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23–191 2017

UNDERSTANDING SOCIAL SECURITY’S 

SOLVENCY CHALLENGE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 21, 2016 

Serial No. 114–SS07 

Printed for the use of the Committee on Ways and Means 

( 


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ii 

COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

ROBERT J. DOLD, Illinois 

TOM RICE, South Carolina 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

DAVID STEWART, Staff Director 

NICK GWYN, Minority Chief of Staff 

SUBCOMMITTEE ON SOCIAL SECURITY 

SAM JOHNSON, Texas, Chairman 

ROBERT J. DOLD, Illinois 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

TOM RICE, South Carolina 

XAVIER BECERRA, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

JIM MCDERMOTT, Washington 


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iii 

C O N T E N T S 

Page 

Advisory of September 21, 2016 announcing the hearing .................................... 2 

WITNESSES 

Stephen C. Goss, Chief Actuary, Social Security Administration ....................... 6 

Keith Hall, Ph.D., Director, Congressional Budget Office ................................... 32 

MEMBER QUESTIONS FOR THE RECORD 

Stephen C. Goss ....................................................................................................... 70 

Keith Hall ................................................................................................................. 96 

SUBMISSIONS FOR THE RECORD 

Center for Fiscal Equity .......................................................................................... 107 

Generation Opportunity .......................................................................................... 113 


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(1) 

UNDERSTANDING SOCIAL SECURITY’S 

SOLVENCY CHALLENGE 

WEDNESDAY, SEPTEMBER 21, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON SOCIAL SECURITY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:05 a.m., in Room 

B–318 Rayburn House Office Building, the Honorable Sam Johnson 

[Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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(@ 

WAYS AND MEANS 

CHAIRMAN KEVIN BRADY 

Chainnan Johnson Announces Hearing on Undet·standing Social Security's 

Solvency Challenge 

House Ways and Means Social Security Subcommittee Chairman Sam Jolmson (R·TX) 

announced today that the Subcommittee will hold a hearing on "Understanding Social Security's 

Solvency Challenge." The hearing will focus on the difterence between the Social Security 

solvency projections of the Congressional Budget Ollicc and the Social Security Board of 

Trustees, the causes of the difference, and what this means for Soci<tl Security's Jong-tem1 

solvency. The bearing will take place on Wednesday, September 21, 2016 in B-318 

Rayburn House Office Building, beginning at 10:00 AM. 

ln view of the limited time to hear witnesses, oral testimony at this hearing will be from invited 

witnesses only. However, any individual or organization may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written cotmnents for the 

hearing record must follow the appropriate link on the bearing page of the Conunittcc website 

and complete the informational forms. From the Collllllittee homepage, 

h!!Jl:/jwaX?andmeans.house.gQ_v, select "Hearings." Select the hearing for which you would like 

to make a submission, and click on the link entitled, "Click here to provide a submission lor the 

record." Once you have followed the online instructions, submit all requested 

infonnation. ATf ACH your submission as a Word document, in compliance with the fonnatting 

requiren1ents listed below, by the close of business on Wednesday, October 5, 2016. For 

questions, or if you encounter technical problems, please call (202) 225-3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on clcclronic submissions for printing tbe official bearing record. As 

always, submissions will be included in tbc re-cord according to the discretion of the Conunittce. 

The Conunittcc will not alter the content of your submission, but we reserve the right to formal it 

according to our guidelines. Any submission provided to the Committee by a witness, any 

materials sub11litted for the printed record, and any written cOillJJlcnts in response to a request for 

written comments must conforu1 to the guidelines listed below. Any submission not in 
3 

f 

Chairman JOHNSON. Well, good morning and welcome to today’s hearing on the difference between the Congressional Budget 

Office and the Social Security Trustees’ projections of Social Security solvency. 

Are you guys ready for some assault? [Laughter] 

We all know how important Social Security is to the millions of 

Americans who rely on it, but Social Security is in trouble. And the 

longer we wait, the tougher it becomes to fix it. It is up to Congress 

to make the tough choices based on the best, most accurate information we can find and is available. 

As Chairman of the Social Security Subcommittee, I take this responsibility seriously, and I am committed to making sure our children and our grandchildren can count on Social Security just like 

seniors and individuals with disabilities do today. 

Nearly every year, we hold a hearing on the latest Social Security Trustees’ projections to learn the latest about the challenges 

Social Security faces. But the Trustees aren’t the only ones that 

look at Social Security’s long-term finances, the Congressional 

Budget Office does too and so do the Dems, especially my friend. 

Both CBO and the Trustees have been looking at Social Security’s finances for decades, and as you can see on the screens today, 

the Trustees and CBO paint a very different picture of just how 

much trouble Social Security is in. But it hasn’t always been that 

way, and just a few years ago, when CBO was still using many of 

the same assumptions as the Trustees, the estimates were fairly 

similar. 

Today, CBO and the Trustees look at the same historical data 

but use different approaches to make different assumptions about 

the future, and those differences have a real impact. CBO and the 

Trustees don’t agree on whether Social Security’s finances got betVerDate Sep 11 2014 06:46 Jun 16, 2017 Jkt 023191 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\23191.XXX 23191

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ter or worse this year. They also don’t agree on when Social Security’s trust funds will be exhausted. 

