Understanding the Crisis

2015-0810 Social Security Disability
FILE- In this Aug. 12, 1985, file photo, Lillie Steinhorn, 74, stands inside the computer tape storage room at the headquarters of the Social Security Administration in Baltimore. She began work for the agency in 1936, a year after the Social Security Act was signed into law. As Social Security approaches its 80th birthday on Aug. 14, 2015, the federal government’s largest benefit program faces serious financial problems that could be fixed with only modest changes, if Congress acts quickly. (AP Photo/Bill Smith, File) The Associated Press

Excerpt of Article by Stephen Ohlemacher | Associated Press

The 11 million Americans who receive Social Security disability face steep benefit cuts next year — right in the middle of a presidential election — unless Congress acts.

Social Security’s trustees say the disability trust fund will run out of money in late 2016. That would trigger an automatic 19 percent cut in benefits.

GOP lawmakers see the funding crisis as an opportunity to improve a program that they believe is plagued by waste and abuse. Democrats are much more defensive about the program, noting that its modest benefits keep millions of disabled workers and their families out of poverty.

Lawmakers from both political parties would like to resolve the issue this year, protecting beneficiaries from steep cuts before presidential politics consumes the capital. But a deal remains elusive.

President Franklin Roosevelt signed the Social Security Act on Aug. 14, 1935. The disability program was added in 1956.

Some things to know about the disability program’s funding crisis:

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BENEFITS ARE MODEST

The average monthly payment for disabled workers and their families is $1,019. That comes to $12,228 a year. A 19 percent cut would lower the average annual benefit to less than $10,000.

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HOW IS THE DISABILITY PROGRAM FINANCED?

Social Security is self-financed by a 12.4 percent tax on wages up to $118,500. Workers pay half and employers pay half. Social Security also gets revenue from taxes on benefits and interest on the program’s two trust funds.

Last year, the wage tax generated $756 billion. By law, the tax revenue is divided between the disability trust fund and Social Security’s much larger retirement fund. The retirement fund gets about 85 percent of the money, and the rest goes to disability.

Over the past 20 years, the fund balances have gotten out of whack. The retirement fund has enough money to pay full benefits until 2035, according to the Social Security trustees. But they disability fund is projected to run out of money in fourth quarter of 2016.

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WHAT’S THE EASY FIX?

Congress could redirect tax revenue from the retirement fund to the disability fund, as it has done in the past. The last time was in 1994.

If Congress redirects the tax revenue, the retirement fund would lose one year of solvency, so both the retirement program and the disability program would have enough money to pay full benefits until 2034.

Credits

Thanks to Stephen Ohlemacher for writing the article from which this excerpt came; Associated Press for committing its resources to publishing the article; Google for helping me find the article; and all the people who, directly or indirectly, made it possible to include the picture and text in this post.

2 Comments

  1. The cut off of paying for social security is set at 118k, just as everything else in life that number needs to be recalculated on a yearly basis. By now this should be 250k cut off.

    1. Jaime, my belief is the calculation formula was designed by several people who lacked common sense and an understanding of simple math.

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