The Congressional Budget Office (“CBO”) today released its “2015 Long-Term Budget Outlook”, which includes a picture into the prospects of Social Security. If you are planning to retire soon – pay attention.
The document contains many facts, but two stand-out. First, CBO lowered its solvency projection from 2030 to 2029. Second, it says that Social Security needs an immediate increase in payroll taxes of 4.4% just to cover its bills over the next 75 years.
CBO’s figures differ sharply from the more optimistic projections produced by the Social Security Administration (“SSA”). SSA believes that the resources of the Trust Fund should cushion the system until 2033. Separately it believes that payroll taxes need to rise only 2.88%.
I do not know which organization is a better fortune teller. I am not even able to say why there is a difference. Someone somewhere should be able to explain a gap of this size. Thus far, I have been unable to find that anyone anywhere that has even looked at the gap, much less tried to explain it.
“The combined OASDI trust funds are projected to be exhausted in calendar year 2029.”
2029 means that someone on average who is 73 expects to outlive scheduled benefits. It means that someone who is 53 expects to retire the year that the Trust Fund is exhausted.
“Over the next 75 years, if current laws remained in place, the program’s actuarial shortfall would be 4.4 percent of taxable payroll, or 1.4 percent of GDP”
Andrew Biggs, a resident scholar at the American Enterprise Institute focusing on Social Security, explains that this statement means that the gap to finance Social Security has expanded four fold over the last 6 years.
In order to reasonably assure full benefits to existing workers, we would need to increase the payroll tax to 19.7%. Mind you, Medicare would remain as broken as it is today.
Over the last three years, a gap has formed between the projections of SSA and CBO. As far as I can tell, no one has looked closely at the differences. One of these organizations is right. The other is wrong. It is very troubling that no one is trying to improve the projection process.