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Greenstein on Disability Insurance

August 5, 2015 at 3:45 PM
BY
CBPP

“The need to replenish the DI [Social Security Disability Insurance] trust fund gives us an opportunity to improve DI and better serve people with disabilities,” CBPP President Robert Greenstein explained at yesterday’s SSDI Solutions Initiative conference.  “But, given the population that DI serves, any changes in it need to be made with great care.”  This excerpt from his address discusses promoting work among DI recipients.

Policymakers should try to improve [DI’s] work incentives.  But our desire to make advances here exceeds our knowledge of how to do so successfully.  We have a lot to learn.  And, I fear that some policymakers think they already know the answers when, in fact they — and we — generally do not.

For example, one widely discussed proposal would replace the DI “cliff” with a “ramp,” in which benefits would shrink by $1 for every $2 of earnings, once earnings pass a certain threshold.  Now, applying the $1-for-$2 offset starting at the $1,090 Substantial Gainful Activity (or SGA) level [that is, the limit on how much a person can earn per month and still receive DI benefits] would create an incentive for beneficiaries to earn more than that amount.

But it would also raise costs.  And to prevent that, some proposals would start the benefit offset at a lower threshold of earnings, possibly as low as $300 a month.  Now, doing that would create a new work disincentive for those beneficiaries who have earnings between that lower threshold and the SGA level.  They would face a 50 percentage-point increase in the marginal tax rate on their earnings, reducing their income and making work less attractive. 

That’s no minor concern.  A recent study found that about 11 percent of DI-only beneficiaries had earnings in 2011 and, of those, 70 percent had earnings under $10,000 a year and 40 percent had earnings below $5,000.

Under this proposal, these individuals would lose substantial income and, in some cases, fall into, or deeper into, poverty.  The proposal is designed to increase work.  But it’s not clear whether total work effort would increase or decrease.  Some people would work more, but others — who would face a 50 percentage point increase in their marginal tax rate — may well work less. 

In addition, the proposal would, on average, shift resources from sicker people to those who have less severe impairments and can work more. 

Given that a clear impact of the proposal would be an increase in hardship and poverty, while the net effect on work could go in either direction, I believe it would not be responsible for policymakers to institute such a change without testing it first.

Only a demonstration project can show us whether the net effect on work would be positive or negative.  It’s disappointing that some of the same policymakers who promote the need for evidence-based policy in other spheres favor this policy without testing it first and gathering the evidence.

Click here for the full speech and here for our other work on this important topic.


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