The looming 20 percent Social Security cut that nobody's talking about

Imagine checking your bank balance and discovering your Social Security payment is 20 percent less than it should be. You contact the Social Security Administration only to be told that the Trust Fund is “insolvent,” and by law, benefits automatically adjust to the level of payroll taxes coming in. There’s only enough money to pay you 80 percent of your scheduled benefits.

Think that Congress will never let that happen? I wouldn’t bet my benefits on it. This is, after all, the Congress that will be most remembered for letting $1.2 trillion in automatic “sequester” budget cuts take effect that no one originally expected.

Recently the Social Security Trustees released their 2013 annual report. The media reported “no change” in the Social Security Trust Fund insolvency date of 2033. But right there, on page 2, the Trustees say that the Social Security Disability Insurance (DI) trust fund, which operates separately from the trust fund that pays retirement and survivors benefits, will be fully insolvent in 2016 – just three years from now. When that happens the Trustees say the revenues received by the DI trust fund would be sufficient to only pay 80 percent of scheduled disability benefits if Congress takes no action.

What about those I.O.U.s held by the trust fund? In years payroll taxes exceeded benefit costs, excess taxes were used for other government spending. Non-marketable bonds representing I.O.U.s from the U.S. Treasury to the Social Security trust funds were issued for the money “borrowed” from the retirement and disability trust funds. In 2005 the revenue situation for the disability trust fund reversed and did the same for the retirement trust fund in 2010 – benefit costs began to exceed money coming in.

When a trust fund becomes “insolvent” that means the special non-marketable bonds, or I.O.U.s and “interest earnings” held by the trust fund are depleted.

So far there’s been little discussion of how, let alone if, Congress will ensure that scheduled disability benefits are paid in full and on time. Social Security’s Chief Actuary Stephen Goss testified on the financing challenges earlier this year. He pointed to a simple tax-rate reallocation between the retirement and disability trust fund, something that Congress used before in 1994. That would provide a short-term extension to the disability trust fund, but deplete the retirement trust fund more quickly, which would trigger lower benefits for all beneficiaries sooner unless Congress takes action.

The Congressional Budget Office has released a list of options to fix the disability program covering a range of benefit cuts and higher taxes. TSCL surveys indicate that a majority of seniors support increasing revenues by raising the amount of earnings that are taxable. Currently people who earn more than $113,700 pay no taxes on earnings over that amount.

With only three years left to go, it’s time to start asking our elected lawmakers what their plans are. One thing is for sure, doing nothing is not an option. That would guarantee a 20 percent benefit cut. To learn more about the options see “The Social Security Disability Program” testimony of Joyce Manchester, Congressional Budget Office, March 14, 2013. It’s online at h/

To learn about disability benefits or to start an application visit

TREA Senior Citizens League is a Washington D.C.-based advocacy organization.

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