Inside the GOP’s Plans to Stop a Social Security Meltdown

One serious option: interfund borrowing, where the much bigger retirement fund would loan money to the disability program.

PHILADELPHIA, PA - JULY 18: In this photo illustration, Treasury employee Linda Tarkenton of Philadelphia, Pennsylvania holds a blank U.S. Treasury check before it's run through a printer at the U.S. Treasury printing facility July 18, 2011 in Philadelphia, Pennsylvania. U.S. President Barack Obama recently stated that he can't guarantee retirees will receive their Social Security checks in August if the House and Senate can not reach an agreement on reducing the deficit.
National Journal
Aug. 3, 2015, 4 p.m.

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?”

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