On December 15th, the Congressional Budget Office (CBO) released the 2015 forecast of Social Security Policy Options. In this report, CBO analyzes many of the policy options for resolving the financial imbalances of Social Security commonly considered by policymakers and analysts.
The important thing to understand about the report is that CBO tends to be more pessimistic than the actuaries of the Social Security Administration (SSA). CBO tends to express the problems of the program as larger, and more imminent than SSA. For example, CBO projects that the Trust Fund will be exhausted in 2029 as opposed to 2034 as predicted by the SSA.
It surprises no one that CBO’s assessment of the policy options is less aggressive. Eliminating the cap is one of the more popular policy options. In this document, CBO projects that such a change will solve about 40% of the overall 75 year solvency gap. SSA on the other hand says that the remedy would bring into the program about 70% of the necessary resources. CBO projects that such a change will maintain the status quo until 2039 whereas the SSA believes such a change would make the system solvent beyond 2060.
It would be easy to assume that these forecasts deal with different programs. Not so. The gap in the measures of the same program generally stems from the use of different assumptions. For example, CBO’s forecast seems to believe that the Affordable Care Act will have negative consequences for jobs while SSA believes that the ACA will have a positive impact on the economy.
No one knows which forecast is more accurate. Both are credible sources, which present very different forecasts. No one really can entirely explain the variance.
Differences of this magnitude tend to disprove the maxim of Senator Moynihan, who said that you are entitled to your own opinion, but not to your own facts. Here the government provides separate, and materially different facts to the debate. So people who do not like Social Security tend to quote CBO. Supporters of the program hold allegiance to the SSA. If anything, the difference in facts will only empower the stand-off.
These forecasts over time will come together. The differences between these forecasts will manifest more rapidly than people realize. CBO projects that Social Security will need to redeem bonds in 2017 in order to pay full benefits. If projection proves to be accurate, the SSA’s forecast will be in jeopardy because it places a greater value on future interest payments.
In the meantime, let’s hope that the SSA is right.