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Administration Proposes Welcome Reforms to SSI’s ISM Rule

By: Nick Buffie / 02.23.2023

It didn’t generate many headlines, but last week, the Biden administration released a common-sense proposal to simplify one of our country’s most convoluted, overregulated safety net programs. Specifically, the administration proposed removing food purchases from the In-Kind Support and Maintenance (ISM) calculations in the Supplemental Security Income (SSI) program. This change would greatly simplify SSI, cutting down on the administrative burdens faced by beneficiaries at little cost to taxpayers.

SSI is meant to provide an income floor for elderly or disabled Americans with low Social Security benefits. Because Social Security is tied to past earnings, people who earned low wages throughout their careers receive meager benefits. This is where SSI steps in: For everyone who is accepted to the program, total income from SSI, Social Security, and other sources is guaranteed to be at least $914 per month. The program is extremely well-targeted to the very poorest individuals: As of 2013, the poverty rate among SSI beneficiaries was 63%, which was more than four times the national average at the time. SSI extends a lifeline to these extremely needy people. In January 2023 alone, SSI provided benefits to nearly 7.6 million disabled or elderly Americans, with the average beneficiary receiving $677 (as a monthly payment).

However, after accounting for what are known as “income disregards,” SSI benefits are reduced by one dollar for every $2 of on-the-job earnings and for every $1 coming from other income sources. Under the program’s ISM test, most food and housing assistance provided to SSI beneficiaries must be counted as other income. For example, if a friend or family member buys dinner or groceries for an SSI recipient, the recipient will have their benefits reduced by the dollar value of the food. The total ISM benefit reduction is capped at one-third of recipients’ monthly SSI payments.

Notably, the ISM test does not apply to other types of purchases (such as medical care or transportation), nor does it apply to food or housing provided by charities or the government. No other safety net program applies a similar test, given the complications associated with tracking food and housing expenses. Unsurprisingly, the ISM test comes with heavy administrative burdens: The Social Security Administration’s instructions on how to assess ISM are approximately 250 single-spaced pages, and many of the most complicated questions during the SSI application process are about food and housing.

In the end, the in-kind benefits test creates more havoc than it is worth: Only about 8 or 9% of SSI recipients have their benefits reduced in any given year, yet problems associated with carrying out the ISM test are one of the leading causes of miscalculated payments. Overall, the ISM test saves taxpayers less than 0.01% of GDP — in other words, it results in a $1 tax cut for every $13,000 of taxpayer income. These meager savings do not justify imposing such administrative nightmares on SSI beneficiaries. By removing food purchases, the Biden administration proposal would effectively limit the ISM test to housing assistance, thereby cutting down on the paperwork and bureaucracy that rob SSI participants of precious time and benefits.

SSI is badly in need of further reform and simplification, but this is clearly a promising first step. And it should be a first step not just towards simplifying SSI, but towards simplifying the safety net more broadly. As PPI has previously noted, the safety net is filled with overlapping, complicated programs that impose excessive administrative burdens on the poor. This reason is one of many that PPI has previously called for a comprehensive regulatory improvement commission aimed at removing unnecessary regulations rather than just letting them pile one on top of the other. As the Biden proposal demonstrates, “simplification” is not necessarily a euphemism for “cuts,” and a simpler safety net can also be a more compassionate one.