CBO director’s blog: Projections of the Income and Spending of the Social Security Trust Funds

CBO director Doug Elmendorf has a nice explanation of where his group thinks Social Security finances are going, at least in the short term as the program recovers from the hit it has taken from the economic recession. Here's a clip:

Over the 10-year period from 2009 through 2018, projected income and outlays have both declined significantly from our projections of a year ago—income is down by about $1.2 trillion (about 11 percent) and outlays are down by about $250 billion (about 3 percent) for that 10-year period (see Chart 1). Nearly all of the adjustments stem from changes in CBO's economic forecast: our projections for inflation, real GDP, and interest rates have all declined relative to those underlying our March 2008 baseline. Lower inflation affects both revenues and outlays through lower payroll taxes and smaller cost-of-living adjustments (COLAs). Similarly, lower real GDP would imply lower real wages—and therefore less revenue from payroll taxes and, over time, a lower initial benefit amount for new beneficiaries. Finally, because projected interest rates are lower, the trust funds are expected to earn less interest income. Outlays projected for the first few years are now higher than we estimated in 2008 because of the larger-than-expected COLA (5.8 percent) that took effect in January 2009. (For a discussion of CBO's projected COLA increases, see my recent blog. ) The decline in projected income and outlays has affected our projections of the trust funds' annual surpluses and balances (see Charts 2-4). 

Click here to read the whole blog post.