Last year, their estimates of Social Security’s shortfall were over 

60 percent apart. Now, they are over 75 percent apart. That is why, 

earlier this year, Chairman Brady and I asked CBO and Social Security’s Chief Actuary to take a look at each other’s projections and 

help us understand how they can come to such different views of 

Social Security’s future. 

Today, I hope you are going to tell us what you learned. With 

CBO and the Trustees so far apart, it is hard to know if a Social 

Security plan will actually make the program solvent. While a plan 

may be solvent, according to the Trustees, it might not even get 

close, if you ask CBO. 

I know we have all looked at ideas on ways to fix Social Security, 

and while we may not agree on the best way to do it, we should 

at least agree that we need an accurate as possible picture of Social 

Security’s financial health. Americans want, need, and deserve to 

be able to count on Social Security, and it is up to us and the Congress to make the changes so they can. 

We count on the experts like CBO and the Trustees to help us 

figure out how best to do that, and we appreciate what you all do. 

So this hearing is about understanding why these two well-respected organizations have come to very different conclusions on 

just how much trouble Social Security is in. I look forward to hearing from our witnesses, and I am sure the rest of us do too. 

And I now recognize Mr. Becerra for his opening statement. 

Mr. BECERRA. Mr. Chairman, first, great to see you back and 

look forward to having you finish up this year and come back ready 

to go again as well, and so thank you for holding this hearing. I 

thank our two witnesses for being here and am pleased that we are 

having another conversation about Social Security. 

Probably the most important thing we should start off by doing 

is comparing the facts that we know versus the projections, which 

are speculation based on the experts’ best guesses of what we know 

from the data, the data that is from the past and what we are collecting today. But what we do know is what has happened in the 

past and where we are today, so here are some facts. 

Social Security has paid earned benefits to American workers, 

tens of millions of them, on time and in full for over three-quarters 

of a century. On time, in full, for over three-quarters of a decade. 

I have a chart that you can see now. Social Security currently has 

a $2.8 trillion surplus in its trust fund. That exists only because 

American workers have made tax contributions into the system 

and into the fund, and it is very simple math. You put taxpayer 

dollars in, and then they are drawn out, and you can see what has 

been drawn out. It is less than what has been put in. 

At the same time, those of us who have savings accounts know 

the beauty and the magic of compound interest, and because those 

funds that the trust fund has held earn interest, even though it is 

small interest, low interest, it has earned interest, over a trillion 

dollars in interest, and so, as a result, we have a $2.8 trillion surplus today in Social Security to help cover the benefits of future retirees and future recipients of Social Security benefits. 


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That is not to say that Social Security doesn’t face a challenge 

into the future as that surplus is consumed. I think we all understand that, and that is why we all, I think, bipartisanly, know we 

want to try to tackle this together. But Social Security in those 81 

years or so has weathered 13 recessions. It has, as I said, paid in 

full and on time at all times and meanwhile has been able to accrue a $2.8 trillion surplus dedicated to the future needs of those 

workers. 

What other program, private or public, can say this? There isn’t 

a one. No other program that serves tens of millions of Americans 

can say it has that kind of a track record. 

So now the projections. And let’s recognize again: these are projections. They aren’t fact. They aren’t based on hard data. They are 

based on our sense of what is going to happen. And I must say: 

both CBO and the actuaries at Social Security have tremendously 

talented people who give us those estimates, but they are still just 

estimates. 

Now, the Social Security Administration’s actuaries have been 

doing this since the beginning of Social Security. The Congressional 

Budget Office has begun doing this over the last 10 to 12 years. 

I know that CBO has far more responsibilities than just monitoring 

Social Security. The actuaries are concerned about Social Security 

and Social Security and its impact through other programs, but Social Security alone, and so let’s make sure we are looking at apples 

versus apples, not apples versus oranges, as we make our projections, because they are very important and, in fact, affect the lives 

of so many Americans. 

We should mention that, as we move forward, I think most people agree that that surplus in the trust fund is going to be consumed over the next 16, 18 years, somewhere in that area, maybe 

a little longer. It depends on what economic growth is. But let’s 

look at this in the broader context because it is not just about 

where Social Security is. It is where our government and our operations are moving forward. 

So let me give you a quick example. Social Security provides 

services, benefits to 60 million Americans. Okay. Let me give you 

another comparison. Department of Defense protects all Americans. 

The Department of Defense has a budget annually somewhere 

right now of about $600 billion. Social Security, through the moneys it has collected and then paid out, we are talking about $900 

billion that are sent out to Americans who work and earn their 

benefits. There is a dedicated stream of money for Social Security, 

the contributions that we mentioned before that people pay out of 

their paychecks, the FICA tax. There is no dedicated source of 

money for the Department of Defense. If we were to do a projection 

of what the costs for our defense would be over the same 75 years 

that we are trying to project for Social Security, we would find that 

we would be spending trillions upon trillions of dollars that we 

don’t have. Now, we are going to find the money because we want 

to protect our Nation, but when we make the comparisons about 

what is going to happen to Social Security, let’s remember that it 

has a secure source of funding. Department of Defense doesn’t. 

