Two recent Kotok Reports dealing with the Social Security Trust Fund shortfall (“Social Security Trust Fund Question” and “Kevin Warsh’s Elephant”) spurred substantive responses from readers. Today, we highlight two of those.
First, Stephanie Mackay detailed the issues involving disability for veterans and the obscure attempt of the Russell Vought-type budgeting activity that may lead to the shrinkage of disability benefits for veterans. We thank Stephanie for calling this to our attention, as we hadn’t seen it.
Stephanie Mackay is a retired expert in the arena of disability diagnosis and treatments for disabled persons. She was the leading force behind the development and construction of the Columbus Community Center in Salt Lake City. With Stephanie’s leadership, that facility became a model of the nation in the treatment of certain types of disabilities. For her efforts, Mackay was recognized in 2015 as one of “30 Women to Watch” in Utah. Cumberland’s late senior management executive and former partner, Peter Demirali, visited Columbus many times and supported the center philanthropically. After his death, Cumberland and some of my Cumberland colleagues initiated a memorial foundation for disabled persons at the Columbus Community Center.
Stephanie wrote:
Hi David,
I have enjoyed the details you have been sharing about Social Security trust fund and the work you are doing supporting disabled veterans. What I find stunning is that there doesn’t seem to be a parallel discussion of the commitments we have made to Social Security recipients and disabled veterans. You know that the challenges of disabled veterans are near and dear to me because of my son-in-law and his journey to a pension and disability payments after 20 years in the Air Force, including 8 deployments to the Mid-East. You have been involved with Ukrainian soldiers who have been maimed in war.
I had a real “ah ha” moment when I came across the following information about the trillions of dollars of disability payments that have been promised but not put in a trust or a reserve.
Then I became aware of this small but consequential proposed rule in the Federal Register that could cut disability benefits based on the effectiveness of medication during a VA assessment to determine level of disability. I am not going to make any general editorial comments or opinions, but I was hoping that the information I have provided gives you some relevant information to add to your ongoing missives. So use it as you will. You can’t demonstrate causation or correlation between these two resources, but more importantly, you have the reach to an audience where you can demonstrate the fiscal collisions of our varied promises to veterans, the disabled, and seniors. And a few sentences in the Federal Register rule-making process demonstrat[e] the subterfuge this administration uses to poke holes in those fiscal commitments.
Here is a link to the podcast I heard entitled “The Real Cost of the War in Iran,” and I have included in this email a part of the transcript [italicized below] for your quick perusal. The professor interviewed is Linda Bilmes (Professor Linda J. Bilmes).
The real cost of the war with Iran | On Point with Meghna Chakrabarti
LINDA BILMES: Let me put this in context. Joe Stiglitz (Joseph Stiglitz | Columbia Business School) and I had testified early on in the Iraq and Afghanistan war that the cost of caring for veterans was going to be very, very high, an order of magnitude above what was being discussed at the time. And we were pilloried at the time for saying that this was just not possible. But over the years, the number of veterans who claimed was much higher, the number of conditions for which they claimed was much higher, the stress on the veterans was much higher. And so we now have a shocking number. If you look at the U.S. financial statements, the United States owes $7.3 trillion, that’s money that has already been been promised, but not yet paid to current veterans of previous wars. That’s Iraq and Afghanistan and Gulf War veterans mostly, and some Vietnam veterans. It’s hard to parse out exactly how much is just Iraq and Afghanistan.…And that doesn’t include medical care….And it has not been paid. We have promised it. And we’ve also not set aside any funds — I have been discussing for years that we should set aside a veterans trust fund — we have not set aside a dime to pay this debt, this sort of deferred compensation that we have already promised….Now in this war now in Iran, we have 56,000 U.S. troops who are in the region. Many of them have been exposed to toxins, contaminants, benzene, et cetera. And so they will be under the terms of the PACT Act eligible to claim lifetime disability benefits for any medical conditions that arise from this exposure or are aggravated. And that runs the gamut from asthma to cancer. So we will just, just with what we have already seen, if these veterans claim at the same rate as those from the short 1991 Gulf War, then we can expect 37% of them to receive lifetime benefits, which is already tens of billions of dollars.
BUT WAIT, IN A SEPARATE ACTION–My son-in-law posted about a proposed rule in the Federal Register that could cut disability benefits if someone receives medication that reduces the severity of a disability. Again, I am pulling out salient points for your quick read, but here is the link with details.
Federal Register: Evaluative Rating: Impact of Medication
You can quickly scan this proposed rule and justification for the rule within the link, but it was written in response to, and in violation of, various court cases and appeals that have required the VA to assess disability without considering the present amelioration of medication at the time of assessment (all cited in the Federal Register link above). The proposed rule turns on interpreting the actual level of the earning impairment on the veteran at the time of evaluation. It tries to undermine a recent decision of Ingram v. Collins, 38 Vet. App. 130 (2025), Ingram v. Collins, 38 Vet. App. 130 (2025) , which could be applied broadly to over 500 separate diagnostic codes, requiring re-adjudications of over 350,000 currently pending claims. The VA is claiming this decision would overburden VA’s claims adjudicatory capacity [excerpt italicized]:
Ingram requires VA to retrain all of its medical examiners and adjudicators to make assessments and decisions based not on the evidence before them but instead based on what they hypothesize the evidence would show if a veteran’s disability were left untreated. For these and other reasons explained below, this regulation is critical to the integrity of the VA disability claims system.
