The 2004 report, conducting annually by the Congressional Budget Office (CBO), pushes Social Security’s insolvency date back a decade from last year’s projections. However, starting in 2019 the annual Social Security outlays will exceed revenues, the CBO found.
Examined in a different context, the CBO found outlays for Social Security will rise from about 4.4% of gross domestic product (GDP) in 2004 to more than 6% of GDP 30 years from now. The problem, though, is federal revenues dedicated to Social Security are expected to remain close to their current level – about 5% of GDP – over that period.
To correct this situation, the CBO offers the “only four approaches to closing that gap are possible:”
- the benefits that are scheduled to be paid to future recipients under current law could be reduced, lowering Social Security’s contribution to their income;
- the taxes that fund Social Security could be raised to draw additional resources from the economy to the program;
- the resources consumed by other federal programs could be reduced to cover the gap between Social Security’s outlays and revenues;
- the federal government’s borrowing could be increased, which would be another way to draw more resources from the economy to Social Security. That borrowing would need to be repaid by future generations, however, either through increased taxes or reduced federal spending.
The CBO also points out that Social Security is not the only source of pressure on the overall federal budget. With the aging of the U.S. population, the costs of other entitlement programs will also increase, providing even fewer funds to prop up an economically failing Social Security system. In particular, CBO projects expenditures for Medicare and Medicaid will grow even faster than Social Security outlays because of rising health-care costs.
“Unless taxation reaches levels that are unprecedented in the United States, current spending policies are likely to prove financially unsustainable over the long term because they will lead to an ever-growing burden of federal debt held by the public, which will have a corrosive and potentially contractionary effect on the economy,” the CBO report said.
A copy of the full CBO report is available here .