April 27, 2015
The urgent financing crisis facing Social Security Disability Insurance (DI) is giving rise to suggestions that the DI Trust Fund be merged with Social Security’s larger Old-Age and Survivors Insurance (OASI) Trust Fund. These two components of Social Security have been kept separate thus far since their inceptions. Of the two, DI currently faces the much more immediate (2016) threat of depletion. Combining the two funds would allow disability benefits to be paid from payroll taxes currently earmarked for Social Security retirement benefits. The following factors should be borne in mind if any such policy change is considered.
#1: Historical Rationale for Separate Trust Funds. Social Security’s retirement and disability benefit systems were enacted at different times with separate financing arrangements. Social Security’s old-age benefits were enacted in 1935 during the Franklin D. Roosevelt presidency; for roughly the first two decades thereafter Social Security had but one trust fund. Disability insurance was established in 1956 during the Eisenhower presidency.
When Social Security was first established, lawmakers assured the public that its retirement pensions would be self-financing, funded by workers’ “contributions, not taxes,” and that benefits would not become a drain on the federal budget. When disability insurance was added later, similar promises were made that it would also be self-sustaining, and not siphon funds from Social Security’s retirement program or from the general budget...
Read the full article at the Manhattan Institute's blog Economics 21: Costs of Merging Social Security Retirement and Disability Funds