CBO: Social Security Heading for Insolvency
By Jason Hughey
Yesterday, the CBO released a report that updated its predictions for the Social Security trust fund. Needless to say, the CBO’s numbers confirm that Social Security’s funding scheme has a dismal future ahead of itself. A few key highlights of the report include:
- For the second year in a row, the Social Security trust fund outlays exceeded revenue. CBO estimates that outlays totaled $773 billion while revenue totaled $726 billion.
- The trend of outlays exceeding revenues is likely to continue, according to CBO’s predictions. This will further propel the Social Security trust fund toward insolvency.
- CBO ran 500 simulations to calculate the probability of when the Social Security trust fund would be entirely exhausted of all of its IOUs. They concluded that this will likely occur in 2034. They also found that, with each year after 2030, a growing number of their simulations significantly increased the incidence of insolvency in the Social Security trust fund.
Regardless of Social Security’s popularity as a program, the CBO’s report makes clear that the math simply doesn’t add up. We’ve now seen two years in a row where the Social Security trust fund has spent more than it has collected through taxation. Thus, the report notes that, “As more members of the baby-boom generation enter retirement, outlays will increase relative to the size of the economy, whereas tax revenues will remain at an almost constant share of the economy. As a result, the gap will grow larger in the 2020s and will exceed 20 percent of revenues by 2030.”
Moreover, Social Security even as it stands, does not have any money in the trust fund. Congress has already spent it on a number of other programs completely unrelated to retiree benefits. As a result, Social Security only has IOUs that the Treasury has issued to the trust fund as a promise to pay in the future. When eligible retirees want their Social Security check, the Social Security Administration sells its oldest IOUs to the Treasury in order to pay retiree benefits. Thus far, the federal government has been able to sustain this process by borrowing, but this report shows why that process will not be able to continue indefinitely.
The simple fact of the matter is that Social Security is a broken and antiquated program left over from Franklin Roosevelt’s New Deal. Although many people currently laud Social Security because it still is able to meet its obligations, the financial fundamentals of the program are clearly rotten to the core, and the bill is coming due.