This issue wears a black hat. Bwoo-ah-hah-hah-hah.
There’s likely to be some panic about this in 2016. Don’t let it bother you.
First off, there’s no trust fund. At least not in the sense that most people think of: a pile of money in an investment somewhere that can be used at any time.
Our federal government isn’t allowed to make investments for the future like you and I do, so there isn’t a sense in which it can have a trust fund for anything.
So why do we say trust fund, and what do we mean?
We say trust fund because Congress tells us that’s the name for it. But it’s a lie, and there’s no law that says they can’t lie about that.
What they mean is that they made projections way back in the past about where the money was going to come from (mostly FICA taxes withdrawn from our paychecks), said that some percentage of that was going to go to disability payments, called what they didn’t allocate a trust fund and then spent it on something else (and not necessarily something bad, they just can’t legally save it), and now they’re going to spend it (by not spending it on something else) except they expect to spend more than they pretended to save.
This isn’t as horrible as it sounds, but it isn’t good. Let me give you an analogy from my life. The family goes on vacation. My daughter brings her own money. But since she was young we haven’t trusted her with a lot of cash. So she asks me to hold it for her. And I put it in my wallet with all my other cash, and keep a mental note of how much is hers. Then I spend the cash wherever we need it. And sometimes when she finds something she wants to buy, I have to say that I have to go the ATM first because I don’t have “her” cash in my wallet any more. (I confess: it’s a tiny little bit immoral, but parents do stuff like this all the time). Oh, and she wants all her cash back right now because she wants to buy something that costs more than all the cash she gave to me in the first place, so she needs a little loan too. In the analogy, the ATM is taxpayers, I’m Congress, my daughter is the Social Security Administration, and the retailer is disability recipients.
Second off, there’s no disability crisis either. I’ve debunked this topic many times on this blog over the last several years. Instead, what we have is this big demographic hump in the labor market called the baby boomers. The economy thrived in the 80’s because they were young and healthy. The economy isn’t thriving in the teens because they’re old … and at the age where they get disabled a lot.
Americans today are about as likely as those in the past to report that they have a work-limiting disability, according to Census Bureau data. For instance, 5.6% of Americans ages 35-44 reported having a work-limiting disability in 1984, while in 2014 that figure was 5.4%. …
Yet the percentage of the working-age population collecting disability insurance benefits has more than doubled to 5.7% in 2014 from 2.7% in 1984. These increases were not anticipated …
Demographic factors have played a major role. Older workers are more likely to become disabled, and as more women entered the labor force in the 1970s and 1980s, they began receiving benefits alongside men.
And third, Congress has made it easier for some people to collect disability. But most of this happened a generation ago. It’s just catching up to us now. And don’t forget that it’s totally natural to be good-hearted and take care of more people, but also natural to blow off figuring out how to pay for that.
Congress loosened eligibility standards in 1984, allowing multiple non-disabling ailments to be combined to qualify for disability benefits. The legislature also ordered the Social Security Administration to favor evidence provided by an applicant’s medical representatives over the judgments of SSA medical professionals.
Anyway, the coming crisis is that we haven’t allocated a big enough fraction of incoming revenue to cover this. So we’ll either have to allocate more to disability (and less to other stuff), or increase taxes.
Read all about it in the article entitled “Averting the Disability-Insurance Meltdown” in the February 23 issue of The Wall Street Journal.