The annual check-up for Social Security is in, and one program looks more dire than the rest.
If Congress doesn’t act, people receiving Social Security disability benefits could see a nearly 20 percent cut to payments at the end of next year, according to the latest version of the Social Security trustees report released Wednesday.
The disability trust fund will be depleted by the fourth quarter of 2016, leaving the administration with enough income to pay 81 percent of benefits, according to the report, which is updated annually.
The health of the Social Security program didn’t change by much, and the cut to disability benefits has been expected for years. But now that Congress has still not come up with a compromise for boosting the funding, the shortfall is more imminent. As explained in the report’s summary:
Social Security’s Disability Insurance (DI) Trust Fund now faces an urgent threat of reserve depletion, requiring prompt corrective action by lawmakers if sudden reductions or interruptions in benefit payments are to be avoided.
The cuts would most immediately affect the 10.9 million people receiving disability benefits as of 2014, but other beneficiaries could see benefit cuts down the line. If Congress doesn’t act to reform the program, the trust fund used for retirement benefits would be depleted by 2035, a year later than previously expected.
Some policy experts say Congress could act to reform the program just in time to avoid the cuts to disability benefits, but any fix may be short term. Lawmakers could decide to redirect some of the payroll taxes going to the retirement trust fund to fill the gap in disability benefits, says Shai Akabas, associate director of economic policy at the Bipartisan Policy Center.
“Everybody is in agreement that something needs to happen,” Akabas says. “But until the two parties come together on a compromise, that puts people in a high state of uncertainty.”
Another possibility is that lawmakers could come up with a short-term fix to boost the financing for the disability program while also changing benefits in some way. For example, President Obama recently proposed making it so that people who receive unemployment benefits cannot receive Social Security disability benefits at the same time. (Currently you can receive both.)
A less likely scenario is that lawmakers could use the urgency of the cuts to disability benefits to come up with broader reform that would stabilize funding for the entire Social Security program, Akabas says, though that would be harder to pull off politically.
The Social Security program hasn’t been reformed substantially in decades — and lawmakers have a track record of waiting until cuts are about to happen. A bipartisan commission led by Alan Greenspan in the 1980s called for increasing the payroll tax, gradually increasing the retirement age and introducing a partial tax on benefits, among other adjustments. The changes were eventually approved in 1983, the year that it was expected that the Social Security trust fund would be depleted.