William R. Morton
Analyst in Income Security
The Social Security Disability Insurance (SSDI) program provides benefits to insured workers with disabilities under Social Security’s full retirement age and their dependents based on an individual worker’s earnings and work history in covered employment. Recently, some Members of Congress and the public have expressed concern over the sustainability of the SSDI program. Between 1990 and 2012, the ratio of SSDI beneficiaries to Social Security covered workers increased 112.5% (from 3.2 to 6.7 beneficiaries per 100 covered workers). This increase has placed financial pressure on the Disability Insurance (DI) trust fund, from which SSDI benefits are paid. To assist lawmakers in addressing the sustainability of the SSDI program, this report provides an overview of the DI trust fund and examines potential solutions to improve the DI trust fund’s solvency in the short term.
Like the Old-Age and Survivors Insurance (OASI) trust fund, which pays for Social Security retirement and survivor benefits, the DI trust fund is financed primarily through payroll taxes levied on covered wages and net self-employment income. The trust funds also receive income from the taxation of some Social Security benefits and interest earned on trust fund asset reserves. Occasionally, the OASI and DI trust funds receive income via reimbursements from the General Fund. All trust fund balances are invested in special-issue, interest-bearing U.S. government securities.
DI income is insufficient to pay SSDI cash benefits that are scheduled under current law. Total DI expenditures have exceeded non-interest DI income since 2005 and have surpassed total income since 2009. In 2012, DI trust fund income amounted to $109.1 billion and expenditures totaled $140.3 billion. To make up for the shortfall between income and expenditures, the DI trust fund used some of its asset reserves and redeemed a net total of $31.2 billion in federal government securities. According to the Social Security trustees, under current law, the DI trust fund would be exhausted in 2016, at which time the trust fund would have enough revenues to pay only 80% of scheduled SSDI benefits.
In the past, Congress has used temporary “cash infusions” to bolster the asset reserves of nearly depleted trust funds. Typically, the aim of this policy is to improve the financial solvency of a trust fund in the short term, in order to give lawmakers additional time to develop and implement longer-term solutions. To strengthen the asset reserves of the DI trust in the short term, Congress could authorize interfund borrowing among the OASI, DI, and Hospital Insurance (HI) trust funds. Alternatively, Congress could increase the share of the Social Security payroll tax rate allocated to the DI trust fund. The Social Security Administration’s Office of the Chief Actuary projects that reallocating the payroll tax rate to equalize the financial conditions of the OASI and DI trust funds would extend the solvency of the DI trust fund in the short term. However, the Office of the Chief Actuary estimates that, under this option, both the OASI and DI trust funds would be exhausted in 2033.
Date of Report: November 20, 2013
Number of Pages: 18
Order Number: R43318
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