And so, quite honestly, the projected deficit or debt created by 

Defense would be greater than the projected deficit created by SoVerDate Sep 11 2014 06:46 Jun 16, 2017 Jkt 023191 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\23191.XXX 23191

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cial Security, and I could say that about others things. Tax breaks. 

We have a tax break for capital gains and dividends. It costs us 

about $100 billion a year. We don’t pay for that. If we were to run 

the projected deficits created by providing tax breaks to folks who 

take advantage of capital gains and dividends tax cuts, that would 

be trillions as well. 

That is all I would say, Mr. Chairman, as I close, that we want 

to put everything in perspective. We want to remember what we 

are out to do, and we are out to make sure that Americans can rely 

on something as secure as what Social Security has been for generations. That is our task. We can do that on a bipartisan basis. 

And the first thing we should do is make sure that Social Security, the Social Security Administration has the resources it needs 

to actually administer its programs for the tens of millions of 

Americans who are paying into it and the tens of millions of Americans who are receiving their benefits after having paid into it. 

With that, I will yield back the balance of my time. 

Chairman JOHNSON. Thank you. 

As is customary, any member is welcome to submit a statement 

for the hearing record. 

And before we move to our testimony, I want to remind our witnesses to please limit your oral statements to 5 minutes, unlike 

what my friend did. 

However, without objection, all the written testimony will be 

made a part of the hearing record. 

We have two witnesses today. Seated at the table are Stephen 

Goss, Chief Actuary, Social Security Administration, and Dr. Keith 

Hall, Director, Congressional Budget Office. 

Welcome, and thanks for being here. 

Mr. Goss, please proceed. 

STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY, SOCIAL 

SECURITY ADMINISTRATION 

Mr. GOSS. Thank you very much, Chairman Johnson, Ranking 

Member Becerra, Members of the Subcommittee. It is a pleasure to 

be here today on this topic. Let me start with just saying that really reiterating a point that has been made: actuarial projections, actuarial valuations have been done for Social Security since actually 

before 1935, before enactment. They are critical, obviously, to you 

as lawmakers. At the start of the program, they were, and they are 

today again as we have to move forward with this program. 

The annual Trustees reports required by law have been forthcoming every single year, starting 1941 through 2016, and a key 

point in the requirement in those reports is to speak to the actuarial status, which we do by 75-year projections. These are obviously quite different from a 5-year or 10-year budget projections; 

75-year actuarial valuation is really quite a different animal. 

In our office, we do have 45 actuaries and demographers. We also 

have eight economists and statisticians. Obviously, because we 

have been around for a while, we have immense experience. We 

also have access to all data internal to Social Security and throughout the rest of the government. 

Now, what our office actually does in the Trustees report process—we are not the Trustees; we are an office that works with the 


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7 

Trustees. We do develop the methods. We draft the reports, and we 

also propose assumptions to the Trustees every year. 

Now, I can give you assurance as to the reasonableness of the assumptions and the appropriateness of the methods because the law 

also requires that the Chief Actuary put a statement of actuarial 

opinion in each report, and that has been there every year. We 

have not had exception to the assumptions per se of reports in the 

past. 

Transparency, you are probably familiar, we have technical panels put forth by our advisory board. We have a full scope audit of 

our work in incredible detail. And we share everything with everybody who asks, including our friends a CBO. We share immense 

detail with them. 

One of the hallmarks of what the Trustees have stood for over 

all the years—and I am so proud to be able to say that I have been 

a part of this process—is stability and incremental change, to only 

have incremental change. Every year, for our portfolio, we have got 

one more year of data. That is it. And so we always just do incremental change. 

Now, let me—oh, great. Okay. Next slide. So let me just show 

you here a picture of—this is the so-called actuarial balance that 

you are familiar with and I think Chairman Johnson was referring 

to. It is really just an expression of over 75 years of what our shortfall looks like as a percentage of the payroll over that 75-year period. 

The blue line is what we have been projecting in our Trustees 

reports for 2002 through 2016. Of course, it goes all the way back 

to 1941, and you can see sort of the relative stability. We think 

that is really important. You can see CBO has—they started in 

2004. At that point, the CBO projections were only half as large a 

shortfall as the Trustees were saying. 

As of 2012, that sort of changed, and CBO is now projecting a 

much larger shortfall than Social Security, and it has been getting 

even larger and larger, which is sort of part of the point of this 

hearing, to sort of understand that, I assume. 

On the next slide, I just want to indicate that there are really 

currently—and this has changed over time. We have much detail 

in the written testimony of this. Currently, there are four main 

reasons why we have differences in the projections. It relates to 

birth rates; employment rates; earnings inequality; other, mainly 

methods. You can see here the cost rates. We have the cost rates 

going up because of the aging of our population, and CBO has a 

much, much larger increase in the cost rates as we go forward. 

