House GOP targets Social Security funding

House Republicans flexed their muscles during the first week of the new session of Congress, setting up a future fight over Social Security funding that will probably take shape in the lame-duck session after the 2016 elections.

On the first day of the new session of the 114th Congress last week, the new Republican majority adopted a procedural rule that forbids the House from approving any financial fix to the Social Security Disability Insurance program unless it is accompanied by broader Social Security reforms. The SSDI Trust Fund is expected to run out of money in 2016.

The 36-page set of rules passed 234-172, with all Democrats opposed and almost every Republican in favor.

I warned InvestmentNews readers in November that they would be hearing a lot about Social Security disability benefits this year. But even I was caught off guard by how quickly House Republicans moved on the issue.

(More: 10 ways to maximize Social Security benefits)

Unless Congress acts, disability benefits for 11 million Americans could be cut by 20% when the SSDI Trust Fund is exhausted next year. Drafters of the provision noted that the new rule “would protect the Old-Age and Survivors Insurance Trust Fund from diversion of its funds to finance a broken Disability Insurance system.” Bottom line: The new rule blocks what would have been a simple administrative fix used nearly a dozen times in the past.

Of the 6.2% in payroll taxes paid by both workers and employers on up to $118,500 of earnings in 2015, 0.9% goes to the Disability Trust Fund; the rest goes to pay retirement and survivor benefits. An additional 1.45% of payroll taxes on all earnings funds Medicare.
One trust fund cannot borrow or receive reallocated payroll taxes from the other without congressional action. But Congress has approved a reallocation 11 times before. Shifting one-tenth of 1% of FICA taxes to the SSDI from the OASI would extend the life of the disability trust fund until 2033. At the same time, it would accelerate the depletion of the OASI trust one year, to 2033 from 2034.
It seems the past is no longer prologue. Social Security advocates are furious over the surprise move and are gearing up for battle.

Kathy Ruffing of the progressive Center on Budget and Policy Priorities, said the Social Security Disability program isn’t broken and stems from anticipated demographic factors.
“The aging of the baby boomers into their 50s and 60s, the growth of women’s role in the labor market and hence their eligibility for [disability benefits], and the rise in Social Security’s full retirement age” contribute to the recent increase in disability benefits, Ms. Ruffing said in the organization’s Off the Charts blog this week.

She also noted that the last two trust fund reallocations shortchanged the disability trust fund. “Congress redirected a big chunk of payroll taxes from DI to OASI in 1983 and only partly offset that in a 1994 law,” Ms. Ruffing wrote. “If DI’s tax rate had remained at its pre-1983 level, we wouldn’t need to replenish the fund today.”

(More: How Social Security cost-of-living adjustments change benefits this year)

AARP wrote to members of the House of Representatives to express its concern about the last-minute amendment to H.R. 5, the House Rules Package for the 114th Congress.

“This type of shortfall has occurred numerous times in the past — in both the OASI and DI trust funds — and Congress has timely acted to protect promised benefits, including the option of reallocation of trust fund dollars,” the letter states. “AARP supports reallocation of payroll taxes to ensure the overall solvency of the combined OASDI trust fund and to protect disability benefits from potential cuts.”

The letter continued: “While we strongly support Social Security and believe Congress should act sooner rather than later to ensure Social Security’s finances for the coming decades, the amendment made public Jan. 6 is unduly narrow and limits the House’s ability to consider the full range of options for addressing issues facing Social Security.”

Just one week into the new Congress, it is already shaping up to be a very interesting year. Stay tuned. My political crystal ball looks like a snow globe of the U.S. Capitol caught in a blizzard. We’ll just all have to wait to see where the dust — er, snowflakes — settles.

(Questions about Social Security? Find the answers in my ebook.)