Social Security Disability Insurance: Participation Trends and Their Fiscal Implications

The Social Security Disability Insurance (DI) program pays cash benefits to nonelderly adults (those younger than age 66) who are judged to be unable to perform “substantial” work because of a disability but who have worked in the past; the program also pays benefits to some of those adults’ dependents. In 2009, the Disability Insurance program paid benefits to almost 8 million disabled beneficiaries and about 2 million of those beneficiaries’ spouses and children.

Between 1970 and 2009, the number of people receiving DI benefits more than tripled, from 2.7 million to 9.7 million (unless otherwise specified, all years are calendar years). That jump, which significantly outpaced the increase in the working-age population during that period, is attributable to several changes—in characteristics of that population, in federal policy, and in opportunities for employment. In addition, during those years, the average inflation-adjusted cost per person receiving DI benefits rose from about $6,900 to about $12,800 (in 2010 dollars). As a result, inflation-adjusted expenditures for the DI program, including administrative costs, increased nearly sevenfold between 1970 and 2009, climbing from $18 billion to $124 billion (in 2010 dollars). Most DI beneficiaries, after a two-year waiting period, are also eligible for Medicare; the cost of those benefits in fiscal year 2009 totaled about $70 billion.

Under current law, the DI program is not financially sustainable. Its expenditures are drawn from the Disability Insurance Trust Fund, which is financed primarily through a payroll tax of 1.8 percent; the fund had a balance of $204 billion at the end of 2009. The Congressional Budget Office (CBO) projects that by 2015, the number of people receiving DI benefits will increase to 11.4 million and total PetSTEP Pet Ramp will climb to $147 billion (in 2010 dollars; see Figure 1). However, tax receipts credited to the DI trust fund will be about 20 percent less than those expenditures, and three years later, in 2018, the trust fund will be exhausted, according to CBO’s estimates. Without legislative action to reduce the DI program’s outlays, increase its dedicated federal revenues, or transfer other federal funds to it, the Social Security Administration will not have the legal authority to pay full DI benefits beyond that point.

A number of changes could be implemented to address the trust fund’s projected exhaustion. Some would increase revenues dedicated to the program; others would reduce outlays. One approach to reducing expenditures on DI benefits would be to establish policies that would make work a more viable option for people with disabilities. However, little evidence is available on the effectiveness of such policies, and their costs might more than offset any savings from reductions in DI benefits.

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Federal Debt and the Risk of a Fiscal Crisis

Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt has been the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

Further increases in federal debt relative to the nation’s output (gross domestic product, or GDP) almost certainly lie ahead if current policies remain in place. The aging of the population and rising costs for health care will push federal spending, measured as a percentage of GDP, well above the levels experienced in recent decades. Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels.

Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States. Some of those consequences would arise gradually: A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that “crowding out” of investment would lead to lower output and incomes than would otherwise occur. In addition, if the payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce output. Rising interest costs might also force reductions in spending on important government programs. Moreover, rising debt would increasingly restrict the ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises.

Beyond those gradual consequences, a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. It is possible that interest rates would rise gradually as investors’ confidence declined, giving legislators advance warning of the worsening situation and sufficient time to make policy choices that could avert a crisis. But as other countries’ experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by a number of other factors, including the government’s long-term budget outlook, its near-term borrowing needs, and the health of the economy. When fiscal crises do occur, they often happen during an economic downturn, which amplifies the difficulties of adjusting fiscal policy in response.

If the United States encountered a fiscal crisis, the abrupt rise in interest rates would reflect investors’ fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation. To restore investors’ confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.

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An Analysis of the Navy's Fiscal Year 2011 Shipbuilding Plan

The Navy is required by law to submit a report to the Congress each year that projects the service's shipbuilding requirements, procurement plans, inventories, and costs over the coming 30 years. Since 2006, the Congressional Budget Office (CBO) has been performing an independent analysis of the Navy's latest shipbuilding plan at the request of the Subcommittee on Seapower and Expeditionary Forces of the House Armed Services Committee. This CBO report, the latest in that series, summarizes the ship requirements and purchases described in the Navy's 2011 plan and assesses their implications for the Navy's funding needs and ship inventories through 2040.

