Re: The Red Herring of Social Security's "Non-Retirement" Benefits

[National Dialogue Moderator <moderator>]

Response to -The Red Herring of Social Security's "Non-Retirement" Benefits

I would like to add to Bill Spriggs' response to Walter Hart concerning the proportion of Social Security payroll taxes that go to non-elderly beneficiaries as non-retirement benefits and the treatment of survivors and disability programs under individual accounts proposals.  Walter indicated that the percent of payroll taxes received by young families in the form of non-retirement benefits is very small.   In fact, data from the Social Security Administration (see the Annual Statistical Supplement, 1998) show that 17 percent of all Social Security benefits distributed are survivors and disability payments to individuals under age 65.  This is a substantial share of total benefits, therefore, it is important to think about what will happen to the Survivors Insurance and Disability Insurance programs under an individual accounts system.

Most proponents of individual accounts have simply said the survivors and disability programs will not be affected.  But it is not at all clear how these programs will be funded under an individual accounts system.  Plans that propose to divert two percentage points of the payroll tax to individual accounts would nearly double the size of the long-term Social Security shortfall.  As a result, such proposals generally entail large reductions not only in Social Security retirement benefits, but also in survivors and disability benefits.

Another consideration is the financial status of the Disability Insurance trust fund.  While the combined Old  Age Survivors and Disability Insurance trust funds will remain solvent through 2034, the Disability Insurance trust fund will be exhausted in 2020 if it is operated separately.  After 2020, disability benefits would have to be cut, payroll taxes would have to be increased or funds would have to be borrowed.

If benefits are cut, high-wage earners could supplement their Social Security insurance with private disability insurance.  Low-wage earners, however, face high premiums because they are more likely to have physically risky jobs.  Consequently, low-wage earners may be unable to supplement their reduced Social Security Disability Insurance.

In general, supporters of individual accounts have not said what will happen when the disabled reach retirement age.  Currently, when disabled workers turn 65, the workers and their families receive retirement benefits instead of disability benefits.  Under an individual accounts system, Social Security retirement benefits would be substantially reduced or eliminated.  If workers are disabled early in life, when they retire they will not have accumulated enough savings in their individual accounts to adequately supplement or replace their Social Security retirement benefits.

Converting the Social Security system to an individual accounts system will likely involve substantial reductions in Social Security retirement, survivors and disability benefits for the non-elderly and elderly alike.


Kilolo Kijakazi