If current laws governing taxes and spending did not change, the condition of the federal budget would worsen considerably over the next three decades. Growth in federal spending would continue to outpace growth in federal revenues, leading to ever larger budget deficits. Federal spending is projected to rise noticeably in relation to the economy because of growth in spending in Social Security, the major health programs, and interest on the government’s debt. Federal revenues would also increase if current laws remained generally unchanged, but they would increase much more slowly than federal spending. Presentation by Keith Hall, CBO Director, at the 19th annual meeting of the Retirement Research Consortium.

1. Congressional Budget Office
19th Annual Meeting of the
Retirement Research Consortium
Washington, D.C.
August 4, 2017
Keith Hall
Director
Formoredetails, see CongressionalBudget Office,The2017 Long-TermBudgetOutlook(March2017),
www.cbo.gov/publication/52480.
The Congressional Budget Office: Its Role,
Long-Term Projections, and Use of Research

2. 1CONGRESSIONAL BUDGET OFFICE
CBO’s Role

3. 2CONGRESSIONAL BUDGET OFFICE
CBO was created by the Congressional Budget
and Impoundment Control Act of 1974.
It provides analysis of budgetary and
economic issues that is objective and
impartial. The agency is strictly nonpartisan.

4. 3CONGRESSIONAL BUDGET OFFICE
The Director is appointed jointly by the
Speaker of the House and president pro
tempore of the Senate.
CBO has about 235 employees, who are
hired solely on the basis of professional
competence, without regard to political
affiliation. Most have advanced degrees.

5. 4CONGRESSIONAL BUDGET OFFICE
A Panel of Economic Advisers improves
CBO’s u dersta di g of e o o i resear h,
macroeconomic developments, and
economic policy.
(For more information, see www.cbo.gov/
about/processes/panel-economic-advisers.)

6. 5CONGRESSIONAL BUDGET OFFICE
A Panel of Health Advisers i pro es CBO’s
understanding of health research and of
developments in health care delivery and
financing.
(For more information, see www.cbo.gov/
about/processes/panel-health-advisers.)

7. 6CONGRESSIONAL BUDGET OFFICE
CBO’s produ ts i lude the follo i g:
• Baseline budget projections and economic
forecasts covering the 10-year period used in
the Congressional budget process;
• Long-term budget projections covering a 30-
year period and Social Security projections
over a 75-year period;
• Cost estimates of legislation, including
analyses of federal mandates;

8. 7CONGRESSIONAL BUDGET OFFICE
• Analysis of the President’s udget (including
its likely economic effects and their budgetary
feedback);
• Scorekeeping for enacted legislation; and
• Analytic reports examining specific federal
programs, aspects of the tax code, and
budgetary and economic challenges.

9. 8CONGRESSIONAL BUDGET OFFICE
An Overview of the Long-Term
Budget Outlook

10. 9CONGRESSIONAL BUDGET OFFICE
If current laws governing taxes and
spending did not change, the condition of
the federal budget would worsen
considerably over the next three decades.

11. 10CONGRESSIONAL BUDGET OFFICE
Growth in federal spending would
continue to outpace growth in federal
revenues, leading to ever larger budget
deficits.

12. 11CONGRESSIONAL BUDGET OFFICE
Federal Spending and Revenues
Percentage of Gross Domestic Product

13. 12CONGRESSIONAL BUDGET OFFICE
Federal Debt Held by the Public
Percentage of Gross Domestic Product

14. 13CONGRESSIONAL BUDGET OFFICE
Federal spending is projected to rise
noticeably in relation to the economy
because of growth in spending on Social
Security, the major health care programs,
a d i terest o the go er e t’s de t.

15. 14CONGRESSIONAL BUDGET OFFICE
Components of Federal Spending
Percentage of Gross Domestic Product
0
5
10
15
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
Major Health Care Programs
Other Noninterest Spending
Social Security
Net Interest
Actual Extended Baseline Projection

16. 15CONGRESSIONAL BUDGET OFFICE
Federal revenues would also increase if
current laws remained generally
unchanged, but they would increase much
more slowly than federal spending.