The Navy currently envisions buying a total of 276 ships over 30 years at an average annual cost of about $16 billion (in 2010 dollars) for new construction alone or roughly $18 billion for total shipbuilding (which includes new-ship construction, refueling of nuclear-powered aircraft carriers, and other costs related to shipbuilding). By comparison, CBO estimates the costs of the Navy's plan at an average of $19 billion per year for new construction or $21 billion per year for total shipbuilding. In keeping with CBO's mandate to provide impartial analysis, this study makes no recommendations.

Text-only. The full version of the summary may include tables, charts, and footnotes.

At the direction of the Congress, the Department of the Navy issues annual reports that describe its plans for ship construction over the coming 30 years. The latest report--issued in February and covering fiscal years 2011 to 2040--contains some significant changes in the Navy's long-term goals for shipbuilding. The new plan appears to increase the required size of the fleet compared with earlier plans, while reducing the number of ships to be purchased--and thus the costs for ship construction--over the next three decades. Despite those reductions, the total costs of carrying out the 2011 plan would be much higher than the funding levels that the Navy has received in recent years, according to analysis by the Congressional Budget Office (CBO). Specifically:

Language in the 2011 shipbuilding plan and in related briefings by the Navy implies that the service's requirement for battle force ships (aircraft carriers, submarines, surface combatants, amphibious ships, and some logistics and support ships) now totals 322 or 323--up from 313 in the Navy's three previous longterm plans. The battle force fleet currently numbers 286 ships. (Summary Box 1 describes the major ships in the Navy's fleet.) The 2011 plan calls for buying a total of 276 ships over the 2011–2040 period: 198 combat ships and 78 logistics and support ships (see Summary Table 1). That construction plan is insufficient to achieve a 322- or 323-ship fleet. In comparison, the previous shipbuilding plan (for 2009) envisioned buying 40 more combat ships and 20 fewer support ships over 30 years. Under that plan, the Navy would have purchased 238 combat ships and 58 logistics and support ships between 2009 and 2038, for a total of 296.If the Navy receives the same amount of funding for ship construction in the next 30 years as it has over the past three decades--an average of about $15 billion a year in 2010 dollars--it will not be able to afford all of the purchases in the 2011 plan.The Navy estimates that buying the new ships in the 2011 plan will cost an average of about $16 billion per year, or a total of $476 billion over 30 years (about 33 percent less than its estimate for the 2009 plan). Those figures are solely for construction of new ships, the only type of costs reported in the Navy's shipbuilding plans. However, other activities that are typically funded from the Navy's budget accounts for ship construction--such as refueling nuclear-powered aircraft carriers and outfitting new ships with various small pieces of equipment after the ships have been built or delivered--will add about $2 billion to the Navy's average annual shipbuilding costs under the 2011 plan, in CBO's estimation.Using its own models and assumptions, CBO estimates that the cost for new-ship construction under the 2011 plan will average about $19 billion per year, or a total of $569 billion through 2040. Including the expense of refueling aircraft carriers as well as outfitting and postdelivery costs raises that average to about $21 billion per year, CBO estimates. (Those figures are about 25 percent lower than CBO's estimates of the Navy's 2009 plan.)CBO's estimates of the costs of the 2011 shipbuilding plan are about 18 percent higher than the Navy's estimates overall. That figure masks considerable variation over time, however: CBO's estimates are 4 percent higher than the Navy's for the first 10 years of the plan, 13 percent higher for the following decade, and 37 percent higher for the final 10 years of the plan (see Summary Figure 1). Those differences result partly from different estimating methods and different assumptions about the design and capabilities of future ships. The estimates also diverge because CBO accounted for the fact that costs of labor and materials have traditionally grown much faster in the shipbuilding industry than in the economy as a whole, whereas the Navy does not appear to have done so. That difference becomes more pronounced over time.

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