The Congressional Research Service (CRS) has reviewed the solvency status of the Social Security Trust Funds based on the 75-year projections in the Social Security Board of Trustees’ 2009 Trustees’ Report (the 2010 report was released after the CRS report was published) and on the more recent short-term projections by the Congressional Budget Office (CBO), which were released in May 2010. Both sets of projections were prepared before the recent enactment of health care reform legislation. Because of the differences in time-horizons as well as in modeling techniques and assumptions, projections by the Social Security Board of Trustees and the CBO are not directly comparable.
Over the past few years, rising unemployment rates have led to lower payroll tax revenues and have contributed to a larger than expected increase in the number of Social Security beneficiaries, leading to some concern about these effects on Social Security trust fund solvency and Social Security financing on a cash flow basis.
Since 1984, Social Security has been generating surplus tax revenues. Under the intermediate assumptions of the 2009 Trustees’ Report, the trust fund balance is projected to continue to grow, peaking at $4.33 trillion (in nominal dollars) at the end of 2023, before being drawn down to pay for benefits and administrative expenses. The trustees project that the trust fund will continue to have a positive balance until 2037, allowing benefits scheduled under current law to be paid in full until that time. Afterward, the program would continue to operate using annual Social Security tax revenues, which would cover an estimated 76% of benefit payments scheduled under current law in 2037.
CBO projects surplus from 2010–2020
Starting this fiscal year, however, Social Security will operate with a cash flow deficit (i.e., income excluding interest will be less than outlays), according to projections by the CBO released in March 2010. The CBO projects that Social Security will operate with cash flow deficits in FY2010 through FY2013 and again in FY2016 through FY2020. When Social Security operates with a cash flow deficit, the program cashes in more federal government securities than the amount of current Social Security tax revenues. General revenues are used to redeem the federal government securities held by the trust fund. This increased spending for Social Security from the general fund can only be paid for by the federal government by reducing other spending, increasing taxes or other income, or borrowing from the public (i.e., replacing bonds held by the trust funds with bonds held by the public). When total trust fund income (income excluding interest) is taken into account, the CBO projects that Social Security will have a surplus in each fiscal year from 2010 to 2020.
With respect to the program's reliance on general revenues, it is important to note that the program is relying on revenues collected for Social Security purposes in previous years that were used by the federal government at the time for other (non-Social Security) spending needs. The program draws on those previously collected Social Security tax revenues (plus interest) when current Social Security tax revenues fall below current program expenditures.
The 2010 Trustee’s report, which was released on August 5, 2010, is located online at http://www.socialsecurity.gov/OACT/TR/2010/tr10.pdf.