Some time late next year, 9 million people will see a 20-percent cut in their Social Security disability checks. It’s another do-or-die deadline for a Congress with a tendency to punt when facing one.
Some Republicans on the Hill, however, are thinking ahead. What they’re planning could be the catalyst for the most significant discussion in a long time about the country’s most popular social program.
Lawmakers are planning to package some disability reforms together, but whatever bill Congress comes up with won’t do enough quickly enough to fix the program’s finances and stop the cut. So they’ll have to move some money around to avert a crisis. According to lawmakers, aides, and other sources, one of the options being seriously considered is what’s known as interfund borrowing: The much-bigger retirement fund would loan money to the disability program.
And because the disability fund would have to pay the money back, it would set the stage for another debate about Social Security in the near future. A loan would give Congress the ability to effectively set a date for when Social Security’s disability program would need to be addressed again, which is part of the appeal to Republicans, and many in Washington think that would lead to a broader conversation.
So a loan would prevent the cut and serve a future political purpose. But that’s also why the tactic is likely to be met with resistance from many Democrats and outside lobbying groups.
For now, nothing is set in stone. “We haven’t made a decision,” said Rep. Sam Johnson, chairman of the Ways and Means subcommittee on Social Security. “Everything’s on the table.”
Multiple sources said that the House GOP’s preferred means of avoiding the 2016 cut is a loan. Rep. Tom Reed, another member of the Ways and Means panel, ticked off its benefits in a recent interview, though he declined to outright endorse it.
“Obviously, with interfund borrowing, you have a commitment that the retirees will be paid back as opposed to just adjusting the tax flows that are going in,” he said. “I’m very sensitive, when we’re talking about Social Security retirees, this is their retirement, their money that they’ve put in. To make sure that they’re held harmless is also something that needs to be strongly considered as we go forward.”
The most obvious alternative to a loan would be what’s called reallocation, which would shift incoming payroll tax revenue from the retirement fund to the disability program. That has been done almost every other time one of the Social Security trust funds faced a shortfall. In his 2016 budget, President Obama proposed a reallocation that would line up the insolvency dates for both Social Security’s retirement and disability programs in 2033.
Unsurprisingly, neither House nor Senate Republicans are on board with that plan. They characterize Obama’s approach as kicking the can down the road, and a House Democratic proposal to combine the two funds to prevent the 2016 cut is likewise presumed dead on arrival.
A Senate GOP aide said that their side hasn’t settled on a plan and that discussions are ongoing. The main questions are how any movement of resources is structured and how long it would last. There are ways to structure reallocation to give Congress more control over the next deadline, though perhaps not as much as a loan, because payroll taxes are subject to the whims of the economy. Less obvious options surely exist. Senate Republicans also have to be cognizant that they would need at least some Democratic support to overcome a filibuster.
One aspect that makes a loan attractive is that it might be easier to sell to rank-and-file conservatives than reallocation, given the recent Republican rhetoric on the latter and the fact that Democrats and the White House are pushing for a ‘clean’ reallocation.
The House’s preference, interfund borrowing, is endorsed by the Heritage Foundation and other conservative wonks because they say it would buy time for more structural reforms while also applying pressure to get them done. They cite loans made in the early 1980s from the disability and Medicare trust funds to the Social Security retirement program, saying that the deadline led to a set of reforms passed in 1983.
“This interfund borrowing would provide the short-term financial patch necessary to ensure that those receiving disability benefits would continue to receive full benefits,” Jason Fichtner, a senior fellow at George Mason University’s Mercatus Center, wrote in MarketWatch last year. “It wouldn’t, however, mask the financial shortfall of the disability insurance program or lessen the pressure for policy makers to enact real, necessary, meaningful reforms.”
The question would then be whether those bigger reforms are limited to the disability program — or whether major changes to the retirement program, projected to be insolvent on its own in 2034, would also be on the table. Nobody can say definitively what would be up for discussion. Most of the rhetoric is centered on the disability program, but some on and off the Hill advocate overhauling Social Security more broadly with the 2034 cliff in mind.
That’s also why the loan proposal is sure to attract some fierce opposition. “Robbing the Social Security trust fund for seniors in order to temporarily support disability insurance will only undermine the disability fund in the long run — as it will would be required to payback funds with interest,” Democratic Sen. Sherrod Brown, ranking member of the Senate Finance subcommittee on Social Security, said in a statement. “Instead, Congress should pass a reallocation of the trust funds, a routine housekeeping matter that has been used 11 times — including four times under Ronald Reagan.”
The most influential seniors group, AARP, has been more reserved, however, indicating an openness to a loan in a recent statement to National Journal. And Republicans are publicly quick to rebuff accusations that interfund borrowing would be part of a larger scheme to remake Social Security.
“Any thought process or rhetoric out there that we’re using this as a platform to get to overall Social Security or any outside entitlement reform, that’s not the case at all,” Reed said. “What we’re focused on is bringing the disability trust fund to the 21st century and making sure we protect retirees as much as possible.”
Not all Democrats are outright dismissing the loan option either. They have more preferred proposals, but Rep. Xavier Becerra, chair of the Democratic caucus and ranking member on the Ways and Means subcommittee, didn’t categorically rule out interfund borrowing when asked multiple times about it in a recent interview.
“The question is: Will whatever is proposed as a fix deal with the issue of making sure that no American loses benefits they pay for?” Becerra said. “If I could see how a program worked, I could tell you if I could be for or against it “¦ If you take out a loan, you have to have a way to pay it back. Where’s the money coming from to pay it back?”