Now, let’s just take a look at the birth rates. The birth rates historically have been around—since 1990 to 2008, We had great stability. Now, the recession came along and affected many things, including birth rates dropping temporarily. This year, CBO has decided to alter their long-term assumption, so they have matched us 

in every year prior to this going back to 2004. They dropped down 

to 1.9 below the 2.0 that we and our Trustees are assuming. And 

I would just alert you to NCHS does birth expectation surveys of 

women in our population, and their birth expectations have been 

above 2 even throughout the recession. So we don’t really believe 

that there is a basis at this point for dropping that assumption. 


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Labor force participation rates, one of the main economic variables, is a place where we have kind of really we think remarkable 

differentiation. We have expressed labor force participation rates 

here on like—on assuming there is no change in the age distribution of the population. So we get a pure look of what is happening, 

what sort of employment and desire to be employed. And you can 

see that the recession again had a big effect. We had a big drop 

in the recession. We are assuming we will come back from that and 

then grow a little bit as people over 65 get more and more in the 

labor force. 

CBO has as, I would say, fairly dramatic drop in the labor force 

participation rates, back to levels that were existent really before 

women were largely getting into the labor force. 

And the last slide I have here of some real serious content about 

a difference for us speaks to something that is really important, the 

earnings concentration at the top. And you can see on this slide 

that, between 1983 and 2001, we had a rather dramatic drop in 

this taxable ratio, the share of all the earnings that we have covered under Social Security that are taxable, and that speaks to the 

earnings concentration. That drop was so dramatic over that period, but over the last 13 years, 2001 to 2014, the rate of decline 

in that has been only one-third what it was in the earlier period, 

real deceleration. It has really slowed. And our Trustees and we 

are projecting that it will further decelerate in the future. 

I am hoping that is not optimistic. We think that is an absolutely 

reasonable and appropriate place to be. You can see the red line 

of where CBO is having really an acceleration to a rate of decline 

that we have not really seen before. 

And, with that, I think I had better stop. I just want to say, 

again, thank you so much for the invitation, and we look forward 

to continuing these projections and working with you on the shortfalls for Social Security in the future. 

[The statement of Mr. Goss follows:] 


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Social Security's Solvency Challenge: 

Estimates for the Annual Trustees Reports 

and by CBO, 2002 through 2016 

Office of the Chief Actuary 

Social Security Administration 
10 


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Baseline 

• Actuarial projections started before 1935 

- Critical to lawmakers at the start, and now 

• Annual Trustees Reports each year 1941-2016 

- "Actuarial status" required by law: 75-year projections 

• Our office has 45 actuaries and demographers 

• And 8 economists and statisticians 

- Trustees Report process: what our office does 

• We propose assumptions, develop methods, draft reports 

• Actuarial opinion required by law in the report 

- Transparency: technical panels, full-scope audit, share all 

Incremental change: stability essential for lawmakers 

2 

Estimating the solvency challenge: 

Trustees Reports have been consistent. 

0.0 

.0.5 

-1.0 

-1.5 

-2.0 

Changes should be incremental. 

OASDI 75-Year Actuarial Balance as Percent of Taxable Payroll: 

Projections in 2002-2016 Trustees Reports and CBO Reports 

""'-. ~ 

/..........___ ~ """-.. ~ 

-2.5 \ 

-3.0 ~______., 

-3.5 

-4.0 

-4.5 

\ 

I ...... TR Actuarial Balance I ""' I - CBO Actuarial Balance I ""-. ......, 

-5.0 

2002 2004 2006 2008 2010 2012 2014 2016 

3 
11 


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Currently, 4 main reasons CBO projects 

higher cost: births, employment, inequality, other. 

OASDI Cost as Percent of Taxable Payroll 

10 ~~~~~~~~~~~~~~~~~~~~~~ 

1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 

4 

Birth rates: Birth expectations consistently 

above 2 children per woman through 2013. 

Total Fertility Rate 4.0 

J\ "' - TR2016 

\ - CB02016 -

A .a 

IJ \ ~ 

~ 

1:! ,.._ __.J\_ ~ 

'vrJ 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 

5 
12 


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Labor force participation: CBO never 

recovers, and goes much lower in the future. 

69% Labor Force Participation Rates, A.ge· Sex·Adjusted to 2011 Population 

68% - Z016 TRUSTEES REPORT ~~~~~~~:~:::~:~:!:!::.:!;:~~ ~ 68.2o/o 

2015 Panel also recommended higher 

67% - 201.6 ceo L Tao 

66.8o/o 

66% 

65% 

64% 

63% 

62.9% 

62% 

1981 1991 2001 2011 2021 2031 2041 2051 2061 2071 2081 

Note: C:80 11olutls ore high corly os t hey ore .. full t~mploymt:nt .. rot~ Actual ratt~s would~ lowe r. 

6 

Earnings concentration at the top has decelerated since 2001. 

TR continues deceleration. But CBO assumes acceleration to 

nearly I dou bl et h e pace seen f rom 1983 to 2001 

Percentage of OASDI Reported Covered Earnings Below 

the Taxable Maximum: 2016 Trustees Report and 

90 2016 CBO Long-Tenn Budget Outlook 

88 

~1983 

86 '\~ 2001 

y 

"" \(\ 1\ 84 -y v '\.A 82 

-, ,......._ ...... '\ ....... 

