A subsequent version of this report, The 2014 Long-Term Projections for Social Security: Additional Information, was published in December 2014.
Outlays for Social Security totaled a little under $800 billion in fiscal year 2012, equal to about 5 percent of gross domestic product and one-fifth of federal spending. Of the 56 million people who currently receive Social Security benefits, about 70 percent are retired workers or their spouses and children, and another 11 percent are survivors of deceased workers; all of those beneficiaries receive payments through the Old-Age and Survivors Insurance (OASI) component of Social Security. The other 19 percent of beneficiaries are disabled workers or their spouses and children; they receive Social Security's Disability Insurance (DI) benefits.
This CBO report, shown below and available in pdf format presents additional information about the long-term projections of the Social Security program's finances that were included in June in CBO's The 2012 Long-Term Budget Outlook. Today's publication updates the projections included in CBO's 2011 Long-Term Projections for Social Security: Additional Information.
Social Security's Dedicated Tax Revenues are Falling Short of its Spending
In calendar year 2010, for the first time since the enactment of the Social Security Amendments of 1983, spending for the program exceeded its dedicated tax revenues. In 2011, spending exceeded dedicated tax revenues by 4 percent, and that gap is growing. As shown in the publication's first group of exhibits—Exhibits 1 through 8—CBO projects that:
- Over the next decade, spending will exceed dedicated tax revenues, on average, by about 10 percent. With more members of the baby-boom generation entering retirement, spending will increase relative to the size of the economy, whereas tax revenues will remain a roughly constant share of the economy. As a result, the gap between the program's spending and tax revenues will grow larger in the 2020s and will exceed 20 percent of tax revenues by 2030.
- Under current law, the DI trust fund will be exhausted in 2016, and the OASI trust fund will be exhausted in 2038. It is a common analytical convention to consider the DI and OASI trust funds in combination. CBO projects that, if legislation to shift resources from the OASI trust fund to the DI trust fund was enacted as has been done in the past, the combined trust funds would be exhausted in 2034. However, considerable uncertainty surrounds the various factors that affect the program's revenues and outlays, and thus the date at which the trust funds would be exhausted.
- The resources dedicated to financing the program over the next 75 years fall short of the benefits that will be owed to beneficiaries by 1.95 percent of taxable payroll—up from 1.58 percent a year ago. That means, for example, that if the Social Security payroll tax rate was increased immediately and permanently by 1.95 percentage points—from the current rate of 12.40 percent to 14.35 percent—or if scheduled benefits were reduced by an equivalent amount, then the trust funds' projected balance at the end of 2086 would equal projected outlays for 2087.
Social Security Taxes and Spending Differ Greatly Across People with Different Earnings and in Different Cohorts
As shown in Exhibits 9 through 16 of the report:
- People with higher earnings pay more in Social Security payroll taxes than do lower-earning participants, and they also receive larger benefits. Because of the progressive nature of Social Security's benefit formula, replacement rates—the amount of annual benefits as a percentage of average annual lifetime earnings—are lower, on average, for workers who have had higher earnings.
- The amount of taxes paid and benefits received will be greater for people in later birth cohorts because they typically will have higher earnings over a lifetime, even after adjusting for inflation, CBO projects. For the median participant, the growth in taxes and benefits will be approximately equal, so replacement rates will be roughly stable.
Many of the exhibits in the publication show a distribution of possible outcomes that quantifies the amount of uncertainty in the projections. Those distributions were based on 500 simulations in which most of the key demographic and economic factors in the analysis vary according to historical patterns.