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Wall Street Journal Editorial: Disabling a Budget Con

Closing special-interest loopholes will help lower rates and boost the economy.
January 16, 2015 — Blog   

Congress last year unanimously closed a loophole that allowed surviving Nazi war criminals to claim Social Security benefits, but that’s where the entitlement reform consensus ends. Now the political left is melting down over a modest budget change that could require Congress to be honest about the Social Security disability program’s fiscal problems and employment distortions.

Republicans are “inventing a Social Security crisis that will threaten benefits for millions and put our most vulnerable at risk,” wrote Senator Elizabeth Warren, in one of her subtler commentaries. AARP and other left-leaning groups are also war-whooping that a procedural rule the House adopted last week will mean about a 19% cut in disability-insurance benefits.

If only. Social Security payroll taxes finance traditional income transfers for the elderly and disability payments, and an ever-larger share is going to the latter for what amounts to promoting middle-age retirement. What used to be last-resort insurance has come to apply to ailments like back pain or anxiety. More and more workers are leaving the labor force permanently and substituting disability for wages.

In 1990 about one of every 10 Social Security dollars flowed to disability. Now it’s nearly one of five. The disability rolls doubled between 1990 and 2008, and then they spiked 21% in the Obama era to 10.2 million Americans and their dependents. Only about one-third of this growth can be explained by the underlying health, size and demographic composition of the working-age population.

Payments have exploded 32% since 2008 to $140.1 billion. And every year since 2009 disability payments have exceeded the revenues dedicated to disability by a portion of the Social Security payroll tax. The nearby chart tracks the decline in the so-called trust fund that is scheduled to run dry in 2016.

Like the separate trust fund for seniors, this does not mean that some pool of money in the Treasury is running down. All current Social Security payments are financed by current payroll taxes. Trust funds are an accounting fiction that Congress invented to give the appearance that payroll taxes are being saved and invested.

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