The Social Security trust fund that pays the benefits of almost 8.6 million disabled people is less than four years from complete insolvency, warns the Senior Citizens League (TSCL), one of the nation’s largest nonpartisan seniors groups. Social Security’s financing is eroding faster than the government forecasted even a year ago — a situation that is likely to continue through this year due to higher-than-expected inflation, according to a new analysis released by TSCL. “Congressional action will be needed, and very soon to avert a Social Security disability funding crisis,” says TSCL Chairman, Larry Hyland.
According to the January 2012 baseline from the nonpartisan Congressional Budget Office (CBO), the Social Security disability trust fund will be exhausted during the government’s fiscal year 2016, which starts October 1, 2015. Congress is already working on the budget for fiscal year 2013. “Even if Congress were to act immediately —three fiscal years is an extremely short period in which to implement major legislative changes that affect the benefits of Social Security recipients. There’s a very high risk for federal debt problems to arise prior to that time which could affect finances needed to pay benefits,” Hyland states.
There are many misconceptions about what Social Security trust fund insolvency means and would happen if a trust fund reaches that point. Many believe that when Social Security is fully insolvent the program will be completely broke. “That’s not true, ” Hyland explains. “As long as people are working, there will be payroll taxes coming into the system. By law those revenues must be used to pay benefits, ” he explains.
But even prior to the recent payroll tax cut, revenues coming into the Social Security disablity trust fund were insufficient to cover the payments of about 8.6 million disabled beneficiaries. Currently the government is borrowing to redeem special bonds or I.O.U.s held by the trust fund. When those bonds are depleted, the program will be insolvent.
Another misconception is the Social Security trust fund’s insolvency date. It is widely reported that the trust fund will remain solvent until 2036. “But Social Security has two trust funds,” Hyland notes. “The Social Security trust fund that pays retirement benefits and the one that pays disability benefits. The two funds operate separately,” he adds. Last year the Social Security Trustees forecast that the disability trust fund would become insolvent between 2018 to 2016, but to date no action has been taken by Congress.
“Once the I.O.U.s held by the disability trust fund run out, that sets up uncertainties about how benefits will be paid,” Hyland notes. According to the CBO, under current law 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. “Thus Congress will have to enact legislation to ensure that benefits are paid on time and in full,” Hyland adds.