CBO Projects Social Security to Be Forever in the Red
In yesterday's Budget and Economic Outlook, CBO shows that Social Security will run deficits each year over the coming decade, depleting $547 billion from the program's trust funds by 2021. We were already predicting this would happen back in March of last year.
Previously, both the Social Security Trustees and CBO projected that there would be a few short years of surplus early on this decade, but that deficits would begin by mid-decade and continuously grow as the Baby Boomer generation enters into retirement. The Trustees projected total deficits between 2012-2021 would total $380 billion this past August. These projections exclude the interest earned on the existing balances in the trust funds--offering a better view at the program's yearly finances and its sustainability.
As you can see below, the balance projections just keep getting worse. In 2008, we thought Social Security would run sizable surpluses this coming decade. Boy, were we wrong. Social Security is never expected to get out of the red now. Unless, of course, we do something about it! To read just one way to reform Social Security, check out our Let's Get Specific: Social Security paper.
So why the big increase in projected deficits? First let's look at the revenue side of the equation. CBO has revised its estimates of economic growth and employment downward, subsequently pushing down anticipated revenue streams for Social Security. With higher unemployment and a weaker economy, Social Security payroll taxes will bring in less than previous expected with fewer people working and potentially lower wage growth.
On the benefits side, CBO projects larger caseloads for both the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI)--Social Security's two programs. Given updated population projections, CBO now expects more people to be eligible for OASI benefits. Higher caseloads than expected in 2010 have pushed up CBO's projections of DI benefits, as have higher unemployment projections making more jobless workers apply for DI benefits to make up for lost income.
Put these two forces together--lower than anticipated revenues and larger projected benefit payments--and you spell disaster for Social Security. This is all occurred in conjunction with a worsening of the entire budget over the next decade. In 2008, CBO was projecting a $274 billion surplus for the coming decade. Now, we're staring at nearly $7 trillion in deficits over the next ten years.
We've got to tackle Social Security reform. For the sake of the 53 million people last year who received benefits from the program and for the sake of deficit reduction. If the program continues unchanged, beneficiaries will face a large drop in benefits in 2037 when the trust funds become depleted. We've got to do something about this, and the President must lead the country in beginning to work on a bipartisan solution to this, and the rest of, our fiscal challenges.