Last week, the Republican majority in the House adopted new rules, which if followed would narrow the options for postponing the crisis forming in Social Security.
Today, Social Security has two separate systems, Disability (DI) and the more well-known Old-Age/Survivors (OAS). Today, the DI system gets 1.8% in payroll taxes, whereas the larger OAS system collects 10.6%. The allocation of payroll taxes has changed over time depending upon which system needed more resources.
Today, the Trustees project that without Congressional action, the DI program will only collect enough resources to pay 81% of promised benefits starting in late 2016. While system-wide benefits would be reduced by 19%, it is unclear how that reduction would be allocated to individual beneficiaries, some 11 million of them.
Among others, Treasury Secretary Jacob Lew, who is the managing Trustee of the Social Security Trust Funds, has suggested that Congress increase the portion of payroll taxes allocated to the DI system at the expense of the OAS. The House rule would insert a procedural block on such a proposal, unless the change was part of a larger plan which maintains the solvency of the OAS.
Is the House rule a good idea? The allocation of payroll taxes changes nothing about the size of the crisis in Social Security, only the timing. It is the kick-the-can solution. Altering the mix of payroll taxes would simply hide the imbalances of the DI system in the balances of the OAS system. Lew’s suggestion would fix the DI system by breaking the OAS system.
The response to the change has bordered on hysteria from all sides. Democrats such as Senator Elizabeth Warren have accused the GOP of trying to invent a Social Securitycrisis. On the other end of the spectrum, you find Heritage Foundation analyst proclaiming that “The House Just Made It Harder for Politicians to Steal From Social Security Retirement Fund.”
The reality is that the rule is little more than a New Year’s resolution within the GOP that the party will choose to conviction over consequence. By comparison, the conviction in 2013 of defunding Obamacare lasted 16 days before the consequences of the government shutdown forced the GOP to relent. So rules can change.
Nothing in a resolution will materially hamper Congress from dealing the problem in the future. While the rule prohibits Congress from reallocating the payroll taxes, Congress can allow the OAS to lend money to the DI system. Inter-system lending helped the OAS avoid insolvency in 1983 for example.
The intent of the rule is good. Deferring the discussion of DI is not healthy for the nation. First, it will give retirees a better picture of what will happen in roughly 18 years when the Trust Fund that supports the OAS system is exhausted. Second, Lew’s proposal will allow the financial imbalances to grow essentially unseen. The whole point of his proposal is to postpone the discussion about reform rather than fix anything.
For once the government isn’t trading the long-term interests of Social Security for the short-term interests of voters. Well, at least for the time being.