Senators Brown (D-OH) and Portman (R-OH) recently introduced legislation that would make it easier to qualify for, and stay on, the Supplemental Security Income (SSI) cash welfare program by substantially raising the asset limits for beneficiaries. The federal government pays out about $60 billion annually to more than 7 million SSI recipients. This includes over 4 million adults and 1 million children with disabilities and over 2 million people age 65 or older who meet the program’s income and resource limits. Generally, these recipients have had relatively modest work experience and do not get regular Social Security disability and retirement benefits, or only minimally so. The proposed legislation, the Savings Penalty Elimination Act, would increase the current limits on financial assets allowed to be held, from $2,000 for individuals and $3,000 for couples to $10,000 and $20,000, respectively, and increase them thereafter annually by the rate of inflation.
The advocates for this proposal point out that the asset limits have not been increased since 1989. Inflation since then has raised the cost of living considerably, especially in the last year. Therefore, they say, poor people relying on the government should experience an increase in their ability to save money. On its face this argument makes sense, but it does not consider that there are now many other ways for SSI beneficiaries to save large sums of money, including tax-advantaged ABLE accounts, available since 2014, for those whose disabilities started before age 26. Other major resources excluded from limits for all beneficiaries, include owner-occupied housing with no limit on equity value, and life insurance.
If we are going to consider updating SSI policy by raising the asset limits for beneficiaries (a decision which will likely cost billions, though there is no official score available at this time), we should also produce a complete reform package that will balance costs with savings, improve fairness and incentives to work, and ease the administrative burden on the Social Security Administration (SSA), the agency responsible for managing the complex and difficult SSI program. In particular, we should:
• Impose a family limit on benefits. In Social Security, there is a maximum family benefit, regardless of the number of children, in recognition of economies of scale in family living. By contrast, in SSI, there is no limit. For fairness, SSI should also have a family limit.
• Disregard earnings for SSI recipients under age 21 and increase earnings exclusions for recipients under age 25, with these special exclusions gradually phasing out by age 25. After 25, SSI benefits would continue to be reduced to 50 cents on the dollar for earnings. This expansive change in program incentives would encourage young people to return to work and change their attitude towards work at a formative age. The cost could be outweighed in the long-run by increases in taxes on earnings.
• Eliminate In-Kind Support and Maintenance (ISM), instead use a flat rate benefit reduction (10 percent of the maximum benefit) for adults living with others (except eligible couples). SSA must do a complicated, possibly intrusive investigation for SSI beneficiaries living with others to see if they get in-kind support like food and reduce their SSI benefits accordingly. To ease the administrative burden on SSA, it would be easier and likely just as accurate and fair to make a flat rate benefit reduction for those in this situation.
• For those above age 65, include the principal place of residence above a certain market value as a countable asset, and eliminate the resource exclusions for life insurance. The value of the home would be regionally determined (say two times the median home value in a state), less any mortgage. Including the value of the residence in countable assets when the home is relatively expensive would largely bring the SSI program in line with Medicaid rules, which make sense as the home is a tax-advantaged asset intended to support retirement living. Moreover, this asset could be quite liquid with the many lines of credit and reverse annuity mortgages available.
• Other more technical changes, like eliminating dedicated accounts for young SSI recipients and attorney fee exclusions for those dually eligible for Social Security and SSI benefits, would ease administrative burdens on recipients and the SSA and improve fairness across the programs, with little cost to the taxpayer or beneficiaries.
It is easy to give taxpayer’s money away, with no regard for the federal deficit and the debt burden on future generations. It is hard to design and update effective and fair government programs with the right balance and incentives. But we should still hold policymakers of both political parties accountable to do the hard thing at the same time they are doing the easy thing.
Mark J. Warshawsky is a senior fellow at the American Enterprise Institute. He previously served as deputy commissioner for retirement and disability policy at the Social Security Administration.