CBO FINDS SOCIAL SECURITY SOLVENT FOR FIFTY YEARS

By Dean Baker

The Social Security shortfall is half the size of the
rise in defense spending since 2000.

The Congressional Budget Office’s (CBO) analysis of
Social Security shows the program to be considerably
stronger than has been indicated in recent reports by
the Social Security trustees. The new analysis finds
the program will be able to pay full scheduled benefits
until 2053 ­ nearly fifty years into the future ­ with
no changes whatsoever. This means Social Security is
far sounder today than it has been through most of its
existence. In the past, shortfalls in every decade from
the forties to the eighties required frequent tax
increases, with the last series of increases ending in
1990.

The new assessment is substantially more optimistic
than the Social Security trustees report issued in
March. This report projected the program would only be
able to pay full benefits until 2042. The size of the
shortfall over the seventy-five year planning horizon
is also considerably lower in the CBO report. While the
trustees report had projected the shortfall as being
equal to 0.73 percent of GDP over this period, the new
CBO report implies the shortfall will be equal to only
approximately 0.37 percent of GDP. By comparison, the
recent increase in annual defense spending associated
with the wars in Afghanistan and Iraq is equal to 1.0
percent of GDP.

The CBO report does note the Social Security system
will be paying out more money in benefits than it
receives in taxes as of 2019. This date has absolutely
no significance for the Social Security program, since
it is projected to have more than $6 trillion of
government bonds in the trust fund at the time. It can
use the interest and principle from these bonds to pay
benefits until the 2053 projected depletion date.
Unless the government defaults on its debt, something
that no prominent public figure has advocated, there is
no reason that the program can’t rely on these bonds.
(The 2019 date also has no importance for the federal
budget [see http://www.cepr.net/sstrustees.htm].)

The main reasons for the more optimistic picture in the
CBO analysis than in the trustees report are the
assumption that the unemployment rate will be lower and
productivity growth will be closer to its long-term
average, rather than slower rate during the years of
1973-1995. The trustees report assumes that long-term
productivity growth will average just 1.6 percent
annually, slightly faster than the 1.5 percent rate
during the slowdown. By comparison, the CBO report
assumes an average rate of productivity growth of 1.9,
which is closer to the 2.5 percent average over the
longer period 1947 to 2003 for which reliable data
exists.

The more rapid pace of productivity growth translates
into more rapid wage growth, which in turn leads to
more rapid growth in revenue. Since post-retirement
benefits are indexed to prices, not wages, more rapid
wage growth increases the ratio of revenue to costs.

The assumption of more rapid productivity growth is
also important from the standpoint of inter-
generational equity. While the trustees’ assumptions
imply that before-tax hourly wages will be nearly 50.0
percent higher in forty years, the CBO assumptions
imply that compensation will have grown by more than
65.0 percent. This means if taxes are raised to sustain
benefit levels, future generations of workers will
still enjoy far higher standards of living than do
workers at present.

This report also clearly identifies longer life
expectancies rather than the retirement of the baby
boomers as the biggest challenge to the Social Security
program. The youngest baby boomer will be age 89 at the
date that CBO projects the fund will be depleted.

The CBO report should help counter concerns that Social
Security faces any sort of crisis. While even the
trustees projections portray a far more optimistic
picture than is generally reflected in public debate on
Social Security, the CBO report indicates that the date
when the program first faces a shortfall is nearly a
half century in the future. With compensation projected
to nearly double over this period, workers should be
able to sustain modest tax increases without serious
hardship