CBO: Updated Long-Term Projections for Social Security

Updated Long-Term Projections for Social Security

Andrew Biggs in Treatment of uncertainty in new CBO Social Security projections directs our attention to the new release from the Congressional Budget Office. I don’t tend to focus on CBO projections precisely because they are more optimistic than the Trustees’, I don’t want to open the door to people claiming I was misrepresenting dates of depletion or something. But like Low Cost CBO is out there. First point:

Today, Social Security’s revenues each year are greater than its outlays, but as the baby-boom generation (people born between 1946 and 1964) continues to age, growth in the number of Social Security beneficiaries will accelerate, and outlays will grow substantially faster than revenues. CBO projects that outlays will first exceed revenues in 2019 and that the Social Security trust funds will be exhausted in 2049.

I would only point out that surviving Boomers will be 85 to 103 in 2049. Second point:

In 2049— CBO’s projected date for the trust funds’ exhaustion—revenues will equal only 84 percent of scheduled outlays. Thus, payable benefits will be 16 percent lower than scheduled benefits. Beginning in about 2070, the gap between scheduled and payable benefits will begin to grow, and by 2082, CBO projects, payable benefits will be 19 percent less than scheduled benefits.

CBO: 84% payout at depletion in 2049, 81% payout in 2070. SSA Trustees: 78% payout at depletion in 2041, 75% payout in 2082. Third point (bolding mine):

CBO has projected that 2049 is the year in which the balance in the trust funds, and thus the trust fund ratio, will fall to zero. But, as shown in Figure 3, there is a 10 percent chance that the trust funds will be exhausted in 2034 or earlier and a greater than 10 percent chance that they will not be exhausted before 2082.

Does CBO use rosier demographics to derive these numbers? No:

A number of basic assumptions underlie all long-term projections of the Social Security program’s finances. To project overall trends in demographics and disability, CBO adopts the assumptions of the Social Security trustees—specifically, for this analysis, the assumptions in the 2008 trustees’ report on the aggregate fertility rate, the rate of decline in mortality, the level of immigration, and the rates of disability incidence and termination.

What about economic assumptions?:
Real Wage 1.4%
Total Factor Productivity 1.3%
Labor Productivity 1.9%
Real Rate of Interest 3.0%
Inflation (CPI-W) 2.2%
Unemployment 4.8%

I don’t have a lot to say here, I can only point at the numbers. And the story they tell does not add up to crisis. CBO does not present the outlook in terms of payroll tax gap (that I could see) but a back of the envelope calculation suggests that if backfilling a 22% gap requires an immediate 1.7% of payroll (2008 Trustees) that a 16% gap should require maybe 70% of that or about 1.2%. {see update} I’ll leave it to Coberly to add some precision and attach a dollar figure here. But all in all if the CBO is getting this right Social Security ‘crisis’ is more like a tempest in a tea pot than anything.

Anyhow lots of graphs and tables for those of you who like such things.
UPDATE (h/t lord)
CBO Director’s Blog: Long term projections for Social Security: innovations in presenting uncertainty

Today we released a paper on updated long-term projection for Social Security. (Our last long-term projection for social security was included in the December 2007 Long-Term Budget Outlook.) As CBO has highlighted in previous reports, the number of Social Security beneficiaries will grow considerably as the baby boomers become eligible for retirement benefits. Absent legislative changes, spending for the program will therefore climb substantially and exceed the program’s revenues. CBO projects that the 75-year actuarial imbalance in the program amounts to 0.38 percent of GDP, or 1.06 percent of taxable payroll.