Projections of the Income and Spending of the Social Security Trust Funds

April 28, 2009

At a meeting of the Social Security Advisory Board, on April 21st, CBO staff presented four charts comparing our March 2008 and March 2009 projections of the income and spending of the Social Security trust funds. Those baseline projections cover 10 years and assume no changes in current law. (This summer, CBO will issue new projections of the long-term budget outlook, spanning 75 years.)

Over the 10-year period from 2009 through 2018, projected income and outlays have both declined significantly from our projections of a year agoincome is down by about $1.2 trillion (about 11 percent) and outlays are down by about $250 billion (about 3 percent) for that 10-year period (see Chart 1). Nearly all of the adjustments stem from changes in CBOs economic forecast: our projections for inflation, real GDP, and interest rates have all declined relative to those underlying our March 2008 baseline. Lower inflation affects both revenues and outlays through lower payroll taxes and smaller cost-of-living adjustments (COLAs).Similarly,lower real GDP would imply lower real wages---and therefore less revenue frompayroll taxes and, over time, a lowerinitial benefit amountfor newbeneficiaries. Finally, because projected interest rates are lower, the trust funds are expectedtoearn less interest income. Outlays projected for the first few years are now higher than we estimated in 2008because of the larger-than-expected COLA (5.8 percent) that took effect in January 2009. (For a discussion of CBOs projected COLA increases, see my recent blog. ) The decline in projected income and outlays has affected our projections of the trust funds annual surpluses and balances (see Charts 2-4).

Current projectionsoftotal surpluses of the two trust funds---for Old Age and Survivors Insurance (OASI) and Disability Insurance (DI)---are much lower than last years estimates (see Chart 2). In 2018, for example, the trust funds are now projected to record a surplus (total income less expenditures) of $133 billion, compared with last years estimate of a $246 billion surplus.

The trust funds total surplus includes interest credited to the trust funds, based on the balances accumulated over many years. That interest is an intragovernmental transaction and doesnt affect the budget deficit. Another measure to assess the financial condition of the program is the primary surplus, which excludes interest credited to the trust funds. The projected primary surplus dips to $3 billion in 2010, recovers for the next several years, and then falls below zero beginning in 2017 (see Chart 3). When the primary surplus disappears, Social Security benefits exceed Social Securitys income from the public, and the operations of the Social Security system increase the federal deficit.

The projected balance in the OASI trust fundcontinues to grow throughout the10-year period, albeit at a slower rate than CBO projected a year ago, reaching $3.9 trillion by 2019 (see Chart 4). In contrast, we expect that the DI trust fund balance will decline each year. CBO nowanticipates that the DI trust fund will be exhausted in 2019, withavailable fundsfalling $29 billion below projected expenditures. At that time, absent a change in law, Social Security could not pay DI beneficiaries the full benefits to which they are entitled under the Social Security Act.