Friday, January 30, 2015

Disability Trust Fund Will Run Out of Money By the End of 2016

The first major entitlement program is about to run out of money.

In the past quarter-century the share of working-age Americans on disability has doubled, to 5%. Some 11m Americans—9m workers plus their dependents—now receive benefits, nearly as many as work in manufacturing. The result is that DI now pays out far more in benefits than it receives in payroll taxes. Its trust fund will run dry by the end of 2016, reports Economist magazine.

When danger-point has been reached in previous years, money has been shifted to DI from payroll tax or the Social Security trust fund (which is meant to cover public pensions); but a rule passed this month by the House of Representatives says this cannot be done any more without reform.

Economist notes:
The programme owes its dire state, in part, to the same demographic forces undermining Social Security and Medicare. Baby-boomers who haven’t yet retired are now at the age when they are most likely to become disabled. Their numbers have been swollen by the entry of more women to the workforce. And a gradually rising retirement age means beneficiaries collect disability payments longer before they switch to a pension.
But demography explains only a bit more than half the rise in the rolls since 1980, according to the Congressional Budget Office and Federal Reserve Bank of San Francisco. The rest is because workers of any age or sex are now much more likely to qualify.
However, in 1984 the eligibility criteria were changed. It is now easier to qualify with hard-to-verify ailments, such as mental illness and back pain. Meanwhile, wage stagnation among the low-skilled makes disability benefits—which come with automatic annual increases and health insurance—more appealing, especially during recessions. One study found that ten years after starting on disability benefits, less than 4% of recipients had returned to work.
Grab some popcorn and watch your wallet. The only solution to the crisis is to either cut DI benefits or raise payroll taxes.



  1. Democrats and especially Obama know that your average government program loving American will not tolerate being made to pay one dime more to support the government programs they view as essential to society. I fully expect another tax increase or seeing the social security program turned into a full fledged welfare system with the removal of the wage cap.

  2. another solution might be to nationalize some portion of or all IRAs/401Ks ... ya know, for the common good

    1. Not to mention the children...

    2. "Not to mention the children..."

      The government already owns them.

  3. "Grab some popcorn and watch your wallet. The only solution to the crisis is to either cut DI benefits or raise payroll taxes."

    Also they should make the lists(with pics) of recipients public info.

  4. Maybe someone can explain to me what I am missing here.

    I've always been of the opinion that the whole 'trust fund' discussion is a straw man for the mathematically challenged (just as I think the lottery is a hidden tax for those who can't do math) because the 'trust fund' is simply a pile of IOUs left there by the gov't when it 'borrowed' the funds and spent them (at the same time congratulating itself for reducing the deficit in a sleight of hand that would land any businessman in jail...borrowing money and treating it as an income statement transaction instead of a balance sheet transaction).

    IMHO, the only inflection point that matters is when outflows exceed inflows, and the size of the difference because that is the amount that must be transferred from the general fund, regardless of what the 'trust fund balance' is.

    If the trust fund has a balance of $20, and outflows exceed inflows by $10, the general fund must transfer $10 to cover the shortfall. The accounting transaction would reduce the amount in the trust fund by $10 by 'redeeming' $10 in IOUs.

    We are told that everything is fine as long as there is a balance in the trust fund...that the tipping point, insolvency, will occur only when the trust fund balance moves into negative territory which in this case would be two years. But from the general funds perspective, nothing changes when the trust fund transitions from positive to negative is still having to transfer $10 per year to cover the shortfall regardless of what the trust fund balance is (or isn't).

    According to the chart, it looks as if we crossed the true insolvency point in 2005-2006. The idea that the DI program will go bust by the end of 2016 is a load of crap. It went bust almost 10 years ago.

    It would be like me borrowing $100K from my wife, and agreeing to pay her 15% interest on the money, spending all of the money on lottery tickets, and then telling everyone what good shape our family was in because my wife had $100K invested earning 15%.

    Am I missing something?