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Reallocation of payroll tax to SSDI favored by Lew

The Social Security Administration (SSA) collects the payroll tax that funds the retirement and the disability trust funds. Currently the payroll tax is 6.2 percent on a taxpayers first $117,000 of income for this tax year. Of that tax, 5.3 percent goes to the retirement trust fund and 0.9 percent goes toward the Social Security Disability Insurance (SSDI) program.

According to the latest projections, the trust fund that supplies a portion of the funds used to pay the SSDI benefits will become insolvent late next year. When that happens, the SSA would need to make cuts to the current benefit payments. They have projected that the trust fund insolvency would necessitate a 20 percent reduction in those payments.

The average SSDI benefit is marginally sufficient to sustain many recipients and a 20 percent cut in those minimal payments would be a disaster for a great number of disabled workers.

Given the tremendous opposition to any talk of a tax increase in Congress, any long-term solution that would increase the amount of income subject to the payroll tax or a slight increase in the rate, which would substantially improve the financial footing of the entire Social Security system, the options to protect disabled beneficiaries on the program are limited.

The Secretary of the Treasury Department, Jacob Lew indicated that he supports a reallocation of the payroll tax to shore up the SSDI trust fund. This would increase the percentage of the payroll tax that SSDI receives.

This appears to be the most likely option to win approval with Congress, and long-term changes and reforms to the system will need to wait for a political climate more conducive to compromise.

Wsj.com, "Lew Supports Funding Change for Disability Program," Damian Paletta, July 28, 2014

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Pennsylvania Bar Association Philadelphia Bar Co-Chair SSD Committee Philadelphia Bar Co-Chair SSD Committee