CBO 95 Percent Confident Social Security Trust Fund Runs Out in 25 Years
CBO's Long-Term Budget Outlook contains significant amounts of helpful data on Social Security. However, a lot of the data focus on just the outlays of the program; by contrast, reformers tend to focus more on its overall finances and the state of the trust fund. Today, CBO published some additional information on Social Security, showing both the program's full finances and, importantly, the ranges of uncertainty in their projections. Their projections show the trust funded being exhausted by 2031, with 95 percent confidence of it being exhausted by 2037.
Over the next 25 years, Social Security outlays are projected to grow from 4.9 percent of GDP in 2012 to 6.3 percent of GDP in 2037. They will then increase slightly from there to 6.7 percent by 2087. Meanwhile, revenues stay relatively stable, in the 4.5 to 4.7 percent of GDP range over that entire time. As a result, cash flow deficits will increase from 0.3 percent of GDP in 2012 to 1.6 percent by 2037 and 2.1 percent by 2087. Overall, CBO predicts a 75-year actuarial deficit of 1.2 percent of GDP, or 3.4 percent of taxable payroll, and they expect the combined trust fund to be exhausted in 2031. The growing deficit over time underscores the fact that waiting longer to fix Social Security will only make the solution more difficult.
This narrative is familiar to those know the Social Security situation. However, what is often less focused on is the range of possibilities for CBO's projections. This is especially important, since one argument sometimes advanced to play down the need for Social Security reform is to emphasize this uncertainty.
First, CBO shows the 80 percent range of outcomes for spending and revenue (in other words, they exclude the 10 percent most extreme outcomes on either side). As you can see, even using the most generous outcomes for spending and revenue, the program does not appear to go back into surplus at any point in the future.
There is also an uncertainty band for the trust fund ratio -- the ratio of assets to benefits paid -- and the fund's exhaustion date. In the former case, the median projection shows the trust fund ratio falling to zero by 2031, while the 10th and 90th percentiles show the trust fund ratio falling to zero by 2029 and 2036, respectively. In the case of the exhaustion date, it comes as early as the mid-2020s or as late as beyond 2037, but most of the simulations show an exhaustion date in the late 2020s and early 2030s.
The report also shows a number of different measures of benefits and taxes paid across income quintiles and birth cohorts. In terms of distribution, benefits in absolute terms are higher for higher-income people, but replacement rates and the ratio of benefits-to-taxes are higher for lower-income people. Across cohorts, real benefits and benefits-to-taxes ratios rise over time while replacement rates stay relatively constant, assuming benefits are paid regardless of the status of the trust fund ("scheduled benefits").
In short, CBO's numbers show that there is uncertainty in their projections, but under almost all projections, Social Security's finances will need to be addressed. And as we've shown before, the longer we wait to do so, the harder it will be.