Committee for a Responsible Federal Budget

The President’s Social Security Proposals

Feb 13, 2015 | Social Security

The President proposed last week, through his FY 2016 budget, a number of proposals to reform Social Security in small ways, including measures to shore up the strained Social Security Disability Insurance (SSDI) Trust Fund by shifting funds from the Old-Age and Survivors' Insurance (OASI) Fund and to improve data sharing and coordination with other agencies. Overall, the Office of Management and Budget (OMB) estimates that these measures would save money through better program integrity and increased payroll revenues for the program. OMB expects that over the next 10 years these changes will cut Social Security's costs by $14 billion and increase revenue by roughly $46 billion. 

Here is a summary of the President’s proposed changes to the SSDI program:

    • Reallocating payroll taxes from OASI to SSDI. The budget proposes reallocating an additional 0.9 percent of the payroll tax from the old-age program to the disability program for five years in order to extend the life of the SSDI trust fund to about 2033.
    • Completing Continuing Disability Reviews (CDRs). The budget proposes mandatory funding for CDRs starting in 2017. Annual funding would be determined through a formula rather than the appropriations process. The budget proposes $15.2 billion of new spending for CDRs through 2025 which would generate estimated savings of $37.7 billion. About 80 percent of the spending and a similar proportion of the savings would go to and come from the Supplemental Security Income (SSI) program, leaving $7 billion of net savings to the SSDI program.
    • Eliminating SSDI/UI 'Double-Dipping.' The budget would reduce an individual's SSDI benefits dollar-for-dollar in months when the beneficiary also collects unemployment benefits. Variations of this proposal had bipartisan support in the previous Congress.
    • Funding Early Intervention Demonstrations. The budget grants the Social Security Administration and partner agencies authority to test strategies to help disabled workers remain in the workforce. It specifically proposes three demonstrations: assisting people with mental impairments through targeted services, encouraging employers to provide accommodations to retain employees with disabilities, and promoting better coordination of state disability services.
    • Improving data sharing with Workers’ Compensation programs. The budget proposes improvements to data sharing with states and private insurers so that the agency can correctly offset SSDI and SSI benefits based on WC benefits.
    • Reducing hearing backlogs. The budget proposes more funding to reduce the disability hearing backlog by increasing the number of Administrative Law Judges (ALJ) and creating a workgroup to review and streamline the ALJ hiring process.
    • Better coordinating with OPM. The budget recommends automating coordination of SSDI benefits between the Office of Personnel Management (OPM) and the Social Security Administration (SSA) to reduce overpayments to federal employees.

The budget would also make reforms to the Social Security system as a whole, impacting the old-age portion of the program. These proposals include:

    • Better collecting pension information from states. The budget recommends mandating pension reporting from state and local governments in order to more accurately apply the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).
    • Moving from annual to quarterly reporting. The budget would restructure the Federal Wage Reporting process from annual to quarterly wage reporting to improve tax administration and consequently reduce benefit overpayments.
    • Standardizing benefits for same-sex couples nationwide. The budget recommends amending the Social Security Act so that lawfully married same-sex couples become eligible for Social Security spousal benefits, even if they live in a state that does not recognize the marriage. This would likely expand spousal benefits slightly more than the Social Security Trustees anticipated previously.
    • Properly terminating benefits to deceased individuals. The budget updates the Treasury Department’s Do Not Pay list, using the Death Master File to stop payments to deceased individuals.
    • Eliminating aggressive Social Security claiming strategies. The budget proposes eliminating strategies for upper-income beneficiaries who maximize their retirement credits by manipulating when they collect Social Security benefits.
    • Better data sharing to reduce improper payments. The budget authorizes SSA to use data from the Customs and Border Protection (CBP) Entry/Exit data to reduce improper payments. Additionally, under the budget, people receiving Social Security benefits and seeking overpayment waivers must allow SSA to certify their financial information to determine their available resources.
    • Holding fraud facilitators liable for overpayments. The President recommends allowing SSA to recover overpayments from third parties when the third party made fraudulent statements or provided false evidence that allowed the beneficiary to receive improper payments.
    • Terminating benefits for stepchildren at time of divorce. The budget would terminate payments to stepchildren of divorced parents when payments are terminated for the parent.

The President’s budget also proposes several tax changes that would primarily boost the amount of payroll taxes collected and increase revenue coming into the entire Social Security system.

Two of the more significant changes are:

  • Closing loopholes for small business owners. The President recommends closing the “John Edwards/Newt Gingrich” loophole, a provision that helps wealthy individuals who get income from pass-through businesses to avoid payroll taxes. If they don't actively participate in the business, these owners can declare a small portion of their income as wages with the rest escaping payroll taxation. OMB estimates that closing this loophole would boost revenues by $74.6 billion over the next decade.
  • Increase certainty with respect to worker classification. The budget would allow the IRS to publish clearer guidance to determine when an employee can be classified as an independent contractor. Under this proposal, a proportion of people currently classified as independent contractors would be reclassified as employees, and the employer would therefore pay payroll taxes on their income. OMB expects this to increase revenues by $10.2 billion in the next decade.

The table below lists the 10-year cost estimate of the reforms in the President's 2016 budget. Deficit increases are expressed as negatives (-) and deficit decreases as positives (+).

Area of Savings
  Social Security 
Unified Budget Impact
SSDI Changes
Reallocate funds from the old-age to the SSDI program
-
-
Increase funding for CDRs and make funding mandatory^
$4.0 billion
$22.5 billion
Limit 'double-dipping' of SSDI and UI benefits
$2.3 billion
$2.0 billion
Restore and expand demonstration authority for SSDI and SSI
-
-$0.4 billion
Subtotal $6.3 billion $24.1 billion
Social Security Changes (OASI and SSDI)
Improve information sharing from states and localities $6.5 billion $6.6 billion
Move from annual to quarterly reporting
$1.1 billion
$1.3 billion
Better data sharing between SSA and OPM - $0.4 billion
Standardize Social Security payments for same-sex couples
-$0.1 billion
-$0.1 billion
Other changes impacting Social Security spending
$0.2 billion
$0.5 billion
Subtotal $7.7 billion $8.7 billion
Changes in Revenue
Close "John Edwards/Newt Gingrich” loophole ~$35 billion
$74.6 billion
Increase certainty with respect to worker classification ~$11 billion
$10.2 billion
Subtotal ~$46 billion $84.8 billion
Total
~$60 billion
$117.5 billion

Note: Social Security (SS) column reflects all changes to SS’s mandatory spending and the Unified Budget Impact column reflects savings to all government agencies, including SS.
Positive numbers denote deficit reduction and vice versa.

^ Estimate includes $3.0 billion in increased spending and $7.0 billion in benefit savings for SSDI alone.

With SSDI depleting its reserves next year, steps need to be taken to restore the program's long-term balance. While this should be done in the context of comprehensive Social Security reform, allowing policymakers to analyze the interactions between the old-age and the disability programs, proposing these small reforms is a good start. And the sooner we deal with the long-term Social Security imbalance, the better, given the high cost of waiting.

Still, the SSDI program faces many challenges beyond insolvency -- this includes a long and complex determination process, leading to backlogs and poor incentives for people with disabilities to remain or re-enter the workforce. The SSDI Solutions Initiative is dedicated to identifying long-term solutions to support SSDI, including these 13 ideas that they have identified so far.

You can read more about the President’s FY 2016 budget by reading our full analysis or our blog series on it.