Does New Budget Lower the Social Security Cap?

Rather than expand Social Security (as Senators Bernie Sanders, Elizabeth Warren and many others have advocated), the new budget deal is a "bipartisan compromise" to cut benefits for the disabled and lower the "cap" for high income earners (that, according to other media sources). And just like the TPP trade agreement, the new budget is also being negotiated behind closed doors.

According to a source familiar with the talks, House Speaker John Boehner (R-Ohio) and Senate Majority Leader Mitch McConnell (R-Ky.) are making “structural entitlement reforms” to Social Security disability a key piece of budget talks with the White House. Spokespersons for both Boehner and House Minority Leader Nancy Pelosi (D-Calif.) did not comment on which beneficiaries could see smaller benefits.

Here's what the Washington Post had to report:

"The agreement includes about $80 billion in additional spending over two years, divided equally between defense and domestic programs. Those spending increases would be offset by savings from changes to the Social Security disability insurance fund and Medicare payments to doctors and other health care providers ... New rules for the Social Security disability Insurance fund, which is expected to run out of funds by the end of 2016 are expected to deliver savings along with changes to Medicare provider payments and Medicaid generic drug costs."

The Huffington Post reports:

"The new agreement would prevent a 20 percent cut in benefits next year to the 11 million Americans enrolled in the Social Security Disability Insurance program. The cut would be avoided by diverting some of the incoming payroll tax money from Social Security's much bigger retirement insurance program for six years, something Republicans previously said they wouldn't do without cuts to benefits. One source said the deal would also set up demonstration projects in which some people who receive disability benefits could earn money from working with less fear of triggering a review that can result in benefits being cut off. Instead, people participating in the projects could see their benefits gradually curtailed as their income rises -- an idea Ryan seemed to favor at a hearing earlier this year." [More about this is in the last paragraph below, directly from the new budget proposal.]

The full text of the budget is (naturally) written in legalese, so only lawyers can understand — but one can scan the 144-page PDF document with a word search for "disability". But Jaime Dupree provided us with a section-by-section summary of the bill (as provided by the House GOP leadership) posted here in plain English for the rest of us.

The new budget proposal is being hailed in the media as a "bipartisan compromise". But it's not — that's total B.S. — it's just another collaboration of two major political parties who are (once again) screwing the average American worker to benefit themselves and others who are much more well off than the bottom 95% of all wage earners.

The Hill reports:

"Budgetary offsets used to pay for the increased spending include cuts to both Medicare and Social Security disability benefits. The deal would specifically extend the 2 percent payment cut to Medicare under the sequester and create a “flat benefit” for disability recipients, which would be tied to the federal poverty line rather than an individual’s own savings. Budget experts at the Heritage Foundation have championed the flat benefit."

CNN seems to confirm this when they report:

"The deal would spread out increases in Medicare premiums over time so beneficiaries don't feel them acutely. It would extend the 2% cuts scheduled for Medicare to extend an additional year. It would also overhaul the Social Security disability trust fund in an attempt to prevent a 20% reduction in cuts to benefits. The $5 billion in savings would come from redistributing payroll benefits, not cutting them, sources said."

I personally saw no reference in the text of the budget mentioning a change in the income cap for Social Security taxes, or flat benefits for Social Security recipients, so I'm not sure where the media reports originate from --- other than from ONE SOURCE, but which has since been redacted from an article at The Hill (more about that further below).

The Fiscal Times addresses what the media and our politicians claim is part of a "bipartisan compromise" in the budget regarding the recent "doc fix" that increases Medicare premiums for some Social Security beneficiaries, saying the new budget would...

"...cap a threatened 50 percent increase in Medicare Part B Premiums. Nearly a third of the 50 million elderly Americans who have Medicare Part D are facing a 50 percent premium increase because of the law that drives up premiums for wealthier Americans and many poor people with chronic medical problems when the Social Security Administration doesn’t approve a cost of living adjustment for Social Security beneficiaries."

This is what might be considered part of the "bipartisan compromise". Because no COLA was approved for Social Security recipients, Forbes reports 7 million people who are not covered under the “hold harmless” law will have to pay the entire Medicare Part B increase in 2016. Those who will pay higher premiums in 2016 fall into one of these four groups: 1) those who enroll in Medicare for the first time in 2016; 2) those who don’t receive a Social Security benefit at age 65; 3) those who pay their Medicare premiums directly, rather than having them deducted from their monthly Social Security payment; and 4) those who are already paying a higher premium because of their higher income. (The increase in premium may affect singles whose modified adjusted gross income is more than $85,000/year or those who are married with modified adjusted gross income more than $170,000 per year. AARP provides a good analysis of who will have to pay the higher premiums.)

