CBO Warns on Social Security Solvency

October 20, 2003

According to the latest Congressional Budget Office fiscal policy brief, the trustees' conclusions in recent reports "have increasingly brought attention to the growing impact of Social Security and Medicare on the economy." Further, the brief clarifies the trust fund's role in providing benefits once the Social Security surplus becomes a Social Security deficit.

Based on the 2003 annual Social Security trustees report, the brief states: "When the future resource requirements of the two programs are shown year by year as a share of GDP, they more than double by 2075, rising from 6.9 percent of GDP today to a projected 16 percent in 2075." Highlights of the brief, "Comparing Budgetary and Trust Fund Measures of the Outlook for Social Security and Medicare," follow:

"In their latest reports, the trustees project that the income of the Social Security trust funds will be 13.78 percent of taxable payroll for the 75-year period as a whole and that the expenditures will be 15.70 percent, leaving a gap, or deficit, of 1.92 percent. … The combined deficit for the two programs is projected to be 4.32 percent of taxable payroll, resulting in an average actuarial imbalance roughly equal to 25 percent of their combined income.

"That combined figure shows the amount by which payroll taxes would have to increase today to cover the gap … Social Security and HI are funded by $15.30 out of every hundred dollars of the earnings of most workers. As the trustees summarize the problem, if the long-range gap is closed through a payroll tax increase, an additional $4.32 will be required starting today and continuing throughout the 75-year period.

"The concepts employed in the trustees' assessments, such as trust fund reserves and actuarial balance ... treat transfers from the government's general fund to the trust funds and the reserves of the funds as resources to pay benefits. However, those transfers and fund reserves are simply the result of credits exchanged between Treasury accounts—and thus reflect the government's commitment to pay the benefits but not necessarily the means to do so.

"Crediting surpluses to trust funds is simply a paper transaction. When funds are needed to pay benefits, resources will have to be drawn from the economy. Crediting surpluses to the trust funds will not necessarily create those resources because the surpluses may be used to boost spending on other federal programs or allow other revenues to be lower … If, instead, those reserves and interest credits are viewed as spending authority and not as real resources (that is, as money that the government can draw on), the overall 75-year deficit—and the magnitude of the legislative change needed to eliminate it—will be considerably larger.

"The trustees project that the Social Security trust funds will have reserves to carry the program until 2042…. However, if those reserves merely represent bookkeeping entries, receipts for Social Security are projected to fall below the program's expenditures not in 2042 but in 2018.

"From a budgetary perspective, those gaps between what the government receives and spends for Social Security and Medicare can only be filled by increased borrowing, higher taxes, reduced spending, or some combination thereof."

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