The Budget Control Act of 2011: Spending Cuts, the Good and the Bad

By: Harrison Greanias, Intern at WID and a Business Major at UC Berkeley

The Budget Control Act of 2011 has raised countless questions about the future of the US safety net and benefits for disabled persons. The fear of losing government benefits has brought many into near panic, but what does the Budget Control Act really do?

The Budget Control Act of 2011: Basics

This legislation attempts to address the growing debt and create a long term fix for the country’s budget problems. Despite passing a plan to deal with the country’s debt now and in the future, the country’s credit rating was downgraded from AAA to AA+ by Standard and Poor’s (S&P). This means that the country’s credit rating was downgraded and will most likely lead to higher borrowing rates in the future. By Thanksgiving of this year, a special committee (“Super Committee” as it is referred to in the media) that the Budget Control Act calls for will attempt to find $1.2 to $1.5 trillion dollars in spending reductions from any and all government programs. Once the committee has either reached the deadline or passed the minimum $1.2 trillion dollars in cuts, the proposal will have to pass the House without any additional amendments. If the “Super Committee” is unable to find the necessary $1.2 trillion in spending reductions or Congress fails to pass the committee’s proposal by Thanksgiving, a process called sequestration will begin.

Sequestration is a process by which there will be across the board cuts to government expenditures and is an automatic process. Unlike the “Super Committee,” these automatic truncations to government spending will not have access to any and all government programs. Sequestration will be limited to preset boundaries, protecting Social Security and Medicaid from any automatic cuts. In addition, Medicare could be subject to no more than 2% of a cut to health care provider payments.

Sequestration will also occur if the congressional committee is unable to devise and pass a plan that cuts the minimum $1.2 trillion dollars. If congress passes less than $1.2 trillion dollars in cuts, sequestration will be activated to make up the difference. If lawmakers attempt to cut provider payments more than 2% but fail to pass their cuts through the house, then the 2% cap for sequestration related spending reductions could be a nice turn of events for persons with disabilities.

Truths and Thoughts on SSI Benefits

There are approximately 8 million disabled persons on Social Security Supplemental Income in the United States, and here’s some information that should help the vast majority of you put some of your fears in context. Social Security is a self sustaining and self-funded program, collecting its revenue from everyone’s wages. This system works smoothly as long as there are the same numbers of people collecting benefits as there are paying into the program. If more people are collecting benefits than are paying into the program then the Social Security Administration (SSA) runs a deficit and begins to use their surplus invested funds from previous years. As the Baby Boomer generation retires, there will be a large surge in the numbers of people collecting Social Security as they leave the workforce.

As highlighted by the Social Security Board of Trustees, "while unchanged from last year, [the Social Security Trust Funds] will be exhausted in 2018 and legislative action will be needed soon." They go on to state, "Our disability programs are complex, and there is a long history of well intended 'reforms' causing unintended consequences. The President sent to Congress our Work Incentive Simplification Proposal, which would be a good start for bipartisan debate. [The Social Security Board of Trustees] urge[s] the House and Senate to review this proposed legislation carefully and schedule hearings this year."

The Social Security Administration (SSA) has many forms of investment backing itself, allowing it to continue running and paying out benefits. The SSA has a multitude of non-marketable investments in treasury bonds. Not even an order from the President could cause a default on these bonds. While much in the media can be labeled as nothing more than scare tactics, Social Security is in need in reform as the disparity between those paying into it and those receiving benefits becomes greater.

Political Forces and Directions

An often overlooked aspect of Social Security is the life expectancy of individuals from when it was first implemented to the present. The average life expectancy when the Social Security Act of 1935 was  59.9 for males and 63.9 for females, while it was 75.4 for males and 80.4 for females in 2007. Even considering the higher infant mortality rate of the 1930’s it is clear that there are a larger percentage of Americans living well past the retirement age of 65 and collecting benefits for a much longer period of time than the program was originally intended to provide.  

One of the ideas currently bouncing through the political sphere is to modestly raise the retirement age, but this will not affect those receiving disability benefits. If anything, raising the retirement age would help relieve some of the strain on the system, and help reduce the focus on cutting other benefits that will most likely effect disabled persons.

