media and elected officials, are not even aware when the reallocations take place, because they are so inconsequential.

  • Social Security is not in crisis, and can pay full benefits far into the future.
    • On a combined basis, OASDI can pay all benefits for the next quarter of a century, if reallocations of the payroll taxes are made before 2017.
    • The fact that the 12.4 percent payroll tax on covered wages may need to be reallocated between the two trust funds requires a change in accounting, not policy changes to the program that would cut benefits or increase revenues.
  • Congress should fix the entire combined shortfall of both programs that occurs 25 years from now by scrapping the cap on Social Security payroll taxes. By making all earnings subject to the payroll tax, Social Security (including DI) would be made fully solvent for the next 75 years.

Disability insurance is a critical component of Social Security’s mission to insure wages against loss, and in the short-term should be dealt with as in the past, by a simple reallocation of the Social Security payroll tax contributions. Furthermore, Congress should restore Social Security to long-range balance by requiring those who can most afford it to contribute somewhat more, not by cutting benefits, which average only $13,000 a year, yet are (or, in the future, will be) vitally important to the vast majority of American workers and their families.

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