Today, CBO released an update of its long-term Social Security projections. The projections are qualitatively similar to those in previous CBO reports: Social Security’s annual revenues currently exceed its annual outlays, but as the baby-boom generation continues to age, growth in the number of Social Security beneficiaries will pick up, and absent legislative changes, outlays will increase much faster than revenues.
Total outlays (benefits plus administrative costs) equaled 4.4 percent of gross domestic product (GDP) in 2008, whereas the program’s dedicated revenues—from payroll taxes and from income taxes on the Social Security benefits of higher–income beneficiaries—equaled 4.8 percent of GDP. In the absence of legislative changes, spending for the program will climb to 6.1 percent of GDP by 2033, CBO projects.
The current recession is resulting in lower earnings and therefore lower Social Security revenues than would otherwise have occurred, but is not having as large an effect on benefit payments. Consequently, for the next few years, Social Security’s annual surpluses will be smaller or deficits larger than they would have been if economic growth had remained steady. In the long term, the recession will have little effect on revenues and outlays as a percentage of GDP, but the trust funds’ balances will be permanently lower. Primarily because of the worsened short-term economic outlook, CBO’s projection of the 75-year actuarial imbalance in the program is 0.5 percent of GDP, rather than the 0.4 percent we projected in 2008. As a share of taxable payroll, the projected shortfall is 1.3 percent. In other words, CBO estimates that if the Social Security payroll tax rate was increased immediately and permanently by 1.3 percentage points—from the current rate of 12.4 percent to 13.7 percent—the trust funds’ balance at the end of 2083 would equal projected outlays for the subsequent year.
Without changes in law, CBO expects that the Social Security trust funds will be exhausted in 2043. If that point is reached, the Social Security Administration will not have the legal authority to pay full benefits and the amounts that could be paid would be about 17 percent less than those scheduled under current law.
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