April 30, 2015

A New ‘Save SSDI Plan' Could Derail Social Security

Charles Blahous

J. Fish and Lillian F. Smith Chair
Summary

The urgent financing crisis facing Social Security Disability Insurance (DI) is giving rise to suggestions that the DI Trust Fund be merged with Social Security’s larger Old-Age and Survivors Insurance (OASI) Trust Fund. These two components of Social Security have been kept separate thus far since their inceptions. Of the two, DI currently faces the much more immediate (2016) threat of depletion.

Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

The urgent financing crisis facing Social Security Disability Insurance (DI) is giving rise to suggestions that the DI Trust Fund be merged with Social Security’s larger Old-Age and Survivors Insurance (OASI) Trust Fund. These two components of Social Security have been kept separate thus far since their inceptions. Of the two, DI currently faces the much more immediate (2016) threat of depletion. Combining the two funds would allow disability benefits to be paid from payroll taxes currently earmarked for Social Security retirement benefits. The following factors should be borne in mind if any such policy change is considered.

1: Historical Rationale for Separate Trust Funds. Social Security’s retirement and disability benefit systems were enacted at different times with separate financing arrangements. Social Security’s old-age benefits were enacted in 1935 during the Franklin D. Roosevelt presidency; for roughly the first two decades thereafter Social Security had but one trust fund. Disability insurance was established in 1956 during the Eisenhower presidency. 

When Social Security was first established, lawmakers assured the public that its retirement pensions would be self-financing, funded by workers’ “contributions, not taxes,” and that benefits would not become a drain on the federal budget. When disability insurance was added later, similar promises were made that it would also be self-sustaining, and not siphon funds from Social Security’s retirement program or from the general budget. 

The addition of disability benefits to Social Security was intensely controversial. After many years of lobbying by advocates, the House of Representatives included disability benefits in a Social Security bill passed in 1955. The Senate Finance Committee later stripped the disability provisions from the House legislation, its committee report stating that “paying cash disability benefits to insured workers under the old-age and survivors insurance program would not be desirable.” The committee’s report couched its rationale in terms of protecting Social Security’s primary retirement benefit function, saying that “the old-age and survivors insurance system is on a sound financial basis; your committee strongly believes that it must be kept so and should not be altered by adding a benefit feature that could involve substantially higher costs than can be estimated.” 

Supporters of disability insurance responded to these concerns by introducing an amendment (George et al) during Senate floor consideration to finance these benefits through a separate trust fund. As Senator Walter George (D-GA) stated during floor debate:

The moneys for disabled persons will not be commingled in any way with the funds for old-age insurance or for widows and spouses. The contribution income and the disbursements for disability payments will be kept completely distinct and separate. In this way the cost of disability benefits always will be definitely known and the costs always will be shown separately... a separate tax is to be levied to build up a fund which can be easily policed, which can never encroach upon the fund for widows, and for those who reach age 65, and for children and other beneficiaries.

Continue reading