The Congressional Budget Office (CBO) and the Social Security Administration’s Office of the Chief Actuary (OCACT) show the Social Security 2100 Act prposal having very different impacts on the financing of the program. OCACT says thelegislation would completely eliminate the shortfall and keep the program solvent for 75 years, while the latest from CBO has the trust fund hitting zero in 2036. How could it be that the same provisions produced such different outcomes?
In a nutshell, the 2100 Act uses the consumer price index for the elderly rather than the CPI-W to adjust benefits for inflation and raises the first factor in the benefit formula from 90 to 93%. It also increases the thresholds for taxation of benefits and increases the special minimum benefit for those will very low earnings. To pay for these benefit enhancements, the legislation raises the OASDI payroll tax by 0.1% per year until it reaches 14.8% in 2043 and applies the payroll tax on earnings above $400,000.
Both OCACT and CBO have “scored” this legislation and their results are very similar. CBO estimates that the legislation would improve Social Security’s actuarial deficit by 1.2% of GDP, whereas OCACT projects an improvement of 1.1%. That is, CBO actually projects a slightly larger impact of the 2100 Act, because it projects a smaller share of earnings subject to payroll taxation under current law and, therefore, more above the $400,000 level that would be taxed under the legislation. The real question, however, is with the two estimates of the impact of the legislation so close, why such a different effect on the program’s finances?
The answer rests on the two agencies’ estimates of the size of Social Security’s actuarial deficit under current law. In their 2019 annual report, the Social Security Trustees project a 75-year deficit equal to 1.0% of GDP; CBO projects a deficit of 1.5% of GDP. The CBO projection assumes greater longevity; continued widening of earnings inequality (and therefore a smaller share of earnings subject to the payroll tax); lower real interest rates; and lower average annual growth in GDP.
What to believe? The Technical Panel (a quadrennial panel of outside experts) typically has assessments that are closer to the projections from the Social Security Trustees than those from CBO, and the Social Security Trustees’ estimates have bounced around a lot less than CBO’s. So Alicia H. Munnell of the Center for Retirement research at Boston College is sticking with the Trustees’ estimates.