Social Security and the Stimulus Bill

As the House prepares to vote on the American Recovery and Reinvestment Act of 2009 (a.k.a the stimulus bill), the Social Security implications of the legislation have been only briefly noted.

The stimulus bill does provide explicit funding for new initiatives at SSA. These include $900 million in funding to modernize computer facilities and better process disability and retirement applications. The bill also calls for the Commissioner of SSA to work with Homeland Security to better protect sensitive information and detect fraud.

 

Congress and the administration are hoping that recipients will spend, not save, rebates to spur demand.

Yet beyond the technical changes, the bill could also impact Social Security's finances. The current plan, including a Republican-backed measure to provide relief from the Alternative Minimum tax, provides $342 billion in tax cuts. As Bloomberg reported yesterday, much of that money comes from an Obama plan to reduce payroll taxes. The payroll tax reductions come via Obama's Making Work Pay program which provides $500 to individuals and $1,000 to families in tax credits. (Andrew Biggs commented on a formative version of this plan to the Wall Street Journal during the campaign). While the rebate comes out of earned income, the credit for each year is set as 6.2 percent of earned income up $8,000. This is exactly the employee share of payroll taxes. Since many Americans already pay no income tax this provision would be a direct return of a portion of their payroll tax. Without transfers of general tax revenues, the provision would undercut Social Security's already dim finances. As the tax cuts are intended to be a boon to the economy, Congress and the administration are hoping that recipients will spend, not save, these rebates to spur demand.

The plan also impacts Social Security by extending the terms for eligibility for the Supplemental Security Income. The program, which is designed for very low-income individuals with limited work histories, contains strict total asset maximums. Anyone exceeding those limits is disqualified. The stimulus package provides a one-time provision that places earners whose eligibility expired in the last two months because they exceeded the income limit back on the program.

The Congressional Budget Office expects that 7.5 million individuals will receive payment immediately, and another 300,000 later in 2009. The plan is estimated to increase SSI outlays by $4.1 billion in 2009 and $100 million in 2010. The plan is far from a permanent fix for these retirees.

 

Adam Paul is a research assistant at AEI.

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