President Obama’s plan to shift $330 billion in Social Security retirement funds around to avert a huge shortfall in the disability insurance program is meeting stiff resistance from Senate Republicans in the early congressional deliberations over the president’s $4 trillion fiscal 2016 budget.
Senate Budget Committee Chair Mike Enzi (R-WY) kicked off a hearing into the proposal on Wednesday. He criticized the administration for trying to gloss over a looming crisis in the disability insurance trust fund instead of seeking a more permanent solution to protect millions of disabled Americans from the threat of sharp benefit reductions.
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“His effort to paper over the problem is a classic example of Washington ducking a real American need,” Enzi said. “In this case, disabled Americans and workers deserve a long-term solution so the program doesn’t once again flirt with disaster and, more importantly, reflects the full ability of the disabled to contribute their talents to our country.”
With more Americans turning to the program – and increasing evidence of billions of dollars in fraud – the latest Social Security trustees’ report projects the fund’s reserves will be depleted in late 2016. By law, Social Security can only pay benefits if there is a positive balance in the appropriate revenues in two funds, for old age and survivors’ benefits (OASI), and for disability benefits (SSDI).
Without those reserves, the only funds the government can use to cover disability claims is incoming tax revenue. Yet there would only be enough to cover 81 percent of scheduled disability benefits.
Acting Social Security Commissioner Carolyn Colvin defended the Obama proposal in testimony, saying the plan would shift the $330 billion from retirement accounts over the next five years. The shift would stave off an estimated 19 percent cut in future benefits should the program become insolvent late next year.
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“The proposal to reallocate existing payroll tax collections between the OASI and DI trust funds is consistent with past congressional actions,” she said. “These are earned benefits, and these two funds provide social insurance for Americans at all stages of life.”
She added, “We must take steps to insure its stability, and avoid deep and abrupt cuts or cessation of benefits for individuals with disabilities.”
Sen. Bernie Sanders (I-VT), the ranking member of the Budget Committee, stressed that shifting money between the two Social Security accounts has been done successfully 11 times before, dating back to the Johnson administration in 1968. Those moves, though, have usually been accompanied by actions to strengthen the program’s finances.
House Republicans recently passed a rule that would require any shift of funds to the disability program to be paired with reforms designed to bolster the program. Democrats and the administration opposed that rule change.
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Sanders, a liberal who is considering challenging former Secretary of State Hillary Clinton for the 2016 Democratic presidential nomination, charged that Republicans were trying to precipitate a crisis to force cuts to the benefits of the 11 million people currently claiming disability benefits – an accusation Enzi and other Republicans dispute.
“In my view, the debate we are having today is nothing more than a manufactured crisis, which is part of the long-term Republican agenda of trying to cut Social Security,” Sanders said.
But Enzi and other Republicans received some support from Sen. Angus King, a Maine independent who caucuses with the Democrats. King, a former governor, said a reallocation of funding would simply avoid dealing with the finances of Social Security, which need to be beefed up as more baby boomers retire.
“This is just a way of making this problem worse when it does come,” King said. “Problems put off rarely get easier with the passage of time.”
The key provision of the Obama plan would shore up the SSDI Trust Fund with the substantial income transfer. Currently, employers and their workers each pay a total of 6.2 percent of their wages to the Social Security system – 0.9 percent is allocated to SSDI and 5.3 percent to OASI. Under Obama’s approach, neither the overall tax rate nor the solvency of the combined trust funds would be affected.
Instead, the plan would reallocate a few tenths of a percentage point of payroll tax revenue from the OASI fund to the SSDI fund, so that both trust funds would be sustained until 2033.
The plan also calls for testing early intervention strategies to keep people in the workplace, hiring more administrative law judges to reduce a backlog of appeals of adverse rulings, and bolstering a program that reviews cases every three to seven years to determine if a beneficiary’s medical condition has improved.
The AARP and most other groups that advocate for older Americans are actively promoting the Obama plan and opposing the recent House-passed rule.
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The Committee for a Responsible Federal Budget, a fiscal watchdog group, said yesterday that the House rule only requires small changes in either the OASI or DI programs, similar to laws recently passed or proposed.
“Although the best way to deal with DI’s imbalance would be through comprehensive Social Security reform that restores long-term solvency for both funds – as the 1977 and 1983 reforms did while reallocating revenue as part of comprehensive reforms – the new rule requires much less than that,” the group said in a blog post. “It does not even require savings equal to the amount of reallocation. It simply requires that reallocation be accompanied by changes of any size to improve solvency of the combined OASDI Fund, which is consistent with past actions on reallocation.”
Congress is running out of time to address this latest financial crisis. Legislation will be required during this session of Congress or, at the very latest, in a rush of activity early next year to prevent large sudden benefit cuts.
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