~ \ 80 -CBOLT2016 verage Annual Rate of Change 

~ 277 io ObSQI Ia~a~la BaJ~ 

78 - TR2016 1983-2001 

!B...2Q1§ 

.0.32% ~ -0.32% "'---- TR 2016 Update • ~ 

2014-2027 :!!..JX4l 

.0.04% -0.53% 

~ 

76 

1983 1988 1993 1998 2003 2008 2013 2018 2023 2028 

• Updtnodwithdttta throvgh Jv y20 A4 $o2010,201 1,(1.nd2016~ vos M ifthO~h<td~nCOt.As foc0oe2009. 2010, <md 2015 

7 
13 

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Conclusion 

• Social Security's solvency challenge 

- Size of shortfall is critical for lawmakers 

- Trustees Reports since 1941 

- Reliable, consistent, transparent, incremental 

- Immense oversight, scrutiny, and care 

• 2016 Trustees Report 

- Actuarial balance is -2.66 percent of payroll 

- Lawmakers need to make changes by 2034 

• 33 percent higher revenue, or 

• 25 percent lower scheduled benefits, or 

• A combination of these changes 

8 
14 

Chairman JOHNSON. Thank you. 

[The prepared testimony of Mr. Goss follows:] 


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extensive annual detail to CBO on specifics of our projections. This is just one part of the 

transparency we believe is critical to maintain credibility for our projections. 

Process for the Trustees Reports 

The annual Trustees Reports are signed by the members of the Board, including the Secretary of 

the Treasury, the Secretary of Health and Human Services, the Secretary of Labor, the 

Commissioner of Social Security, and generally, two public Trustees nominated by the President 

and confirmed by the Senate. The Board and their staff provide a diverse and balanced group of 

highly knowledgeable individuals. We in the Office of the Chief Actuary work with the Trustees 

by proposing and discussing assumptions, developing the actuarial methods, producing the 

actuarial projections, and drafting the report. As an assurance that the assumptions used for the 

report are reasonable, the Social Security Act further requires that the Chief Actuary provide an 

actuarial opinion with each report speaking to the reasonableness of the assumptions and 

appropriateness of the methods. I am pleased to tell you that there has never been a need for the 

actuarial opinion to state that any assumption or method is unreasonable. 

The projections we produce for the Social Security area population are also utilized for the 

Medicare Trustees Report and for the extended projections in the President's Budget. CBO used 

our population projections for their long-term estimates in 2004 through 2010. We also project 

Social Security cost and revenues for the President's Budget under the economic assumptions 

developed by the Administration for that report. 

Fundamental to the projections we produce for the annual Trustees Reports is the concept of 

incremental change. It should be rare that new experience or insight from one annual report to 

the next would make a substantial change in the actuarial status. Enactment oflegislation is the 

obvious exception to this principle. Boards of Trustees in all administrations have well 

understood the importance of making changes only gradually and after compelling evidence has 

accumulated. We have seen many cases where a measure appears to be moving in a new and 

different direction, only for that change to be reversed after a short time. Long-term projections 

should not react quickly to annual data, and the consistency of Trustees' projections is testament 

to the understanding of the current and past Boards of Trustees. 

We have many levels of oversight. Our Social Security Advisory Board has continued the 

tradition of past Advisory Councils in commissioning Technical Panels every four years to 

evaluate our methods and assumptions and to make recommendations. Each panel is comprised 

of just a few individuals who must cover a very broad range of areas, and generally represent 

only one or two of several positions on a given area. We and the Trustees take the 

recommendations of the panels into consideration along with all other evidence we have at our 

disposal. Panels can at times become frustrated with our reluctance to adopt their 

recommendations and make abrupt changes, but often come to understand the value of 
16 


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incrementalism. As one recent example, Alicia Mu1mcll, chairperson of the 2015 Tcclmical 

Panel, stated that she was glad the Tmstees had not loll owed the recommendation of the panel to 

increase the assumed rate of decline in mortality for the 2016 Tmstees Report 

(http://crr.bc.eduibri efslsocial-securitys-fi nancia !-outlook -the-20 16-update-in-perspecti veo. 

Actuatial Status from the 2016 Tr ustees Report 

At the risk of redundancy, let me briefly present a small portion of the lin dings from the 20 16 

Tmstees Report that we discussed at the Subcommittee's hearing on June 22. 

Social Security Solvency: 2016 Trustees Report 

Projected Combined Trust Fund Reserve Depletion in 2034 

The figure above illustrates the projected dates oftmst lund reserve depletion of the separate and 

combined Social Security tmst funds. The Bipa1t isan Budget Act of20 15, which Congress 

passed last November, extended the date for 0 1 reserve depletion by 6 years. Under the 2016 

Trustees' intermediate assumptions, Dl reserve depletion is now projected for 2023. The 

projected years of reserve depletion for the OASI fund (2035) and for the combined OASI and 

0 1 funds (2034) were unaffected by the BBA and by the new valuation for the 20 16 Trustees 

Report. 

