Shaun Donovan, director of the Office of Management and Budget (OMB), last week defended the administration’s proposal to reallocate the Social Security payroll as a simple step “that’s been taken on a bipartisan basis” in the past.
However, this claim ignores how circumstances have changed since the last such action and ignores the need to deal with system-wide problems ahead.
Donovan testified at a Senate Budget Committee hearing last week after President Obama released his Fiscal 2016 budget, which calls for shifting payroll tax revenue over the next five years from Social Security’s Old Age and Survivors Insurance (OASI) program to shore up the Disability Insurance (DI) program.
The Social Security trustees project that the DI trust fund will be exhausted by late 2016, leading to an across-the-board benefit cut of 19 percent unless legislative action is taken.
When a revenue shift was last done in 1994, OASI had an annual cash-flow surplus equal to $43 billion in today’s dollars. Last year, however, OASI ran a cash-flow deficit of $34 billion. Unless Congress takes action, that number that will only worsen as more baby boomers retire.
For this reason, any revenue reallocation should be accompanied by broader reforms to make all of Social Security solvent.