The 2020 Long-Term Budget Outlook

Table 4.

Summary Financial Measures for the Social Security System

Source: Congressional Budget Office.

These projections incorporate the assumption that spending for Social Security continues as scheduled even if its trust funds are exhausted. Through 2050, the projections incorporate the feedback from changes in economic variables caused by rising federal debt and marginal tax rates. After 2050, they do not account for such feedback.

Over each projection period, the income rate is the present value of annual tax revenues plus the initial trust fund balance, and the cost rate is the present value of annual outlays plus the present value of a year’s worth of benefits as a reserve at the end of the period, each divided by the present value of gross domestic product or taxable payroll. (The present value of a flow of revenues or outlays over time expresses that flow as a single amount received or paid at a specific time. The present value depends on a rate of interest, known as the discount rate, that is used to translate past and future cash flows into current dollars.) The actuarial balance is the difference between the income and cost rates.

A policy that either increased revenues or reduced outlays by the same percentage of taxable payroll each year to eliminate the 75-year shortfall would not necessarily place Social Security on a financial path that was sustainable beyond that period. Estimates of the actuarial deficit do not account for revenues or outlays after the 75-year projection period ends, and the gap between revenues and outlays would rise thereafter. Because projected shortfalls are smaller earlier in the period than they are later, such a policy would create surpluses in the next few decades but result in deficits later and would not leave the system on a sustainable financial path after calendar year 2094.

To put Social Security on a sustainable path beyond the 75th year, a policy would need to address the growing gap between revenues and outlays after that year. Even if a policy change was projected to make the system solvent for the next 75 years, it might fail to do so or might exceed its goals because of unexpected changes in demographics or in the economy. Additionally, a substantial policy change would probably have economic effects and could alter the behavior of workers and beneficiaries. Those effects, which are not included in the calculation of the actuarial balance, could cause a policy change to fall short of or exceed its stated goals.

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