Friday, July 24, 2015

With Social Security Disability Nearly Broke - The One Lesson That Should Have Been Learned

According to The Wall Street Journal ('U.S. Disability Program Nearly Broke', July 23, p. A4) while the long term solvency of Medicare and Social Security "has been improved slightly" (actually Medicare by 13 years, thanks to Obamacare, and S.S. by 1 year to 2035) the Social Security Disability Program is due to "exhaust its reserves next year". That means if nothing is done, a 19 percent cut in benefit payments will be triggered.

Treasury Secretary Lew has proposed a re-allocation of payroll taxes from the retirement trust fund to the disability insurance trust fund to bolster it. This would require congressional approval, but the Republicans - who control both houses of congress - are in no mood to cooperate. According to the Denver Post yesterday they are demanding cuts to Social Security (the retirement part)  to move forward.

In terms of the retirement program proper - which must be distinguished from disability insurance - it ran a $55 billion surplus last year, according to the WSJ, and this "stemmed entirely from interest on reserves". But, excluding interest, the general program ran a $74b deficit last year and a $76b deficit the year before.  As a share of taxable payroll, "the program is projected to run a deficit of 1.3% this year, the largest ever faced by the program".

Interestingly, this would be nearly the re-allocation proportion needed to salvage the disability program in order to prevent those 19% cuts. Adding up those two actual deficits we get $150b, or about $20 b less than the  $170b removed from the system via the "payroll tax holiday" over 2012-13 and passed by congress including insane Demos.

As I complained about at the time (post, Jan. 15, 2013):

"the payroll tax holiday never should have been introduced in the first place! Like the middle class Bush tax cuts, they have only dug us deeper into a hole and made it more possible for ardent, anti-Social Security repukes to hop on their bandwagons to demand S.S. privatization or underhanded benefits' cuts via the dastardly "chained CPI".

This also has to do with the fact that millions more beneficiaries piled into the retirement program as well as millions into the disability insurance program - often people who had lost their unemployment insurance and had no place else to go.

The Democrats, the supposed "party of the people",  are also largely to blame for this payroll tax holiday nonsense since without their votes it couldn't have gone forward.  As Richard Eskow noted in an article at the time of my blog post ( 'The Long Game: Payroll Taxes, Hostage Taking and Social Security' ):

"By proposing to expand and extend this 'holiday,' Democrats have bypassed more efficient ways to help the economy, and have once again endangered Social Security"

Eskow's reference was to the fact the payroll tax holiday removed $170 b from the system and lowered its ability to cover costs of millions of new beneficiaries, many of them seeking Social Security Disability. And it wasn't as if everybody was suddenly surprised by the retiring boomers pouring into the system and the ancillary demands for disability. Most serious financial mavens knew this was coming, as well as the feckless politicos - always ready to posture for temporary support.

Now, of course, the 'chickens' have come home to roost, and the Demos - as per their earlier stupidity of extending the Bush tax cuts (then having to face budget "sequesters")-  must go cap in hand to the Repukes to help them out, hoping that out of the goodness of their hearts they'll approve a rescue without any strings.

Of course, this is a pipe dream. The Reepos will play this for everything they can and demand their pound of benefits flesh while lecturing the Dems on the "unsustainability" of both Social Security and Medicare. No kowtowing to the Reeps would have been necessary if the Dems had just had the foresight to see that with millions opting to apply for disability it was folly to take a payroll tax "holiday" (cutting the 6.2% contribution to 3.1%).

Will the Democrats learn an important lesson on payroll taxes for the future? Doubtful,  so long as they value political posturing above the welfare of citizens.

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