Today’s older workers may see the first cuts to Social Security benefits

 Many young Americans say they don’t expect to get Social Security when they retire, but it’s the older workers of today who may see the first cuts to their benefits.

The Congressional Budget Office released an updated budget outlook on Wednesday, originally published in July, to reflect the impact the pandemic has had on the economy. In the report, the agency said the budget deficit will reach a record of $3.3 trillion this year — and $13 trillion over the next decade. The national debt, which is projected to be 98% of gross domestic product this year, is also expected to surpass the levels of World War II next year when it’s expected to reach 104% in 2021.

Among the numerous adverse effects of the current crisis is the steep incline in the expected insolvency dates for Social Security and Medicare’s programs, which are expected to run out of money in 11 years compared with the previous projection of 15 years.

The programs rely heavily on payroll taxes. The CBO expects reported receipts from payroll taxes to increase this year despite record levels of unemployment in recent months, but that will change in subsequent years, it said. Lower interest rates and price levels will also reduce the cost of Social Security and other related health care programs, according to the Committee for a Responsible Federal Budget, which did an analysis of CBO’s updated outlook.

Still, Social Security is in trouble. The two trust funds that support the program, which pays out retirement benefits as well as disability and survivorship benefits, are already at risk of running out of money within the next two decades. With the impact of the pandemic under review, the CBO estimates the insolvency date for Social Security Disability Insurance to be 2026, and the Social Security retirement program, known as Old-Age and Survivors Insurance, by 2031. Medicare Hospital Insurance faces insolvency by 2024 if nothing is done to rectify these projections.

“In other words, today’s youngest retirees will face a sharp 25% drop in their benefits when they turn 73,” the CRFB said in analysis about the CBO’s report. The cut is attributed to less tax revenue, an aging population that will inevitably claim Social Security benefits, and trust fund assets that grow at a lower interest rate.

Other research and policy organizations have even less conservative assessments — the Bipartisan Policy Center, for example, anticipates the two trust funds will be depleted around the time of the 2028 presidential election, according to an April 2020 analysis. 

 Concerns are growing about possible widespread fraud in California’s unemployment system following numerous reports of people receiving unsolicited letters, some with debit cards, from the state’s jobless agency, and a suspicious number of claims involving independent contractors.

The California Employment Development Department has paid a staggering $76.9 billion in unemployment benefits since the start of the pandemic, processing more than 11.9 million claims, most the result of Gov. Gavin Newsom’s decision to shut down much of the economy to slow the spread of the disease.

The U.S. Department of Labor reported Thursday that California had processed more than 405,000 Pandemic Unemployment Assistance claims last week, accounting for more than half of all such claims nationally. Congress authorized the program earlier this year to help people not normally eligible to receive unemployment benefits, including independent contractors.

Michael Bernick, former director of the Employment Development Department and now an attorney at the Duane Morris law firm, called that a “ridiculously high percentage.”

“This may be the potential fraud given the very, very outsized — ridiculously outsized — number of claims filed in California,” he said.

In recent weeks, several reports have emerged of people receiving dozens of letters from the Employment Development Department that include the personal information of others.

David Robertson said his son applied for unemployment benefits at the end of April. His son got a letter in August saying he was entitled to $167 per week, he said. But when they called the agency to ask more questions, they found that the contact information on his son’s account had been changed and more than $14,000 in benefits had been issued to someone else.

“How did this happen? They can’t answer any of these questions,” Robertson said during a news conference this week organized by Republican Assemblyman Jim Patterson of Fresno.

Amy Brooks said she was denied unemployment benefits months ago. But she has recently received 24 pieces of mail from the agency. The letters have her address but different names and Social Security numbers. At least three contained debit cards.

“There’s no way this is a clerical error,” said Brooks, who lives in Fresno. “How can my address be linked to all of these people?”

Gov. Gavin Newsom said Wednesday he is “concerned about fraud in this space.” He said the state is working with local and federal authorities.

“It is a top priority for all of us,” Newsom said.

Employment Development Department spokesperson Aubrey Henry said the agency is aware of the letters and is “developing methods to stop and prevent such claims from being paid.”

“It’s extraordinarily unfortunate that fraudsters tend to become much more active during emergency situations like the current COVID situation,” Henry said.

California Auditor Elaine Howle last month said the Employment Development Department was at high risk for waste and fraud, citing the large number of claims that have overwhelmed the agency. In the state Legislature, the Joint Legislative Audit Committee on Thursday approved an emergency audit of the agency, including an analysis of the number and percentage of claims approved, denied, pending, and backlogged.

“The auditor warned clearly for the potential for waste fraud and abuse,” said Assemblyman Jim Patterson, a Republican from Fresno. “We are now seeing what that waste, fraud, and abuse looks like.”

Before this, the biggest concern about unemployment benefits in California was the backlog of more than 1 million people still waiting on benefits. Last month, the agency told lawmakers it is unable to answer 60% of the calls it receives for help, pledging to hire more than 3,000 people for its call center to keep up with unprecedented demand.

The agency has been under enormous pressure from lawmakers and the public to work through that backlog. But one of the reasons it takes a while to process claims is because the agency has to screen for fraud, Bernick said.

“That’s the trade-off,” he said. “You can reduce certain procedural checks, but what you risk is a potential increase in fraud.”

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