Comments for the Record
House Ways and Means Committee
Subcommittee on Social Security
Hearing on Securing the Future of the Social Security Disability Insurance Program
Friday, December 2, 2011, 9:00 AM
by Michael Bindner
The Center for Fiscal Equity
Chairman Johnson and Ranking Member Becerra, thank you for the opportunity to submit my comments on this topic. We will leave it to the invited witnesses to describe the history of the program, limiting our comments to the adequacy of the benefits provided under the program and how these may be overcome in the context of our proposals for tax and entitlement reform.
There are three outstanding features of the program that need attention: difficulty of entrance, adequacy of benefits and difficulty of exit.
The difficulty of getting on the benefit roles is legendary. It is so blatant that state governments have programs to provide incomes to applicants under the heading of general welfare benefits while they are appealing an initial denial of benefits. A whole field of disability law has evolved to help people get the benefits to which they are entitled, at a high cost to taxpayers in terms of legal fees when the applicant is finally successful. Clearly, more discretion to accept claims should be granted to benefits examiners so that this step is not necessary for routine cases. Only difficult cases should be subject to advanced review. It should not be an expected step in the application process.
The second concern is the adequacy of benefits. Most workers who need this type of assistance have been engaged in physical work, which often does not pay well outside the union setting. With the decline in union membership, this is most physical labor. Other beneficiaries need benefits due to physical, mental or emotional difficulties – from Down’s Syndrome to alcoholism and mental illness – which often depress earning capability. As a consequence, income based benefits tend to be lower than those for the average worker.
Both the circumstances of the disability and the rules limiting additional income further depress income by program participants, making them reliant on still more government services, such as public housing, SNAP and Medicare.
The difficulty in going back on the benefit rolls once one exits for a time also lead most beneficiaries to resist any attempt at rehabilitation or training that might, for a time, allow them to exit the program. If re-entry were easier due to changes in circumstances, more beneficiaries would take advantage of training and work opportunities.
Fixing the application procedures and adequately training staff are outside the scope of our recommendations, as vital as these steps are. We will offer the following hint on where to look. We are quite sure that the staff on the ground would be a good source of solutions to these problems, if only they were empowered to implement them.
Our proposed solutions have more to do with how the program should be financed, how benefits are calculated, what other benefits should be available to participants and how to enable participants to return to the workforce – if only for a time. These solutions exist inside our comprehensive solutions for tax and entitlement reform. As you may know, the Center for Fiscal Equity suggests a four part tax reform, which form the basis of our analysis. The key elements are:
• a Value Added Tax (VAT) that everyone pays, except exporters,
• a VAT-like Net Business Receipts Tax (NBRT) that is paid by employers but, because it has offsets for providing health care, education benefits and family support, does not show up on the receipt and is not avoidable at the border,
• a payroll tax to for Old Age and Survivors Insurance (OASI) (unless, of course, we move from an income based contribution to an equal contribution for all seniors), and
• an income and inheritance surtax on high income individuals so that in the short term they are not paying less of a tax burden because they are more likely to save than spend – and thus avoid the VAT and indirect payment of the NBRT.
We will deal with how each of these proposals relates to the circumstances of program participant.
In the event a VAT is adopted, we propose that program participants receive a one time cost of living adjustment (COLA) at the VAT rate in the year the VAT takes effect, with further adjustments in any year the VAT rate increases. This is also applicable if our proposals for a regional VAT are enacted as amendments to the United States Constitution.
We propose that Disability Insurance payroll taxes be repealed, with funding coming from our proposed Net Business Receipts Tax. Repealing this tax provides a justification for decoupling the benefit level from past income. An income based benefit should be replaced with a standard benefit. During the application phase, instead of forcing participants onto state welfare rolls, the last employer would pay the standard benefit – which should be at least the minimum wage for a full time worker, if not higher – with this payment offsetting the employers NBRT liability and, if necessary, its VAT collections.
If the employee has dependent children, each child will also receive the refundable expanded Child Tax Credit with their benefits (currently estimated at $52o per child per month). Please note that we propose elsewhere that the minimum wage be increased to $12 an hour so that no one is paid primarily through the Child Tax Credit and that both the minimum wage and the credit be automatically adjusted for inflation.
As stated elsewhere, the expansion of the credit is funded by consolidating it with the Earned Income Tax Credit, the deduction for children and limitations on or elimination of the mortgage interest and property tax deductions. The extension of this credit to non-workers is offset by abolishing supplemental retirement programs, such as Supplemental Nutrition Assistance and housing assistance.
Once the application process is complete, the Federal (or regional) government will distribute payments, as well as the expanded refundable Child Tax Credit for any dependent children, all of whom would qualify for Medicare, including any long term care provisions transferred to the federal government from the Medicaid program.
If vocational or educational training is required, as it likely should be in some cases, then the training provider will serve as both “case worker” and conduit for additional benefits, including the Child Tax Credit. Participants would be paid the minimum wage for engaging in training, along with any additional stipend provided to program beneficiaries of the benefit level were set higher.
Client health care would be funded by the federal government, but could conceivably be provided through the health care system provided to employees of the training provider. This is also our proposal for providing education to TANF beneficiaries. This care could take the form of health insurance or of staff medical personnel and facilities. In the event health care reform devolves into a public option or single payer system, the question of who pays for health care will be moot.
Clients who are incapable of completing training and finding employment will be transferred back to beneficiary status, with the training provider paying benefits during any transition period.
Program participants, like TANF participants, would not pay OASI payroll taxes, nor would program providers pay an employer contribution on their behalf or distribute any personal retirement account shares to them as an offset to their Net Business receipts taxes.
Unless they have significant outside income from an inheritance, tort judgment or lottery prize, it is doubtful that program participants will be hit with the Income and Inheritance Surtax. In any case, benefits and tax credits received would not be counted in determining adjusted gross income for this tax, although training stipends probably should be.
Program participation should not be means tested based on any judgment, although beneficiaries of significant inheritances should probably be excluded from the program, although that level should be set rather high – likely at the level where such benefits are taxed, currently proposed at $50,000 for individuals and $100,000 for joint filers and qualifying widow(er)s.
Thank you for this opportunity to share these ideas with the subcommittee. We are always available to discuss them further with members, staff and the general public.
