Something big has been left out of the great national debate over privatization of Social Security. Most Americans don’t realize that Social Security is more than a retirement program; it is also an insurance program for workers who become disabled before they retire.
The privatizers have painted a rosy picture of young Americans riding a bull market to a bountiful retirement. But what about the nearly 7 million workers with disabilities and their dependents who currently rely on Social Security disability benefits, often for 100 percent of their income? And what about the three in 10 now-young Americans who will become disabled at some point in their life? Under privatization, will their disability benefits be slashed by the same 30 percent to 50 percent as retirement benefits, pushing them below the poverty level?
The privatizers are not the only ones dodging these momentous questions. President Bush’s Commission to Strengthen Social Security devoted just two pages in its 256-page final report to the topic of disability benefits, despite the fact these payments account for 17 percent of all Social Security expenditures. The commission urged the president to initiate a “separate policy development process” to address the disability program, but he opted not to touch this hot potato.
The problem is that all the commission’s budget projections assume that disability benefits will be cut the same as retirement benefits. In the commission’s final report, according to the Associated Press, “disability benefits get reduced along with retiree benefits, in some cases up to 46 percent. The cuts were used to make the plan’s finances add up in the report.”
In short, if disability benefits do not get cut, the transition costs of Social Security privatization – already estimated at $4.5 trillion over 20 years – become even more prohibitive.
Right now, Social Security disability insurance – financed by a 1.8 percent payroll tax – is not just a crucial strand in the safety net, it is also a terrific deal for American workers. In fact, disability insurance, at any price, is not widely available in the private marketplace, especially to blue-collar workers. With Social Security disability insurance, all are covered. Some experts estimate that the price of private long-term disability insurance would be at four to five times higher than the percent of payroll taxes that now goes to disability insurance.
At a public forum last month, a woman asked President Bush what would happen to the disability benefits of her 35-year-old daughter. He replied that her benefits would not be affected, because his proposal was focused strictly on the retirement component of Social Security.
I appreciate the president’s instinct to reassure an anxious mother, but I question whether he has fully thought through the implications of his plan. Currently, the disability and retirement programs in Social Security are closely linked, and both use the same formula for calculating benefits. Separating the programs and applying different formulas creates problems that could break the back of any privatization plan.
Currently, people receiving Social Security disability benefits switch over to Social Security retirement benefits when they reach age 67. The switch is seamless because benefits in the two programs are the same. But what happens when retirement benefits have been cut by 30 percent to 50 percent under privatization? Will people with disabilities be held harmless? If so, where is the plan to make this possible?
In his new budget proposal, the president has called for $60 billion in cuts to Medicaid, a vital lifeline to low-income people with disabilities. If we borrow trillions of dollars to finance Social Security private accounts, won’t this create fierce new pressures to slash programs – such as Medicare, Medicaid and housing vouchers – that people with disabilities rely on?
Cuts in disability benefits would be a catastrophe for millions of people – young and old – with disabilities. Before the debate over Social Security privatization goes any further, the president needs to provide concrete details to back up his verbal commitment to leave the disability program intact, and to hold its beneficiaries harmless.
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