The 2020 Long-Term Budget Outlook

Figure 9.

Outlays and Revenues in Selected Years

Percentage of Gross Domestic Product

Source: Congressional Budget Office.

a. Consists of spending for Medicare (net of premiums and other offsetting receipts), Medicaid, and the Children’s Health Insurance Program, as well as outlays to subsidize health insurance purchased through the marketplaces established under the Affordable Care Act and related spending.

b. Consists of all federal spending other than that for Social Security, the major health care programs, and net interest.

c. Consists of excise taxes, remittances to the Treasury from the Federal Reserve System, customs duties, estate and gift taxes, and miscellaneous fees and fines.

The Social Security program is funded by dedicated tax revenues from two sources. Currently, 96 percent of the funding comes from a payroll tax; the rest is collected from income taxes on Social Security benefits. Revenues from the payroll tax and the tax on benefits are credited to the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, which finance the program’s benefits. In CBO’s extended baseline projections, dedicated tax revenues for the combined trust funds remain roughly constant, equaling 4.5 percent of GDP in 2050.

A common measure of the sustainability of a program that has a trust fund and a dedicated revenue source is its estimated actuarial balance over a given period—that is, the sum of the present value of projected tax revenues and the current trust fund balance minus the sum of the present value of projected outlays and a year’s worth of benefits at the end of the period.23 For Social Security, that difference is traditionally expressed as a percentage of the present value of taxable payroll over 75 years.24

Because the trust funds’ revenues are projected to grow more slowly than their expenditures, the Social Security program has a long-term actuarial deficit. Over the next 75 years, if current laws remained in place, the program’s actuarial deficit would be 1.6 percent of GDP, or 4.7 percent of taxable payroll, CBO projects (see Table 4[20]).25 (The 75-year projection period used here begins in calendar year 2020 and ends in calendar year 2094.) Thus, according to CBO’s projections, the federal government could pay the benefits prescribed by current law and maintain the necessary trust fund balances through 2094 if payroll taxes were raised immediately by about 4.7 percent of taxable payroll, if scheduled benefits were reduced by an equivalent amount, or if some combination of tax increases and spending reductions of equal present value was adopted.

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