Social Security disability woes

Dylan Matthews underlines the need for reform of the Disability Insurance (DI) portion of Social Security, playing off of a story in today’s WSJ about high rates of approving disability claims. The summary of the 2011 Annual Social Security Trustees’ report provides a clear statement of the fact that the DI portion of Social Security faces a problem sooner than does the Old Age Survivor Income (OASI) portion of Social Security (p. 4).

The table above shows that the DI trust fund will be exhausted in 2018, as compared to 2038 for the OASI (retirement portion) portion of Social Security. Exhaustion of the trust fund means that the benefits paid out must equal the taxes flowing into that portion of Social Security, beginning in that year, if no changes are made. Starting in 2005, the disability claims paid by the DI portion of Social Security were greater than the taxes flowing into DI. Full disability benefits have been paid since 2005, and will continue to be paid so long as there are special issue Treasury bonds to be redeemed (that were purchased with surplus taxes flowing into the DI portion of Social Security since the 1980s). Once they are gone, either benefits will be cut, or Congress will have to provide another source of revenue.

Several points to highlight:

  • DI faces this ‘something must happen or benefits will drop’ date in 2018 as compared to 2038 for the OASI
  • OASI cannot cross subsidize DI under current law, but Congress could change this
  • The Trustees seem to assume that Congress will allow this cross-subsidization, because the OASDI trust fund exhaustion date (for both trust funds combined) is given as 2036

update: fixed a typo

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