Trust and the "Trust"

The good news is that there has been a growth of 2.3 million jobs in non-farm payrolls since June, 2009.

The bad news is that there were 4.7 million new enrollees in the Social Security disability program during the same period.

John Merline in Investor's Business Daily recently did an excellent overview of how more and more discouraged workers are applying for and receiving disability benefits when their unemployment benefits end.

Credit:Investor's Business Daily

We now have a ratio of workers on disability to active workers that is over 6%.  In the 1980's it was around 2%.  It is a little hard to believe that given all the advances in medical technology, ergonomics, workplace safety and greater accomodations for disability that are made by employers, that the disability rate could be 3 times higher today than 30 years ago.

Is this another case where lax and liberal government policies have disabled initiative?

These numbers are particularly troubling in light of the recent Social Security Trustees' Report.  That report projects that the Disability portion of the Social Security "Trust" Fund will be insolvent in 2016.  That is a mere four years away.  Under current law, an across the board benefit cut would be required that would cut benefits by an estimated 21% when the fund becomes insolvent.

Many observers state that will never happen and that politicans will avert the impending crisis by simply reallocating money from the old age program to the disability program.  However, the Old Age "Trust" fund is also heading to insolvency in 2033 according to the Trustees' Report.  Attempting to raid the old age fund to pay for bills in the disability fund is like robbing Peter to pay Paul.  The only real answer is reform of both programs.

What would it take to put Social Security on a sound financial footing?

If we acted today, a permanent payroll tax increase of 1.11% on both employers and employees or a reduction in benefits of 13.8% would be required according to the Trustees' Report.  If we wait, the cost will get higher each year.

This should be a major topic in the upcoming election but we are unlikely to hear anything about it.  The impending Disability trust fund insolvency will show that the can has been kicked as far down the road as is possible.  We are at the end of the road.  The Disability program will need to be addressed in the next four years and it will likely mean that the Old Age fund will also be part of the discussion.

The easy answer is to just raise the taxes on the rich and be done with it.  The second easiest answer is to raise everybody's taxes.  However, it seems to me the first item in any reform proposal should be the obvious abuse in the disability system.  I have written about this before here and here. 

What I wrote about on the subject of abuses in the disability program last year still rings true today.

Our country has serious financial challenges.  There are many people in need. For our system to survive we have to make sure there is the utmost integrity in everything that government does.  Like so many of our social programs, the Social Security Disability Insurance Program is well-intentioned and well-meaning. However, it is not well managed.  It has to change.  Our whole approach to government programs has to change.  If it does not, many will lose all hope.  And that is something we really cannot afford to lose.

Beyond losing hope, there is also the question of losing trust.  Representative-based government rests on the important principle of consent of the governed.  In particular, the consent of those people who pay the taxes that pay the bills.  This consent is conditioned on government fairly and equitably governing if it is to be considered legitimate.  Government's role should not be to pick winners and losers. It should mete out justice equitably. It should make decisions based on the general welfare, not based on special interests.  It should protect minority and property rights.  It should not waste people's hard earned tax money.  No one wants to pay taxes.  When people think that there is total disregard for their money you have moved a step beyond that.  You endanger the entire foundation of trust government needs to govern.

It could not be stated better than it is in this quote.   

If the people cannot trust their government to do the job for which it exists - to protect them and to promote their common welfare - all else is lost.

                                                                                                   -Barack Obama

I don't agree with a whole lot that Barack Obama says.  This is one I agree with him on.  I just don't understand why he is running the goverment in a way that is undermining trust rather than promoting it.