The annual cost lor the Social Security program will begin to exceed total income, including 

interest, in 2020. Cost already exceeds non-interest income. At the time of projected reserve 

depletion in 2034, we project that continuing revenue to the program will equal 79 percent of 
17 


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4 

program cost. In the absence of Congressional action, full scheduled benefits would no longer 

be payable on a timely basis at that time. By the end of the 75-year projection period, if the 

Congress has not yet acted, we project that continuing revenue will equal 74 percent of the 

amount needed to pay full scheduled benefits. Because the trust funds have no borrowing 

authority, expenditures would be limited to continuing revenue in the event that reserves became 

depleted. 

Annual Cost and Non-Interest Income as a Percent of Taxable Payroll 

Cost: Sche dul e d and 

payable b e n e fits 

Estimating the Size of the Solvency Challenge 

Cost: Sche dule d but not 

fully payable b e n e fits 

l 

Expenditures: Payable b e n e fits= income 

afte r trust fund d e pl e tion in 2034 

The figure below illustrates the history of Trustees' projections of the size of the "actuarial 

balance" for the Social Security program. When the actuarial balance is negative, it may be 

referred to as an actuarial deficit. The 75-year deficit, expressed as a percent of payroll, may be 

loosely interpreted as the increase in the payroll tax rate that could be enacted immediately in 

order to fully finance the program over the 75-year period. 
18 


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OASDI 75-Year Actuarial Balance as Percent of Taxable Payroll: 

Projections in 2002-2016 Trustees Reports 

0.0 

-0.5 

-1 .0 

-1 .5 

-2.0 t---....----..---....... _ ... 

-2.5 

-3.0 

-3.5 

-4.0 

-4.5 

-5.0 

2002 2004 2006 

growth and net immigration 

2008 2010 2012 2014 2016 

For years 2002 through 2010, the actuarial deficit remained consistently around 2 percent of 

payroll. In 2011 and 2012, the size of the deficit increased somewhat in response to faster-thanexpected mortality declines in 2006 and 2007 and effects from the recession. These recession 

effects included (1) lower economic growth that was expected to permanently lower the level of 

GDP and earnings and (2) a temporary reduction in the level of net immigration into the country. 

It should be noted that even with these effects, the increase in the Trustees' actuarial deficit from 

2002 to 2016 was only about 0.7 percent of payroll, less than the change expected from just the 

passage of time. With each new valuation, the projection period advances one year, thus 

including one additional year (the 76th year from the prior valuation) that has a large projected 

annual shortfall. This change in valuation period increases the actuarial deficit by about 0.06 

percent of payroll annually. Between 2002 and 2016, we would have increased the actuarial 

deficit by about 0.84 (14 times 0.06) percent of payroll, in the absence of any changes in 

assumptions, methods, or unexpected experience. 

The figure below adds the 75-year actuarial balances for Social Security estimated by CBO in 

2004 through 2016. CBO did not produce a new estimate for 2005, after their first long-term 

estimate in 2004. The value included is a rough estimate we calculated based on material CBO 

published for that year. 
19 


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OASDI 75-Year Actuarial Balance as Percent of Taxable Payroll: 

Projections in 2002-2016 Trustees Reports and CBO Reports 

0.0 

-0.5 

-1.0 

-1.5 - -2.0 r--=....---.---=~ 

-2.5 

-3.0 

-3.5 

-4.0 

-4.5 

-5.0 

2002 

[ 

-+- TR Actuarial Balance 

- cBO Actuarial Balance 

2004 2006 2008 2010 2012 2014 

6 

2016 

Initially, CBO projected lower benefits relative to tax revenue, and thus smaller deficits than in 

the Trustees Reports, even though CBO used the Trustees Report population projections in their 

entirety through 2010. Starting in 2013, CBO has used much more pessimistic demographic and 

economic assumptions, and the size of the actuarial deficit projected by CBO has been larger 

than that projected in the Trustees Report. Where CBO's projected actuarial deficit in 2004 was 

only half of that in the Trustees Report, CBO's projected deficit for 2016 was nearly double that 

in the Trustees Report. 

It is worth noting that Social Security cost, income, and the projected shortfall under current law 

may also be looked at as a percent of Gross Domestic Product (GDP), and the Trustees Reports 

provide these values. These values are useful for comparing Social Security finances to other 

federal operations in the unified budget context. However, when considering "solvency" for 

Social Security, estimates as percent of taxable payroll are the most relevant and informative 

because the vast majority of revenue for the program derives from the payroll tax, and not from 

taxes more related to GDP. Because taxable payroll is about 35 percent as large as GDP, Social 

Security estimates expressed as a percent of GDP are measured to be about one third as large as 

when expressed as a percent of taxable payroll. 

