September 24, 2013
Congressional Budget Office (CBO) Long-Term Outlook Released
The Congressional Budget Office (CBO) recently released its 2013 Long-Term Budget Outlook, which provides updated projections on the future financial health of Social Security. CBO notes that 2010 was the first time since passage of the 1983 SSA amendments, annual outlays exceeded revenues. Under current law, the CBO projects that gap to increase to approximately 13 percent over next decade, and by 2038, outlays would be 33 percent greater than revenues. Clearly, action is need - sooner rather than later.
I like the commentary and analysis from former SSA Deputy Commissioner Andrew Biggs:
CBO projects Social Security’s 75-year deficit will equal 3.4 percent of taxable payroll. That means that an immediate and permanent 3.4 percentage point increase in the current 12.4 percent Social Security payroll tax would be sufficient to keep the trust fund solvent for 75 years (though not beyond). Last year, CBO projected the long-term deficit at only 1.9 percent of wages, meaning that this year’s projections raise the shortfall by roughly 79 percent. What’s driving this change? Up until now, CBO has accepted the demographic projections made by Social Security’s Trustees, grafting onto them CBO’s own projections for economic variables. But CBO is now making its own demographic projections, including: - Longer life expectancies: CBO projects slightly longer life spans than SSA, assuming life spans in 2060 of around 84.9 years rather than SSA’s 83.6 years. As a result, retirees will collect benefits longer. - Longer work lives: CBO project that for each additional year of life, Americans will choose to work an additional 3 months, partially offsetting the negative budgetary effects of higher life spans - Higher disability rolls: CBO projects that the ultimate disability rate will equal 5.6 individuals per 1000, versus 5.2 in previous reports. - Higher unemployment: CBO projects a long-term average unemployment rate of 5.3 percent, versus 5.0 percent in prior reports. The net result is a long-term Social Security deficit considerably worse than previously thought. None of this changes how large the Social Security shortfall will be. These, after all, are projections and only the future will tell how things will turn out. But for those who previously said that there’s no hurry to fix Social Security because the long-term deficit is small and easily managed, a near-doubling of that deficit should cause them to reconsider their positions.
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