Therefore, VA will add the following two sentences to 38 CFR 4.10: “To ensure that disability evaluations are based on the actual level of functional impairment under the ordinary conditions of daily life, the medical examiner will not estimate or discount improvements to the disability due to the effects of medication or treatment, whether or not medication or treatment is included within specific rating criteria. If medication or treatment lowers the level of disability, the rating will be based on that lowered disability level.” (emphasis mine).
The Secretary of Veterans Affairs finds that there is good cause under 5 U.S.C. 553(b)(B) to publish this interim final rule because providing advance notice and prior opportunity for public comment is impracticable and contrary to the public interest. This rulemaking simply makes explicit longstanding VA policy and practice in rating and adjudicating disability benefits. It is impracticable because Ingram creates the immediate risk of significant disruption systemwide and delays in the adjudication and award of benefits. Specifically, if VA does not issue this interim final rule, the erroneous interpretation announced by Ingram will (1) generate considerable administrative costs, (2) create systemic delays in the adjudication system, (3) burden VA adjudicators and examiners, and (4) cause an overall increase in compensation expenditures based on a disability level that veterans are not actually experiencing [my emphasis]. Issuing this interim final rule without delay is in the public interest because it will prevent a significant negative impact on veterans awaiting claim decisions from VA.
The good news is that there were over 10,000 responses against this rule and it was pulled from the Register within a few days. (I am going to make one editorial comment here about medical ethics—with clinical trials moving forward for the use of psycho-active drugs like MDMA for PTSD and possibly approved for human use, would you want to be forced into a diagnosis that requires use of this drug prior to a disability assessment?)
Thanks for taking the time to review this information. It seemed so relevant to your various articles and editorials.
Hope you are well. Tight lines,
Stephanie Mackay
Stephanie and I share a concern for the wellbeing of servicemembers who serve our country and for wounded and disabled veterans in particular. I was disturbed by Washington Post reporting this weekend concerning the treatment of soldiers injured in the Port Shuaiba drone strike on the second day of Operation Epic Fury. Injuries ultimately requiring multiple surgeries were initially characterized as minor, such that soldiers could not be admitted to hospital when they were evacuated to Germany days after the attack. This fiasco and Stephanie’s investigation further raise concern for how the United States is treating those who defend the nation. Here’s that report:
“Survivors of Iranian attack that killed 6 U.S. troops say generals ignored warnings” | Washington Post (gift article)
On Social Security, Joel Naroff, an accomplished economist and retired teacher of banking and economics, wrote:
David:
Interesting commentary but the issue is how do we solve the problem. Getting rid of the income max reduces the shortfall by 50% at best, though that is the upper bound. Once the income ceiling is removed, upper income earners will pressure their employers (or the employers will do it themselves) to switch compensation from wages and salaries to non-SSA taxable compensation. I can imagine the creation of a whole lot of new “non-income” tax breaks that will make carried interest look like kids’ stuff.
And that is the fundamental problem: The only forms of compensation taxed are wages and salaries. Many companies cap their high income earners at the tax-deductible $1.5 million level but still give generous compensation packages. So Jamie Diamond may have earned $43 million in 2025, but his salary was only $1.5 million. The rest was in “performance based compensation” that is not SSA taxable. If what I understand about Musk’s compensation is correct, there is little or no wage or salary income, only options, so he may not even pay into the SSA system. Mark Zuckerberg says he lives off dividends, which are not SSA taxable.
If you are not taxing the wealthiest and highest compensated individuals, it makes it really hard to argue you should raise taxes by either ending the ceiling and/or raising the tax rate.
The only solution is to include all compensation, even if that means using methods such as Black-Scholes to measure the value of options. But that isn’t enough. Dividends on stock purchased through compensation packages are indirect labor income. They are earned through the act of doing a job. They need to be taxed.
Basically, the entire tax structure of SSA needs to be revised so it is fairer and has the capacity to raise enough money. When you tax things fairly, then you have the right to revisit the benefits side.
And nobody in their right mind thinks what I just suggested is politically possible, which means there is no solution to the SSA problem without bringing [it] onto the budget. I am not even sure it can be kicked down the road.
One other point. Let’s assume that the MPC of Social Security payment is 80% (I have no idea what it is, but that seems low, which is a reasonable approach to start with.) Also assume a moderate 2.5 multiplier and a 4% annual increase in nominal GDP. A $345 billion income reduction turns into a $690 billion reduction in spending, which turns into a roughly 1.5% reduction in GDP. I suspect it will be closer to 2% as the MPC and multipliers are likely higher.
—Joel [Naroff]
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