In addition to the summarized actuarial balance for the 75-year projection period, it is important 

to consider the size of annual shortfalls in the more distant years. These more distant shortfalls 

are critical in determining what changes to the program will be needed in order to pay scheduled 

benefits on a timely basis. The figure below compares the annual balance for the year 2080 

projected for Trustees Reports and by CBO since 2002. It is worth noting that annual balances 
20 


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are unaffected by interest rates, which are largely irrelevant for a program financed on a pay-asyou-go basis. 

-2.5 

-3.0 

-3.5 

-4.0 

-4.5 

-5.0 

-5.5 

-6.0 

-6.5 

-7.0 

2002 

OASDI Annual Balance for 2080 as Percent of Taxable 

Payroll: Projections in 2002 through 2016 in Trustees 

Reports and CBO Reports (non-interest income minus cost) 

2004 

~___ ......... TR Annual Balance 

--- CBO Annual Balance 

2006 2008 2010 2012 2014 2016 

In Trustees Reports since 2002, projected annual deficits for 2080 that have generally decreased, 

reflecting evolving experience. Like the summarized actuarial deficits, annual deficits projected 

by CBO were smaller than those projected for the Trustees Reports through 2012, but have 

become progressively larger since 2013 . 

Explaining the Differences between Trustees Report and CBO Projections 

Based on CBO's published demographic and economic assumptions starting in 2004, we have 

used our sensitivity analyses to estimate how different projections for the Trustees Reports 

would have been if we had adopted CBO' s assumptions. The red bars in the figure below show 

the actual difference in the actuarial balance estimated by CBO compared to that estimated for 

the Trustees Report. The blue bars show the amount of the difference we are able to explain 

based on our assessment of known assumptions. We do not expect to produce a full explanation 

of the differences, as we are unclear on the way some assumptions have been implemented in 

CBO's model. In addition, CBO's model is structurally different from the model we use for the 

Trustees Reports. As mentioned above, early CBO projections produced much lower benefits 

and thus lower deficits. This difference is not included in the blue bar for the early CBO 

projections, because we do not have a definitive sense of the effect. We do know that the 

difference in benefits appears to have diminished, or has been offset by other methods changes, 

so that we have largely explained the differences in actuarial balance for 2009 through 2012. 
21 


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... 

0 

0 

"' 

75-Year OASDI Actuarial Balance: 

Total difference, CBO minus TR, for 2004 through 2016 projections 

(as percent of payroll) 

L. 

D Explained by Assumptions 

• Actual Difference 

"' 0 

0 

"' 

<D 

0 

0 

"' 

,_ 

0 

0 

"' 

"" 0 

0 

"' 

"' 0 

0 

"' 

0 

~ 

0 

"' 

~ 

0 

"' 

"' 0 

"' 

"' ~ 

0 

"' 

... 

0 

"' 

"' ~ 

0 

"' 

<D 

0 

"' 

1.5 

1.0 

0.5 

0.0 

.0.5 

-1.0 

-1.5 

-2.0 

-2.5 

Starting in 2013 , when actuarial deficits projected by CEO began to exceed those in the Trustees 

Reports by an increasing margin, we have not had as much success in explaining the differences. 

Therefore, we conclude that there have been changes in CEO's model that we are unaware of, or 

implementation of assumptions different from our understanding, that are resulting in larger 

increases in CEO-estimated actuarial deficits. 

... 

0 

0 

"' 

2080 OASDI Annual Balance: 

Total difference, CBO minus TR, for 2004 through 2016 projections 

(as percent of payroll) 

• 

[ D Explained by Assumptions r • Actual Difference 

"' <D ,_ "" "' 0 "' "' ;! "' 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 

"' "' "' "' "' "' "' "' "' "' "' 

<D 

0 

"' 

2.0 

1.5 

1.0 

0.5 

0.0 

-0.5 

-1.0 

-1.5 

-2.0 

-2.5 
22 


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9 

The differences between CBO's projections and our projections for annual balances for 2080 are 

even more difficult to explain. The pattern is quite different from that for the 75-year actuarial 

balances. For the 2080 annual balance, we explain too much positive balance for CBO relative 

to Trustees Reports for years 2009 through 2012, but far less of the excess CBO annual deficits 

projected in 2013 through 2016. This suggests that there is a substantial methodological factor in 

CBO's projections since 2009 that is more pessimistic than for our projections. 

Differences We Can Explain 

The increase in 75-year actuarial deficits projected by CBO starting in 2013 is striking. Three 

demographic assumptions and three economic assumptions explain most of this increase. 

In 2013, CBO stopped using Trustees Report mortality assumptions and began making their own 

assumptions. For the 2013 through 2015 projections, CBO reports that they assumed a roughly 

1.2 percent annual rate of decline in death rates for all ages. This is dramatically different from 

historical experience and from the Trustees Report assumptions. In 2016, CBO modified their 

mortality assumptions, coming much closer to Trustees Report effects on actuarial balance, but 

roughly offset this effect by lowering their assumed birth rate to a level of 1.9 children per 

woman, below the 2.0 assumed for the Trustees Report. CBO also increased their disability 

incidence assumptions in 2013 and their net immigration assumptions in 2011 , with partially 

offsetting effects on the actuarial balance. In 2016, CBO lowered their disability incidence 

assumption back to the level in the Trustees Report. One additional demographic factor that 

influences Social Security cost, differential mortality across individuals by their level of lifetime 

earnings, appears to be reflected in both models with roughly equal effect. 

