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Preventing a Benefit Cut in SSDI

June 9th, 2015 · No Comments · Blog, Featured Home Page Post

As you have probably already heard, the Social Security Disability Insurance (SSDI) Trust Fund is projected to be exhausted at the end of 2016. If Congress does nothing, the 9 million workers with disabilities, and nearly 2 million of their spouses and children, who receive SSDI benefits will receive a 20% benefit cut. SSDI benefits are already very modest – averaging only $1,165 per month in April 2015 – so any benefit cut could be devastating for the workers and their families who rely on them.

Why would any benefit cut be devastating?  According to the Urban Institute,

  • 1 in 5 SSDI beneficiaries already lives in poverty
  • The overall poverty rate of people receiving SSDI is about twice the rate of others
  • Younger beneficiaries fare even worse, with 44% of beneficiaries ages 31- 49 living in or near poverty (31% live below the poverty line)
  • Nearly half of SSDI beneficiaries rely on SSDI for at least half of their family income
  • 1 in 5 has virtually no other income

SSDI beneficiaries and their families cannot afford a benefit cut of any size.

You might be asking yourself, why is the SSDI Trust Fund going to be exhausted next year? It is a very simple matter of Congress not doing its job and ensuring that adequate Social Security taxes are being collected to pay for the promised SSDI benefits. There has been a significant increase in the number of people receiving benefits in recent years, for very predictable demographic reasons. The baby boomers have reached the age range where disability is most likely, and Congress failed to increase the revenue going into the SSDI Trust Fund in response.  When Congress last adjusted the amount of FICA taxes going into the SSDI Trust Fund in the 1990s, they set the level high enough to ensure full benefits were paid until 2016; but they have done nothing since then to ensure no benefit cut happens.

Remember that SSDI benefits are earned by workers who paid into the system to become insured. Social Security Disability Insurance benefits are an integral part of the Social Security system we built to replace earnings for workers and their families when earnings are gone due to disability, death, or retirement. Americans strongly support Social Security and are willing to pay more for it to ensure that they and their fellow American workers have a strong social insurance safety net when they need it (more on that in a future post).

Congress has a number of options available to it to ensure that there are no benefit cuts in the SSDI program:

  • Temporarily increasing the percentage of the Social Security taxes people are already paying that goes into the SSDI Trust Fund (sometimes referred to as reallocation).
  • Increasing the overall Social Security tax rate to address both the short-term SSDI funding shortfall and the long-run funding challenge posed to the whole Social Security system by our current demographics.
  • Making more income subject to Social Security taxes by A) removing or increasing the cap on earnings subject to the tax (currently only paid on the first $118,500 of earnings) and/or B) taxing other types of income not currently subject to FICA taxes  (e.g. investment, capital gains).

A temporary increase in the percentage of the total Social Security taxes going into the SSDI Trust Fund, referred to as reallocation, as proposed by President Obama in his 2016 budget, would make the entire Social Security System financially secure until 2033.  This would give Congress time to do its job and make thoughtful improvements to the Social Security system, such as expanding Social Security benefits to ensure they continue to keep millions of seniors and people with disabilities and their families out of poverty.

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