17. 16CONGRESSIONAL BUDGET OFFICE
Components of Federal Revenues
Percentage of Gross Domestic Product
Individual Income Taxes
Payroll
(Social Insurance) Taxes
Corporate Income Taxes
Other Revenue Sources
0
5
10
15
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
Actual Extended Baseline Projection

18. 17CONGRESSIONAL BUDGET OFFICE
CBO’s Proje tions of
Social Security Finances

19. 18CONGRESSIONAL BUDGET OFFICE
Projections of Social Security Revenues and Outlays
Percentage of Gross Domestic Product
0
1
2
3
4
5
6
7
1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085
Outlays
Outlays with Scheduled Benefits
Outlays with Payable Benefits
Tax Revenues
Actual Projected

20. 19CONGRESSIONAL BUDGET OFFICE
CBO projects that, under current law, the
combined OASDI trust funds would be
exhausted in calendar year 2030.
The DI trust fund would be exhausted in
fiscal year 2023 and the OASI trust fund
would be exhausted in calendar year 2031.

21. 20CONGRESSIONAL BUDGET OFFICE
Exhaustion of the Combined Social Security Trust Funds
0
1
2
3
4
1985 1995 2005 2015 2025 2035
Actual Projected
Trust Fund Ratio

22. 21CONGRESSIONAL BUDGET OFFICE
Proje tions So ial Se urity’s 75-Year Actuarial Balance
(2017–2091)
As a Percentage of
Gross Domestic Product
As a Percentage of
Taxable Payroll
Income
Rate
Cost
Rate
Actuarial
Balance
(Difference)
Income
Rate
Cost
Rate
Actuarial
Balance
(Difference)
Old-Age and Survivors Insurance 4.1 5.4 -1.3 12.0 16.0 -4.0
Disability Insurance 0.6 0.8 -0.2 1.9 2.4 -0.5
Combined 4.7 6.3 -1.5 13.9 18.4 -4.5

23. 22CONGRESSIONAL BUDGET OFFICE
Projections of Social Security finances
have improved slightly since last year.
The 75-year actuarial balance (AB) is now
-1.5% of gross domestic product (GDP);
last year it was -1.6%.
The annual shortfall between income and
cost in 2090 fell from 2.1% GDP to 1.9%.

24. 23CONGRESSIONAL BUDGET OFFICE
Two changed projections improved the
outlook (as measured by the actuarial
balance):
• Higher projection of labor force participation
(+0.2% of GDP), and
• Greater projection of the share of earnings
that are taxable for Social Security (+0.1% of
GDP).

25. 24CONGRESSIONAL BUDGET OFFICE
Four factors offset some of those
improvements:
• Lower projected productivity (-0.1% of GDP);
• Lower projected interest rates (-0.1% of GDP);
• Changes to demographics—mostly lower
projected immigration (a small change); and
• An additional year included in the 75-year
valuation period (a small change).

26. 25CONGRESSIONAL BUDGET OFFICE
CBO projects larger deficits in Social
Se urity’s fi a es tha do the So ial
Security Trustees.

27. 26CONGRESSIONAL BUDGET OFFICE
The Trustees project the 75-year actuarial
balance to be -1.0% of GDP, 0.5 percentage
points s aller tha CBO’s proje tio .
They also project the shortfall between
income and cost in 2090 to be 1.5% of
GDP, 0.4 percentage points smaller than
CBO projects.

28. 27CONGRESSIONAL BUDGET OFFICE
The difference is largely explained by
different projections of factors that
influence the Social Security system.

29. 28CONGRESSIONAL BUDGET OFFICE
CBO projects that a smaller share of total
earnings will be taxable for Social Security.
It projects lower interest rates and slower
economic growth.
It also projects that there will be fewer
people of working age compared to the
number of elderly.

30. 29CONGRESSIONAL BUDGET OFFICE
CBO’s Use of Resear h and Data

31. 30CONGRESSIONAL BUDGET OFFICE
CBO uses a broad range of evidence to
inform its analysis. That evidence includes
studies by others, historical data for
federal programs, and any data available
from states.

32. 31CONGRESSIONAL BUDGET OFFICE
CBO also conducts original research using
administrative records and survey data;
Social Security, CMS, and IRS
administrative data; and data from the
Bureau of the Census and other household
surveys.

33. 32CONGRESSIONAL BUDGET OFFICE
CBO sometimes uses specialized data. For
example, many of the relationships in
CBO’s lo g-term model are estimated
using Social Security administrative data
matched with survey data.

34. 33CONGRESSIONAL BUDGET OFFICE
For example, CBO has estimated the
following:
• Marital transitions for i di iduals i CBO’s
long-term model;
• Characteristics of women who have babies in
a given year; and
• Characteristics of workers claiming benefits
at various ages.

35. 34CONGRESSIONAL BUDGET OFFICE
A number of broad research areas inform
CBO’s a alysis.
For example, earnings inequality and labor
force participation are important for long-
run Social Security projections.
Other research areas include estimates of
employer-sponsored health insurance (ESI)
and state decisions regarding the Medicaid
program.