Fiscal Cliff Definition: The Most Critical Part of the Debt Crisis That No One is Talking About
It is important to realize how soon our true entitlement financial crisis is scheduled to begin. The Congressional Budget Office forecasts that the Social Security disability trust fund will be insolvent during the government’s 2016 fiscal year, which starts October 1, 2015.
This is a fiscal crisis which will effect over 9 million Americans before we again elect a new president. What we must consider immediately is reforming, refinancing, and restructuring the program. The disability insurance program provides assistance for the disabled and is different from the Social Security program most people are familiar with: retirement benefits.
There is no reason the Social Security Disability Insurance Program (SSDI) cannot be reformed to take advantage of the fact that hundreds of thousands of recipients possess skills which would enhance our economy as a whole and are capable of working at least to some degree. This offers the best possible solution for ensuring the long-term solvency of this critical portion of the entitlement safety net.
Currently, the government is borrowing to redeem the assets held by the disability trust fund , which operates independently from the trust fund that pays Social Security retirement benefits. The assets are special bonds, non-marketable IOUs from the U.S. Treasury for revenues that were borrowed when the program was in surplus. When those bonds are depleted, the program will be insolvent.
According to the Congressional Budget Office, under current law, when insolvent, Social Security may not pay benefits in excess of available balances in a trust fund, borrow money for a trust fund, or transfer money from one trust fund to another without legislation
This is not the first time the Disability Insurance trust fund has faced insolvency. A 1995 Social Security Trustees Report estimated that the DI trust fund would only be solvent until 2016.
One fix being raised is to no longer exempt Social Security withholding from employment income above the current threshold of $110,100 in annual income.
Another fix would be raising the cap for Social Security collections to $180,000. Social Security's actuaries reported to Congress that this increase would generate roughly $500 billion over the next decade.
These options extend the SSDI program’s solvency by roughly half a decade under the assumption of continuing the same funding distribution which currently exists. They are strongly opposed by the conservative factions in Congress who view them as nothing more than one more taxing solution to what is a spending issue of our entitlement system.
There are alternatives to simply raising taxes. One such long-term solvency answer for SSDI is to reverse its alarming rate of increased participation. The Great Recession added 2 million individuals to the eligibility roles. This unexpected growth was partially due to lack of employment opportunities combined with expiration of unemployment benefits.
The labor-force participation rate — the percentage of the civilian working-age population that is either working or looking for a job — fell to 63.5% in August, the lowest since 1981. For men, the labor-force participation rate was the lowest on record, at 69.8%, noted Neal Lipschutz at the Wall Street Journal's Real Time Economics blog.
The combination of these factors has begun a renewed call for reforming the SSDI program’s basic benefit allocation system. This effort to stabilize or reduce the SSDI programs participation rate would require a significant change in the entitlements basic structure. Reform aimed at subsidizing SSDI recipients return to the workforce is gaining limited support.
The concept of subsidizing employment for SSDI recipients could both return human resources to the economy and net a program expense saving. Subsidies could take various forms or combination of forms. Employers could receive a compensation offset equivalent to a percentage of an SSDI recipients benefit producing an increase earnings opportunity to the individual with a lower cost employee to the newly hired.
Subsidized SSDI employment might alternately offer employers a new hire whose medical cost would remain provided by Medicare. With employee health care insurance having increased by basically 20% since the onset of the Great Recession, this savings is obviously significant.
Employers could be offered Federal Insurance Contributions Act exclusions in hiring SSDI recipients as a third option. Or some combination of the above noted incentives might represent the most attractive reform eventually legislated. Reforming SSDI to allow those recipients capable of returning to the work force while still retaining reduced benefits is an out of the box option worthy of examination.
Something must be done and done immediately to save SSDI from becoming insolvent by October 1, 2015.
We cannot allow this critical component of our nation’s entitlement safety net to become insolvent. Saving SSDI will require some combination of enhanced revenues, benefit reform and eligibility restructuring.