Disability Fund to Be Depleted by 2016

08 Apr


By Phil Izzo

Even as more people in the U.S. rely on disability benefits, the program that pays them is running into a problem: there isn’t enough money coming in to cover the amount that’s going out.

The disability insurance trust fund has been running at a deficit since 2009. So far, it has been able to make payments drawing down on surpluses built during the 1990s and early 2000s. But unless revenue increases or payouts drop that extra cash will eventually run out. In fact, the most recent report of the fund’s board of trustees expects it to run dry as soon as 2016.

If the trust fund runs out, that doesn’t mean that all benefits payments must stop, just that they won’t be able to remain at the current level. The only way to keep payouts at the current level is to increase revenue.

The disability insurance trust fund is primarily financed by payroll taxes, but the recent increase in that tax rate won’t help raise revenue. Congress enacted a temporary reduction in payroll taxes in 2011 and 2012 that expired early this year. In order to keep Social Security programs secure, lawmakers told Treasury to make up the difference from its general fund. So, even though taxpayers sent less money in, the fund remained where it would be had the tax cut never existed.

The only way to keep benefits at the current level is either through higher tax rates, or the reallocation of money earmarked for all Social Security programs. This issue actually came up in 1994. Then, as now, income wasn’t keeping pace with outlays. At that time, lawmakers just altered where money from the payroll taxes went, sending more to the disability fund and less to other programs.



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