Social Security’s disability-insurance program is forecast to run short of money in 2018, more than six years from now, and policymakers can plug the hole for several decades by reallocating some taxes from the related old-age program as they have done in the past. But that’s not the impression you’d get from some alarmist reports. “Social Security disability on verge of insolvency” blares a Fox News story, a theme echoed by other outlets (see here and here).
Here are the facts. In December 2010, 8.2 million people received disabled-worker benefits from Social Security. (Payments also went to some of their family members: 160,000 spouses and 1.8 million children.) Demographic and economic factors have pushed more people onto the disability rolls in recent decades; the number of disabled workers has doubled since 1995, while the working-age population — conventionally described as people age 20 through 64 — has increased by only about one-fifth. But that comparison is deceptive. Over that period:
The Social Security actuaries express the number of people receiving disability benefits using an age- and sex-adjusted disability prevalence rate that controls for these factors. Over the 1995-2010 period, that rate rose from 3.5 percent of the working-age population to 4.4 percent. That’s certainly an increase, but not nearly as dramatic as the alarmists paint (see graph). And it’s no surprise that the rate creeps upward during periods of economic distress.
While legally separate, Social Security’s Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds are both funded by a payroll tax on the first $106,800 of earnings (a ceiling that’s updated annually). The DI trust fund is expected to run dry in 2018, but the two funds combined could pay full benefits until 2036. Congress has often reallocated payroll-tax revenue in the past — in either direction — to shore up the OASI or DI trust fund.
Disability benefits are an integral part of Social Security, closely woven into its package of retirement and survivor protections. Policymakers should act soon to restore solvency to all of Social Security and make any necessary tax-rate reallocations between the two trust funds at that time.