Taxes

If taxes are raised for the wealthiest Americans will it affect job growth? Higher taxes for the wealthiest 1% of Americans will most likely not effect job growth. With most of the top-earners in the US gaining the majority of their wealth from dividends and capital gains, their taxes enjoy particularly low rates, averaging between 15% to 20%. In the country’s current condition, it will take everyone to pitch in to help the economy regain its foothold, and top earners should pay equivalent rates as there secretaries.

Unfortunately we are looking at the most unequal wealth distribution in our country’s recent history, and while Republicans claim to oppose any and all tax increases, the divided nature of our government will force the issue. Disabled persons who collect SSDI should not be concerned about tax increases; if taxes are increased they will most likely not affect folks receiving SSDI. From the disability community’s perspective, tax hikes should be less of a concern than spending cuts to health care related programs, Medicare and Medicaid.

What Cuts could mean for the Disability Community

The hard truth is that there are going to be cuts to essential programs as Congress continue to negotiate entitlement reform. As a community, we do not need to fear every dollar of proposed cuts. There are many programs that will likely emerge unscathed, but increases in co-pay fees are likely. While there is a great deal of talk about reforming the entitlement programs, if anything, history speaks of many words but little action on the part of politicians on this specific issue. Though there is a scare of cuts to many of the programs that the disability community depends on, do not depend on cuts being as dire as the media makes them out to be. At the end of the day, these politicians are still concerned about getting re-elected, and the political nature of entitlement reform will prevent the cuts from being as severe as they could be.

Worst Case Scenario

What happens if there are cuts to programs like SSI/SSDI, Medicare and Medicaid? First of all, cuts don’t mean that these programs will just disappear all of a sudden. They will still exist but with cuts they will not be as helpful as they had previously been.

Cuts to SSI/SSDI will hurt some and help others. There has long been a debate over programs like SSI/SSDI and welfare over whether too much or too little is given out. On the extremes there is giving very modest assistance, and on the other there is motivation draining largess. The line between the two is what is strived for. On both extremes suffering is maximized. An ideal benefits system would provide for peoples’ basic necessities and yet not diminish one’s motivation to work for their own personal gain. Whether the system is already at this point is debatable, and while cuts to SSI/SSDI would be very unfortunate, it may pressure some to transition off of benefits into economic independence.

An important figure to keep in mind is that of the some eight million disabled persons on SSI, less than 5% are taking advantage of work incentives such as Individual Development Accounts (IDA’s), Plans for Achieving Self-Support (PASS), and other programs like 1619 A&B for Medicare and Medicaid benefits. PASS and IDA’s are programs where for every dollar you save you may get as much as a $3 match (save $1, and the program adds an additional $3). It is concerning that a less than 5% of persons receiving SSI are taking advantage of programs which are meant to help transition into economic independence.

Workforce Participation Rate

The workforce participation rate of the disability community has fallen and is a point of great concern. Hovering around 20% as reported by the Office on Disability Employment Policy (ODEP), it is clear that many in the disability community are either having trouble finding jobs in the current economy or have chosen to leave the workforce altogether. Ironically, cuts to disability benefits could have a positive effect on the participation rate in the workforce for the disability community. The issue of benefits reduction could force the issue of whether or not to work for many disabled persons, and as long as cuts don’t severely endanger the independence of disabled individuals whom are unable to change their circumstances due to disability, cuts could have a positive long-run affect on the workforce participation rates of disabled persons.

Conclusions

As a nation, the spending cuts should be much less concerning than the uncertainty surrounding the country’s financial future. If a long term solution to the debt is not reached and the recession not recovered from soon, the spending cuts of today will be the least of our worries. Cuts in federal government expenditures are necessary now, imagine what they could be like if this budget scare becomes a reoccurring problem. With this in mind, fight for keeping programs that are essential for the disability community and fight even harder to cut the ones whose funds could be better allocated to avoid larger cuts in the future. Opinions vary greatly on which programs should be cut and which should be protected or should receive funding increases; make it a point to contact your congressional representative and make your opinion heard. It is not likely you will be able to speak directly to a person in a position of power, but with enough calls and enough emails, the message will get out to the people who have the power to do something about it. Find your congressional representative and start calling!