CRFB Discusses CBO Social Security Projections
August 11 - Today, CRFB released a report highlighting its take on CBO's Long-Term Projections for Social Security. Last year, the CBO projected surpluses in Social Security of $315 billion over the next 8 years, but in its recent long term outlook, that surplus was predicted to be only $50 billion.
By 2017, according to the CBO, these small surpluses will turn to large and growing deficits. And by 2043, the trust funds will run out of money. In total, CBO projects an average shortfall of 1.3 percent of payroll over the next 75 years, far larger than last year's projection of 1.06 percent, but smaller than the Social Security Trustees projection of 2 percent of payroll.
Despite some uncertainty surrounding Social Security, the program's current path is unsustainable and action must be taken to avoid significant shortfalls. Although there is disagreement between the extent of the shortfall between the CBO and Social Security Trustees, they are partially explained by CBO's required assumption that the Bush Tax Cuts will expire in 2010 (when, in all likelihood, most of them will be renewed). This, in turn, means higher projected revenues from the taxation of Social Security benefits.
Moreover, CBO makes probabilistic projections of various scenarios, and finds that there is an 86% chance the system will be in deficits by 2020 (97% by 2040) and an 86% change the trust fund will be depleted by 2040 (94% by 2080). According to CRFB:
While the exact size of the shortfall cannot be precisely predicted, one thing is certain: Social Security cannot continue on its path in the current fiscal context. The system will need to be rebalanced through adjustments to benefits and/or revenues; and the sooner we act the more we can spread out these changes and give workers time to prepare...The President and Congress should therefore take on Social Security reform as soon as possible, and address it with the same intensity and sense of urgency as they are putting into health care reform.