Reallocation and the Future of the Disability Insurance Trust Fund

Last time, we looked at some of the funding problems facing the Old Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund, the two funds from which all Social Security benefits are paid. Today, we will examine reallocation, one of the proposed solutions to the funding imbalance between the two.

The Federal Insurance Contributions Act (FICA) tax, otherwise known as the payroll tax, is one that employers and employees are required to pay; it is 6.2% of income; of that 6.2%, 5.3% goes to the OASI Trust Fund and 0.9% goes into the DI Trust Fund.

As things stand now, the OASI Trust Fund’s reserves are in decent shape, but the DI Trust Fund’s reserves will be exhausted by 2016, at which point the payroll taxes coming into the DI Trust Fund could pay only 80% of benefits due.

One of the proposed solutions to the imbalance between the trust funds is a temporary reallocation of the 6.2% payroll tax from the OASI Trust Fund to the DI Trust Fund. Congress has reallocated the tax rate 11 times in the past in order to correct for a recurring imbalance. If Congress were to authorize a temporary reallocation this for the current imbalance, experts project that both funds would be able to cover 100% of benefits due until 2033. At that point, the trust funds would cover some 75% of benefits due and Congress would need to act once again in order to ensure full coverage.