Today we released a paper on updated long-term projections 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 programs 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.
The projections released today differ somewhat from earlier results because of newly available programmatic and economic data, updated assumptions about future demographic and economic trends, and improvements in CBOs models. For example, these projections assume that future immigrants will be younger and more numerous than was assumed in 2007. (This change was included in the 2008 Social Security trustees report; CBO adopts the trustees aggregate demographic assumptions.) As a result of this and other changes, CBO projects somewhat smaller future deficits than we did in our 2007 projections.
CBOs long-term Social Security projections have always shown both a point estimate and the range within which 80 percent of the possible values are likely to fall. In this update, however, CBO has expanded its uncertainty presentation. Many figures and tables still show the 10th and 90th percentiles of various measures, but new presentations show the probabilities of specific outcomes.
Here is an example of our new presentation. A table in today's report shows the probability that Social Security outlays will exceed revenues by a specified percentage of GDP in a selected year. For example, the likelihood that outlays will exceed revenues in 2030 is about 97 percent, CBO projects, and there is almost a 50 percent chance that the gap will be larger than 1 percentage point of GDP; the chance of its being 2 percentage points (or more) of GDP is only 6 percent.
Another new table shows the probability, for different birth cohorts, that the Social Security trust funds will be sufficient to pay specified percentages of scheduled benefits. According to CBOs projections, the 1940s cohort, for example, is virtually certain to receive all of its scheduled first-year benefit. The 1990s cohort has only a 32 percent chance of receiving all of its scheduled first-year benefit but an 84 percent chance of receiving at least 70 percent of that benefit.
Both the analyses that show 10th and 90th percentiles and the new presentations are based on the same underlying data, but we hope that the different perspectives will help to communicate uncertainty more fully to readers.