CBO Reports on Social Security
August 8 - Today, the Congressional Budget Office (CBO) released its Long-Term Projections for Social Security. According to the CBO:
"Currently... total outlays (benefits plus administrative costs) equaled 4.4 percent of gross domestic product (GDP) in 2008, whereas the program's dedicated revenues equaled 4.8 percent of GDP... As the baby boomers age, the number of Social Security beneficiaries will grow considerably. In the absence of legislative changes, spending for the program will climb to 6.1 percent of GDP in 2033."
Because revenues will remain roughly constant (payroll tax revenue will go down, but revenue from taxation of benefits will go up), CBO projects that the system will begin running deficits in 2017, and the trust fund will run out of money in 2043. Over the next 75 years, CBO projects Social Security will face a shortfall equal to 1.3 percent of payroll (0.5 percent of GDP). And a shortfall of 3.6 percent of payroll (1.3 percent of GDP) in the 75th year.
CBO's analysis is considerably more optimistic than the Social Security Trustees report, which we analyzed recently. The Trustees projected a 75-year shortfall equal to 2 percent of payroll (around 0.75 percent of GDP) and a shortfall of 4.4 percent of payroll (1.5 percent of GDP) in the 75th year. They also projected that outlays would exceed revenues in 2016 and the trust fund would be exhausted in 2037.
At least part of this difference is due to different assumptions of whether the 2001/2003 tax cuts are allowed to expire or not - since this determines how much revenue is raised from the taxation of Social Security benefits.
Under either scenario, though, benefit reductions or tax increases will be needed to ensure the program's continued solvency.
We will write more on this soon.