But rather than increase or eliminate the cap on income that is subject to Social Security payroll taxes (to make the old age and disability trusts funds solvent — and/or to increase monthly benefits), the Republicans in the House have proposed a plan to "reform" Social Security based on a report from the conservative think tank, the Heritage Foundation — that, according to the Hill.

The original article from The Hill posted the reference to the Heritage Foundation; but the article has since been edited that excludes any reference to the Heritage Foundation (which can be confusing when writers link to the source for verification). But a Google search still shows part of what was redacted from the Hill's original article (screenshot below). And the Hill's title for the post was also changed from "GOP eyeing Social Security reforms in budget deal" to "Budget deal includes Social Security, Medicare reforms".

No mention was ever made at the Hill about any "correction" or changes to their post, only that the post had been "updated" at 9:02 a.m.

The Heritage plan to "reform" disability is to pay all those who become disabled the same monthly benefit, no matter what their life-long earnings; and that a flat benefit would result in lower benefits for some, and higher benefits for others.

The Heritage plan also says individuals who currently receive disability benefits would continue to receive their same benefit checks; but that a flat benefit could be implemented relatively quickly for all new SSDI applicants and beneficiaries.

The Heritage plan states:

"Over time, as a flat benefit and other SSDI reforms improve the solvency of the program, any savings should be used to reduce the payroll tax cap at its current level of $118,500 to something closer to between one and two times the median wage. If individuals receive nothing in return for higher SSDI taxes, there should be a lower limit on effective premiums."

Data from Social Security shows that the Heritage/GOP plan would reduce the current maximum earnings cap from $118,500 to between $28,031 (the median wage) and $56,062. This would be a big savings for members of Congress, who with an annual wage of $174,000 a year, only pays this tax on 68.1% of their earnings. If the cap is lowered to $56,062 they would only pay this tax on 32.2% of their earnings. Whereas, 94.5% of all other wage earners currently pays Social Security taxes on 100% of their wages.

And this would also be a big savings for employers too. The current tax rate for Social Security is 6.2% for employees and 6.2% for the employer (or 12.4% total). So naturally, if the cap is lower, the amount they would be obligated to pay would be much less.

But it saves very few workers anything at all in the cap reduction. Even if the cap were lowered from $118,000 to $28,031 --- 50% of all wage earners make $28,031 a year or less, so they will continue to pay Social Security taxes on 100% of their earnings --- while those at the top will pay less.

Rep. Paul Ryan (R-Wis.), who is the chairman of the House Ways and Means Committee, deliberately took a low profile and refused to weigh in on the new budget deal, declining to comment to reporters and not saying a word about it during a private meeting with fellow House Republicans (Maybe he called the Hill to have that mention of the Heritage plan redacted.)

But as usual, Republican budgets are ALWAYS about cutting benefits for the 99% to cut taxes for the 1% ---- P.E.R.I.O.D. ---- and claims that doing anything differently would be "Socialism". But now (if what the Hill first reported is true) we also have Democrats doing the same thing — cutting benefits for the 99% to cut taxes for the 1% — and then calling it a "bipartisan compromise".

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Sec. 823. Promoting opportunity demonstration project: Requires the Social Security Administration to test the effect on beneficiary earnings of changing how earnings are treated for purpose of ongoing benefit eligibility. Under the demonstration, the existing “cash cliff” would be replaced with a benefit offset, under which the DI benefit would be reduced by $1 for every $2 of earnings in excess of a threshold. The SSA could test multiple thresholds at or below the current level of earnings that constitute a trial work month ($780 in 2015). Under the demonstration, there would be no trial work period and no extended period of eligibility, but beneficiaries could receive partial benefits if their earnings in a month exceeded the substantial gainful activity amount ($1,090 a month in 2015). In addition, the threshold amount could be adjusted upward to reflect an individual’s itemized Impairment Related Work Expenses. Once an individual’s benefit is fully offset, entitlement to benefits would end, but Medicare coverage would continue for 93 months.