Friday, September 14, 2012
Comments
for the Record
Subcommittee
on Social Security
Hearing on Securing
the Future of the Social Security Disability Insurance Program
Friday, September 14, 2012, 9:30 AM
by Michael Bindner
The Center for Fiscal
Equity
Chairman Johnson and Ranking Member Becerra, thank you for the opportunity
to submit our comments on this topic. We
have twice commented on this topic with essentially identical remarks
reflecting our view of this issue, which is made in the context of our overall
proposal for tax and entitlement reform.
These comments were made to the first session on December 2, 2011 and
the second on December 9, 2011. In these
comments, we will answer the questions which have arisen earlier in the series
and summarize our proposals.
First, is the concept of
disability that prevailed at the start of the program in 1956 still appropriate
today given advances in medicine, rehabilitation, and the workplace?
We believe the answer must be no.
Since the passage of welfare reform, the concept of disability has
increased to include people with learning disabilities brought about by
prenatal exposure to illicit drugs, while retaining coverage of people with
mood disorders that can be treated quite effectively with medication. Current incentives are more a bar to
rehabilitation, as no one wants to give up a life-time benefit for a life-time
of work if they have any degree of rationality left. While there are still many mentally disabled
people who need continuing assistance, ways should be pioneered to give them
incentives to both participate in rehabilitative programs and employment
opportunities.
Second, are there ways to
better support individuals with disabilities to stay in the workplace?
Given the time required to receive assistance, this is almost a rude
question. It is not easy to get on the
disability rolls. Additionally, many who
are seeking disability already cannot work, especially in this economy, so the
question of staying in the workplace is largely overcome by events.
Third, can the decision-making
process be strengthened so that, when appropriate, awards are made as early as
possible and decisions on applications and appeals are made with greater
accuracy and consistency?
Yes. Indeed, the initial award can
be made in cooperation with the last employer, who would provide at least a
portion of disability income as well as rehabilitative training in lieu of a
higher disability insurance tax payment.
Such a system would bring about faster determinations of disability,
without the need to provide a case management and appeal infrastructure which
provides make-work for both bureaucrats and disability lawyers, both of which
add no real value to the program while costing taxpayers more and more as
backlogs continue to grow and cases are summarily denied on the first reading.
In summary, our solution is to shift funding for disability insurance and
rehabilitation entirely to an employer-paid, VAT-like Net Business Receipts
Tax, with the payment of disability benefits and rehabilitative care to be
covered by either the last employer or a future employer who wishes to take on
the new employee’s “case” and provide both continued benefits and services
until that worker can be productive without continued assistance.
As stated, our proposed solutions are made in the context of a four part tax reform, which form the
basis of our analysis. The key elements
are:
·
A Value Added
Tax (VAT) to fund domestic military spending and domestic discretionary
spending with a rate between 10% and 13%, which makes sure that every American
family pays something.
·
Personal
income surtaxes on joint and widowed filers with net annual incomes of $100,000
and single filers earning $50,000 per year to fund net interest payments, debt
retirement and overseas and strategic military spending and other international
spending, with graduated rates between 5% and 25% in either 5% or 10%
increments. Heirs would also pay taxes
on distributions from estates, but not the assets themselves, with distributions
from sales to a qualified ESOP continuing to be exempt.
·
Employee
contributions to Old Age and Survivors Insurance (OASI) with a lower income
cap, which allows for lower payment levels to wealthier retirees without making
bend points more progressive.
·
A VAT-like Net
Business Receipts Tax (NBRT), which is essentially a subtraction VAT with
additional tax expenditures for family support,
health care and the private delivery of governmental services, to fund
entitlement spending and replace income tax filing for most people (including
people who file without paying), the corporate income tax, business tax filing
through individual income taxes and the employer contribution to OASI, all
payroll taxes for hospital insurance, disability insurance, unemployment
insurance and survivors under age 60.
Please allow us to now
repeat our proposed solution, which is identical to prior submissions. 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.
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