Social Security Disability Trust Fund Will Be Empty in Less Than Two Years

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If Congress doesn't act, the trust fund that provides a significant portion of federal Social Security Disability Insurance (SSDI) benefits will run dry in 2016, according to testimony at a recent hearing of the Senate Finance Committee on Social Security, Pensions and Family Policy.

As its name implies, SSDI is an insurance program that provides benefits to workers who have paid into the Social Security System.  (In some cases, people who have never paid into the Social Security System, such as Social Security beneficiaries' children with disabilities, can also receive SSDI benefits.)  The SSDI system is funded through payroll taxes, but contrary to popular belief, the taxes are not held for the benefit of the people currently paying the tax.  Instead, they are used to pay for current Social Security and SSDI beneficiaries.  If there are excess tax revenues available at the end of the year once all the current beneficiaries have been paid, then those funds are added to special trust funds to support the programs in the future.  

In the beginning, both the Social Security and the SSDI trust funds grew, since there were relatively more workers and fewer seniors and people with disabilities.  However, in recent years as the baby boom generation aged and record numbers of people began to receive disability benefits, there were fewer workers to support an increasing number of Social Security beneficiaries.  This meant that the government had to withdraw money from the trust funds to pay Social Security and SSDI benefits because the tax revenue being collected from workers was not enough to meet current needs.

Last year, as it has for several years, the Board of Trustees of the Federal Old-Age And Survivors Insurance And Federal Disability Insurance Trust Funds warned Congress that the SSDI trust fund was going to actually run out of money in 2016.  If this happens, SSDI benefits will be cut by approximately 20 percent.  (A 2013 opinion piece by Reuters columnist Mark Miller provides the details of the problem.)  

At the recent Senate committee meeting, Sen. Sherrod Brown (D-OH) pointed out that it is possible to stabilize the SSDI trust fund by reallocating a portion of current payroll tax revenue away from Social Security and towards SSDI.  While not perfect, this solution would provide some measure of comfort for the nearly 11 million people who rely on SSDI benefits.  We'll keep you updated as the 2016 deadline approaches.

 

Topics:  Legislative Agendas, Payroll Taxes, Senate Finance Committee, Social Security Disability, Trust Funds

Published In: Elections & Politics Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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