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Appendix
AChanges in CBO’s Long-Term Social Security Projections Since December 2007
The Congressional Budget Office’s (CBO’s) long-term projections of the finances of the Social Security program have changed since CBO released The Long-Term Budget Outlook in December 2007. CBO’s current estimates cover the same period as those in the earlier report—2008 through 2082—but they make use of new data, more current assumptions about demographics and the economy, and improvements in modeling.
CBO’s current estimates show a smaller shortfall than its 2007 projections. Projections of revenues as a share of gross domestic product (GDP) have decreased by 2 percent, from 5.15 percent to 5.07 percent. Projections of summarized 75-year outlays have declined by 6 percent, from 5.80 percent of GDP to 5.45 percent. As a result, the projected 75-year summarized deficit has decreased from 0.65 percent of GDP to 0.38 percent.
In CBO’s new projections, the reductions in projected outlays as a share of GDP (compared with the 2007 estimates) grow steadily larger over the 2008–2082 projection period. In 2020, projected outlays as a share of GDP are 1 percent lower than in the 2007 projections; in 2025, they are 5 percent lower; and in 2050, they are 9 percent lower. CBO now estimates that by the end of the projection period, in 2082, Social Security outlays will equal 5.8 percent of GDP—11 percent lower than last year’s projection of 6.4 percent of GDP.
A major reason for the change is a difference in CBO’s long-term projections of GDP. CBO’s new estimate of GDP over the 2008–2082 period is substantially higher than its 2007 projection, thus reducing the ratio of both revenues and outlays to GDP. The most important reason for the projection of higher GDP is the substantial alterations in the Social Security trustees’ projections of immigration.1 (As discussed in the main text, CBO adopts the trustees’ assumptions to project overall trends in demographics and disability.) The trustees changed their assumption about future immigrants, boosting the net number; more important, they shifted their assumption about the number of people of different ages among that population to reflect more younger immigrants. (A younger immigrant population results in both more immigrant workers and additional births.)
Thus, the trustees’ projection of the number of prime-age workers (ages 20 to 64) in 2060 is 8 percent higher than the projection published in their 2007 report on the Social Security system, whereas their projection of the number of people aged 65 and older is unchanged. By 2082, the number of people aged 65 and older in the trustees’ new projections is 4 percent greater than in the 2007 projections, but the number of prime-age workers is 11 percent greater.
The changes in the estimated number of people of different ages in the immigrant population have implications for CBO’s projection of GDP. Its new estimate of GDP over the 2008–2082 period is substantially higher than its 2007 projection, but CBO’s estimate of total outlays for the Social Security program is almost unchanged—which accounts for much of the decline projected in outlays as a share of GDP.
Other factors also contribute to the increase in CBO’s current projection of GDP. A small portion of that increase is attributable to a change in CBO’s assumption about the average annual rate of growth of real (inflation-adjusted) wages. CBO now projects a growth rate of about 1.4 percent, compared with its estimate of 1.2 percent in December 2007.
The decline in revenues as a percentage of GDP is smaller than the decline in outlays in part because of a conceptual shift. CBO’s current projections of revenues from income taxes on Social Security benefits are consistent with the assumptions embodied in the extended-baseline scenario discussed in Box 1. That change in the assumption about income tax receipts results in revenues from income taxes on benefits that are greater than
those estimated under the assumptions used for earlier projections.2Two additional changes in modeling since CBO last published its long-term Social Security projections affect estimates of revenues and outlays. First, CBO has improved its modeling of immigration and emigration to incorporate some differences between the projected educational attainment of native-born citizens and that of immigrants. As a result, the projected taxable earnings of immigrants are lower, on average, than those of native-born citizens. (Future work will introduce other differences between citizens and immigrants into the model, such as those directly related to labor force participation and earnings.) Second, CBO has improved its modeling of differential mortality (that is, the lower mortality rates experienced by people who have higher household earnings as compared with the rates of those who have lower earnings). Differential mortality leads to increased Social Security outlays because high earners tend to live longer; if there were no differential mortality, total outlays would be about 1 percent lower.
See Social Security Administration, The 2008 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (March 25, 2008).
For details, see Congressional Budget Office, The Outlook for Social Security (June 2004), Box 3-1.
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