Academic journal article Social Security Bulletin

The Financial Outlook for the Social Security Disability Insurance Program

Academic journal article Social Security Bulletin

The Financial Outlook for the Social Security Disability Insurance Program

Article excerpt

Introduction

The Social Security Disability Insurance (DI) program is financed through one of the two trust funds established for Social Security. The other fund is for the Old- Age and Survivor's Insurance (OASI) program. While these trust funds are technically separate, the financial outlook of the programs has typically been viewed on a combined basis for two reasons. First, the benefits provided under the two programs are closely interrelated. Second, historically, when only one of the two programs has approached financial problems in the near term, the Congress has tended to borrow from or reallocate taxes from the other program to avoid an imminent crisis, thus more equalizing the financial outlook for the two programs. For these reasons, this paper will consider the OASI financial outlook as well.

The financial outlook for the DI and OASI programs, both separate and combined, are described in detail in the annual report of the Board of Trustees to the Congress. This report provides specifically the financial outlook for the programs assuming that no changes are made to the Social Security Act, which schedules future benefit and tax levels. The report thus provides the Congress an indication of the expected extent to which currently scheduled taxes are more or less than needed to finance the scheduled benefits. It also indicates when changes may be needed to assure adequate financing for the program. The trustees report has been produced every year, starting in 1941. Copies of all reports, through the latest report issued on May 1, 2006, can be obtained at http:// www.socialsecurity.gov/OACT/ pubs.html.

The latest trustees report (2006) indicates that the DI Trust Fund is projected under the trustees intermediate assumptions to remain solvent until 2025, during which year the trust fund is projected to become exhausted. If these assumptions are realized, and there is no Congressional action between now and 2025, monthly benefits scheduled in the law would no longer be payable in full on a timely basis after the exhaustion of the trust fund assets. However, even in this case, continuing tax income for the program would be sufficient to pay 82 percent of scheduled benefits for the remainder of 2025. Due to projected further increases in the cost of the program above the expected tax income, the percentage of scheduled benefits that would be payable would decline very gradually, reaching 75 percent for 2080.

The 2006 trustees report indicates somewhat better financial status for the separate OASI program, with solvency through 2041 and trust fund exhaustion in the following year under the intermediate assumptions. On a combined basis, the OASI and DI Trust Funds would remain solvent through 2039, with assets exhausted in 2040. At the time of trust fund exhaustion, 74 percent of scheduled OASDI benefits would be payable. With no change in the law, 70 percent of currently scheduled OASDI benefits would be payable in 2080.

Whether the financial outlook of the DI program is considered in isolation or on a combined basis with the larger OASI program, currently scheduled tax income is expected to be insufficient to provide for timely payment of full benefits throughout the long-range 75-year projection period. Thus, it will be necessary for changes to be made in either the taxes or benefits scheduled in current law, for both the DI and OASI programs. The balance of this paper describes a little about the history and nature of the financial status for the Social Security programs, and the potential approaches that are available for strengthening and improving their financial outlook.

Historical and Current Estimated Social Security Financial Status

The Social Security program was established in law in 1935, payroll tax collections started in 1937, and monthly retirement benefits started in 1940. Based on legislation in 1956, monthly benefits from the DI Trust Fund started in 1957. …

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