In recent years as Congress actually struggled to reduce the nation’s debt – a goal that has now all but disappeared in the nation’s capital – the media took to referring to lost opportunities for Congressional action as “kicking the can down the road.” That characterization was well justified because almost every time Congress was faced with a deadline, it refused to make politically difficult choices that would address the long-term debt by putting entitlement programs like Medicare and Social Security on a more sensible long-term budget.
Now there is a new opportunity for Congress and the administration to undertake serious reforms in entitlement programs that would show they have the will and capacity to address a serious budget issue. Not many people know that 1.8 percentage points of the total 12.4 percentage points of their Social Security tax goes to the Social Security Disability Insurance (DI) program. After many years of running surpluses, the DI Trust Fund ran a deficit in 2009 and for the next four years. In total, the fund balance declined by almost $90 billion in four years. By the end of 2013, what had been a surplus of more than $215 billion was down to $90 billion and was dissipating at the rate of about $140 billion a year. No wonder CBO predicted that the fund would not have enough money to cover all the DI benefits by the end of 2016.
For budget pessimists like me, this scenario is exactly what is going to happen to the Medicare and Social Security Trust Funds at some point in the future. The Social Security and Medicare Board of Trustees predicts that the Medicare Trust Fund will be exhausted by 2030, a pending problem that is the main reason many believe our current budget path is unsustainable.
Medicare, with an expenditure of more than $580 billion in 2013, is much bigger than DI, which paid benefits of “only” about $145 billion in 2013. So we might consider the DI challenge facing Congress, which will require some legislative solution to the pending shortage of money in the Trust Fund, to be a kind of practice run for the much bigger problem of solving the Medicare Trust Fund problem.
There are three major approaches that Congress can take to solve the DI financing problem: increase revenues, reduce spending, and take money out of the Social Security Trust Fund. All require legislation. Thus, by the end of the 114th Congress, the DI financing problem will be banging on the nation’s door and Congress will have to have done something.
But what? There seems to be very little disagreement that simply increasing DI taxes would be a political nonstarter. Republicans will not support tax increases and they will control both Houses of Congress during the 114th Congress. It is doubtful that any bill that increases taxes could even make it through Committee, let along pass both Houses. Republicans could probably force a plan to reduce spending on benefits through Congress by changing the complex formula by which benefits are determined, by changing the annual inflation adjustment, by changing the eligibility rules, or by requiring more work of DI applicants, especially if they decided to use the budget reconciliation process which would enable them to avoid a Senate filibuster. But Democrats would almost certainly oppose all these reforms and there is an influential advocacy community for the disabled in the nation’s capital that would lobby against any reductions in eligibility or benefit payments. Even if these barriers to substantive reform could be overcome, President Obama would be highly likely to veto any reforms that reduced DI enrollment or cut benefits.
So there you have it. Can’t increase taxes; can’t reduce spending; so the only alternative will be to take money from the Social Security Trust Fund. True, there is a lot of talk about compromises and useful reforms of the UI program that could lead to increased revenue or less spending at some future date. And undoubtedly Congress will pass some transparent provisions such as demonstration projects that will make it seem they are taking meaningful action. But count on it – almost all the money needed to cover whatever revenue shortfall is experienced by the DI Trust Fund will come out of the Social Security Trust Fund. “Kicking the can” will once again be an apt metaphor for the United States Congress.
Sentiment inside the Beltway has turned sharply against China. There are many issues where the two parties sound more or less the same. Trump and others in the administration seem heavily invested in a ‘get very tough with China’ stance. It’s possible that some Democrats might argue that a decoupling strategy borders on lunacy. But if Trump believes this will play well with his core constituencies as his reelection campaign moves into high gear, he will probably decide to stick with it, if the costs and the collateral damage seem manageable. But that’s a very big if, especially if the downsides of a protracted trade war for both American consumers and for American firms become increasingly apparent.