Testimony by Joyce Manchester, Chief, Long-Term Analysis Unit, before the Subcommittee on Social Security, Committee on Ways and Means, U.S. House of Representatives
This testimony, based on a report CBO released in July 2012, examines the reasons that the Social Security Disability Insurance (DI) program has experienced rapid growth in its costs and number of beneficiaries and presents a variety of options for changing the program.
The Number of Disabled Worker Beneficiaries Has Increased Nearly Sixfold Since 1970
The DI program pays cash benefits from the DI trust fund to nonelderly adults (those younger than age 66) who are judged to be unable to perform “substantial” work because of a disability but who have worked in the past; the program also pays benefits to some of those adults’ dependents. In the past four decades, the number of workers with disabilities who receive benefits from the DI program has increased nearly sixfold, rising from 1.5 million in 1970 to 8.8 million in January 2013. Including the dependent spouses and children of those workers, 10.9 million people received support from the program in January 2013.
The growth in the program can be attributed to changes in multiple factors, including demographics, the labor force, federal policy, opportunities for work, and compensation (earnings and benefits) during employment.
DI Program Outlays Are Outpacing Dedicated Revenues
Between fiscal years 1970 and 2012, DI expenditures on benefits (adjusted for inflation) rose more than ninefold. The DI program’s rapid expansion and the projected gap between its spending and dedicated revenues in the future raise questions about the financial sustainability of the program.
Since 2009, the program has paid out more each year in benefits than it received in dedicated revenues (which come primarily from the Social Security payroll tax). In 2012, total DI expenditures were $135 billion, or 0.87 percent of gross domestic product (GDP), while the program’s dedicated tax revenues totaled $102 billion, or 0.65 percent of GDP. In 2023, CBO projects, the program’s spending will be 0.82 percent of GDP, and dedicated tax revenues will be 0.66 percent of GDP.
CBO projects that the DI trust fund will be exhausted in 2016, nearly 20 years before the projected exhaustion of Social Security’s Old-Age and Survivors Insurance (OASI) trust fund for the Social Security retirement program. If a trust fund’s balance falls to zero and current revenues are insufficient to cover the benefits that are specified in law and administrative expenses, the Social Security Administration has no legal authority to pay full benefits when they are due.
In 1994, legislation redirected revenues from the OASI trust fund to prevent the imminent exhaustion of the DI trust fund. In part because of that experience, it is a common analytical convention to consider the DI and OASI trust funds as combined. Thus, if some future legislation shifted resources from the OASI trust fund—which CBO projects will be exhausted in 2038—to the DI trust fund, the combined OASDI trust funds would be exhausted in 2034, according to a long-term projection that CBO published in June 2012. Such a policy would allow scheduled DI benefits to be paid for a longer period, but it would not address Social Security’s underlying financial imbalance.
There Are Several Possible Approaches to Changing the DI Program
Alleviating the financial pressures on the DI program would require a substantial increase in revenues for the program, a substantial decrease in the program’s costs, or some combination of those two approaches. In its July 2012 study on DI, CBO, in conjunction with the staff of the Joint Committee on Taxation, estimated the budgetary effects of a variety of potential modifications to the DI program. Those estimates would change only slightly if updated to reflect CBO’s new baseline.
Options to increase revenues are straightforward but limited: DI taxes paid (through the Social Security payroll tax) by employers or employees could rise, or some other source of funding could be used. In contrast, options for reducing costs are both more complex and more numerous: For example, the components of the formula that is used to calculate DI benefits could be altered, as could one or more of the rules used to help determine eligibility for the program. Alternatively, policymakers might want to increase spending for the program by providing greater amounts of support to certain disabled workers or their dependents.
Policymakers also could alter the program in more fundamental ways. A disability insurance system that emphasized workers’ continuing in their jobs, for example, might lead to a higher rate of employment among those with disabilities than is now the case. CBO reviewed proposals for several such changes to the DI program and described the main themes among them.