In one of its first acts of the new Congress, the Republican-controlled House of Representatives changed its rules to prevent lawmakers from shifting money from the Social Security retirement trust fund to the Social Security disability trust fund unless the change would improve the actuarial balance of both funds. Because the Social Security disability trust fund is scheduled to run out of money in 2016, this rule change makes it much harder for Congress to prevent the resulting 20 percent reduction in disability benefits without making significant cuts to other programs.
As we’ve highlighted before, workers who currently contribute to the Social Security system through their payroll taxes help fund Social Security Disability Insurance (SSDI) benefits for people who need those benefits today. If the Social Security Administration (SSA) collects more in payroll taxes than it pays out in disability benefits, the extra funds are stored in the Social Security disability trust fund. This positive imbalance was the case for years, but recently, the SSDI program has been paying out more in benefits than it has taken in through taxes. When this occurs, the SSA must take money out of the trust fund to fully fund today’s SSDI beneficiaries. If the trend continues, the trust fund will run out of money in 2016 and SSDI benefits will be cut by approximately 20 percent because the SSA will no longer be able to subsidize current benefits with money from the trust fund and will only be able to spend what it takes in through payroll taxes.
This is not the first time this scenario has come up, and in past years Congress has simply taken money out of the slightly more solvent Social Security retirement trust fund to balance out the shortfall in the disability trust fund. In fact, according to a comprehensive article about this problem in Politico, Congress has also allocated money from the disability trust to fund the retirement trust in lean times.
Despite a history of using the funds in both trusts to ensure the solvency of the retirement and disability programs, the new Congress has decided to change the rules so that it cannot easily move funds between the two trust funds unless the transfer would improve the actuarial balance of both programs. (The House can do this without Senate or White House approval). Since by its very nature a transfer of this kind will not improve the balance of both programs, Congress has essentially said that it will not fund the disability trust fund in 2016 without making cuts to SSDI or Social Security retirement benefits.
As can be expected, the rule change has drawn much-needed attention to the 2016 disability trust fund shortfall. We will continue to keep you updated as the situation develops.