The CBO's Semi-Regular Social Security Update
by Jocelyn Yin*, 8/10/2009
The Congressional Budget Office (CBO) released its latest figures on the long-term finances of Social Security.
The CBO began releasing its reports in 2004 and continued this tradition on an almost annual basis through this year. Slightly different than "The Long-Term Budget Outlook" (Long-Term), these long-term projections focus specifically on the revenues and outlays of the Social Security program and occasionally use different assumptions. One of the most significant ways that this Social Security outlook differs from the Long-Term outlook is that the former assumes a lower level of Social Security revenue.
As the reader probably knows, the Social Security program is primarily funded through payroll taxes. There are varying levels of concern about the effects of the retirement of Baby Boomers, and how this might pose a strain on the system. While the system's revenues currently outweigh its spending, the CBO estimates that this trend will begin to reverse, tapping into the Social Security trust fund. By 2043, the CBO estimates that the trust fund will be exhausted.
However, these lower levels of revenue are based on the assumption that non-taxed health care benefits will grow to represent a greater portion of a worker's compensation. As the health debate recently highlighted, health care costs continue to rise and many employers are spending more on health care instead of wages. Since health care benefits are currently not taxed, if health care costs continue their trend, this will result in lower payroll tax revenue for Social Security. When the health care debate resumes this fall, keep an eye on how this may affect Social Security.
The report also notes that the current recession will lower revenues but does not deem it the major challenge to the long-term viability of Social Security.
Image by Flickr user peretzpup, used under a Creative Commons license.