Social Security Reform Act of 1985

Social Security Reform Act of 1985 - Amends the Social Security Amendments of 1983 to establish as a permanent requirement that the disbursements of the Federal Old-Age and Survivors Insurance Trust Fund, Disability Insurance Trust Fund, Hospital Insurance Trust Fund, and Supplementary Medical Insurance Trust Fund and the receipts of such trust funds, including disability and hospital insurance taxes imposed on employers, employees, and self-employment income, be treated as separate functional categories in the Federal budget. Repeals the future off-budget treatment of the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund, Disability Insurance Trust Fund and Hospital Insurance Trust Fund.

Amends titles II (Old-Age, Survivors and Disability Insurance) and XVIII (Medicare) of the Social Security Act to consolidate the Federal Disability Insurance Trust Fund and the Federal Hospital Insurance Fund into the Federal Disability and Health Insurance Trust Fund for FY 1987 and subsequent fiscal years 100 percent of: (1) the disability and hospital insurance taxes imposed on employers, employees, and self-employment income pursuant to this Act. Appropriates to the trust fund amounts necessary to assure the prompt payment of such benefits and of any administrative expenses and to provide an adequate contingency reserve. Provides that disability benefit payments, wife's, husband's, and child's insurance benefit payments to individuals entitled to them on the basis of the wages and self-employment income of a disabled individual, and hospital insurance benefit payments shall be made only from such trust fund. Requires the transfer at least once each fiscal year of amounts certified as overpayments to the Federal Disability and Health Insurance Trust Fund from the Federal Old-Age and Survivors Insurance Trust Fund and from the Railroad Retirement Account.

Amends the Internal Revenue Code to impose an old-age and survivors insurance tax and a disability and hospital insurance tax on employers, employees, and self-employment income. (Under current law, there is imposed an old age, survivors and disability insurance tax and a hospital insurance tax on employers, employees, and self-employment income.)

Amends title II of the Social Security Act to base cost of living adjustments on increases in the hourly earnings index for private nonfarm workers.