The Social Security Disability Insurance (SSDI) trust fund is projected to run dry in just two years. Absent legislation to address the disability program’s impending insolvency, benefits for all disability recipients will be cut by 21 percent beginning in 2016.
For short-sighted policymakers, redirecting funds from the Old Age Social Insurance (OASI) or Social Security trust fund to the SSDI trust fund is a tempting solution. A similar action was taken in 1994 when Congress redirected part of the OASI trust fund to the DI trust fund. The problem with raiding the Social Security trust fund, however, is two-fold:
- Shifting funds away from the OASI fund would only quicken that program’s impending insolvency. According to the 2013 Social Security trustees report, using OASI payroll taxes to pay DI benefits would shorten Social Security’s trust fund insolvency by two years, from 2035 to 2033. This would mean two additional years of 23 percent benefit cuts for anyone who is 43 or older today.
- Using Social Security taxes to pay DI benefits would provide only a temporary solution. Growth in DI rolls is expected to outpace population growth for the next 10 years, further increasing annual DI deficits. Adding insult to injury is CBO’s most recent outlook forecasting a significant decline in labor force participation. This is troublesome because, as the recent recession has shown, DI rolls rise when labor force participation declines.
At the root of the DI program’s problems is its massive growth in beneficiaries since eligibility rules were expanded in 1984. Another factor is the recent economic downturn. Since 1983, the percent of the population receiving disability benefits has more than doubled from 1.6 percent to 3.5 percent in 2013, and inflation-adjusted spending on the disability program has more than tripled from $43 billion to $139 billion (in 2013 dollars).
Disability rolls are rising not because Americans are becoming less healthy. The problem is that the very structure of the DI program attracts far more people than those who truly need it. Coupled with the fact that the current payment system discourages productive work, the disability insurance program draws in applicants and keeps them locked in dependency.
Now is the time for Congress to permanently reform the DI program. Successful DI reform could set the stage for reform of the United States’ equally troubled but massively larger Social Security and Medicare entitlement programs.
Alexander Shen is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.