Changes to CBO’s Long-Term Social Security Projections Since 2016

Projections of Social Security’s long-term financial outlook depend critically on estimates of key demographic and economic variables. Each year, CBO updates its projections of the Social Security system’s finances to incorporate newly available data and information from the research community. The agency also updates its models to incorporate improvements in methods and feedback on its analytical approach.

Compared with the long-term budget projections CBO made last year, the agency’s latest projections, published in March, indicate a slight improvement in the financial outlook for the Social Security system. The projected 75-year actuarial balance, a commonly used measure of the system’s financial condition, has improved from −1.6 percent of gross domestic product (GDP) to −1.5 percent of GDP (see table below). As a percentage of taxable payroll, the projected 75-year actuarial balance has improved from −4.7 percent to −4.5 percent.

Since last year, CBO has made changes to its projections of five key inputs: productivity in the economy, interest rates, the population, the labor force participation rate, and the share of earnings that is subject to Social Security payroll taxes. The changes to the first three of those inputs worsen the Social Security system’s projected finances, whereas the changes to the last two improve them. Moreover, an additional year of deficit—2091—is now included in the calculation of the actuarial balance, which worsens the 75-year outlook.

CBO projects larger deficits in Social Security’s finances than do the Social Security Trustees. That difference is largely explained by CBO’s and the trustees’ different projections of several major inputs into estimates of the system’s finances: earnings subject to the Social Security payroll tax, components of GDP growth, the population, and real interest rates (that is, interest rates adjusted to remove the effects of inflation).