However, three changes in economic assumptions had an even larger combined effect. CBO's 

projected employment rates, and more specifically labor force participation rates, are far lower 

than recent experience and than the projections for the Trustees Reports. CBO has also assumed 

much more concentration of earnings for the top few percent of earners in their 20 15 and 2016 

projections. In addition, CBO has lowered the real interest rates assumed for trust fund reserve 

investments from over 3.0 percent through 2013 (higher than the Trustees Reports) to much 

lower rates starting in 2014. CBO's assumed real interest rates are considerably lower than longterm past experience and Trustees Report assumptions. 

The table below identifies our estimates of the effects of differences in identifiable assumptions 

for the projections of actuarial balance presented in the 2015 and 2016 reports. For 2015, CBO's 

projected actuarial balance was 1.69 percent of payroll more negative than the projection in the 

Trustees Report. For 2016, CBO's projected actuarial balance was 2.04 percent of payroll more 

negative, nearly doubling the Trustees report actuarial deficit of 2.66 percent of payroll. 

Four of the six differences in assumptions mentioned above are highlighted in the table below as 

particularly important determinants of the difference in estimated actuarial balance. These are 
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10 

fertility, mort<>lity, labor lorcc/employment, <>nd the effect on the "taxable ratio" of increased 

concentration of earnings for the highest earners. In both the 2015 and 2016 projections, these 

four assumptions account for 75 percent of the actual difference between the CBO and Trustees 

Report projections of actuarial balance. The remaining difference is largely attributed to 

unexplained model dillerences. 

Difference in Actuarial Balance: CBO Minus TR 

2016 Projections 2015 Projections 

percento/ percento] 

taKable percent of taxable percent of 

poyro/1 difference payroll difference 

Total difference ·2.04 100% ·1.69 100% 

Fertility -0.23 11% 0.04 ·2% 

Mortality -0.14 7% ·0.41 24% 

Immigration 0.12 ·6% 0.09 ·5% 

Real earnings growth 0.00 0% 0.05 ·3% 

CPI inflation -0.04 2% ·0.07 4% 

Unemployment rate 0.06 ·3% 0.02 ·1% 

Real Interest rate -0.16 8% ·0.25 15% 

Disability incidence 0.00 0% ·0.05 3% 

Differential mortality 0.00 0% 0.00 0% 

labor Force/employment -0.60 29% ·0.52 31% 

Taxable ratio -0.57 28% ·0.39 23% 

Taxation of benefits O.o7 ·3% 0.07 -4% 

Other, methods? -0.55 27% -0.26 15% 

Demographic Assumptions 

One effective way to compare the implications of differences in demographic assumptions for 

the cost of Social Security is by considering rhe resulting age distribution of the population. A 

common proxy for the full age distribution is the "aged dependency ratio," which is the ratio of 

the population age 65 and over to the population at ages 20 through 64. This ratio of 

b<:neficiary·age to working-age population is a good indicator of demographic eflects on the c.ost 

of the program as a percent of the taxable payroll. 
24 


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50 

45 

40 

35 

30 

25 

20 

15 

Population 65+ per 100 Population 20-64 

j - CB02016 

- TR2016 

1980 1990 2000 201 0 2020 2030 2040 2050 2060 2070 2080 2090 

II 

The figure above shows that for the 2016 projections, the combination ofCBO's fertility, 

mortality, and immigration assumptions yields a very similar age distribution through about 2040 

compared to our projections. After 2040, however, CEO's age distribution becomes much more 

weighted to individuals over age 65. This is consistent with lower birth rates and lower 

mortality. 

The figure below illustrates the reduced total fertility rate (TFR) assumed by CBO starting with 

their 2016 projections. In particular, we note the dip in the TFR experienced in the recent 

recession, which CBO assumes will be permanent. This is in contrast to the prerecession period 

1990 through 2008, when the TFR averaged above 2.0. 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

Total Fertility Rate 

c 

0 

·~ 

"' 

- TR2016 

- CB02016 

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 
25 


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12 

Surveys of women between ages 20 and 45 conducted periodically by the National Center for 

Health Statistics (NCHS) continue to indicate that women intend to have more than 2 children, 

on average, over their lifetime. This strongly suggests that the dip in birth rates during the recent 

recession may represent a temporary reduction, as opposed to a permanent reduction, in the TFR. 

Birth Expectations Including Births to Date Source: National Center for Health Statistics, National Survey of Family Growth (NSFG) 

2.6 

• 2002-2005 NSFG 

2.5 

2.4 

2.3 

2.2 

2.1 

2.0 

1.9 

15-19 20-24 25-29 30-34 35-39 40-45 Total 

Mortality assumptions have been the subject of enormous discussion and controversy. Over long 

periods of time, death rates have declined rapidly at certain times and slowly at other times. The 

Office of the Chief Actuary recently published an actuarial note 

(https://www.ssa.gov/OACT/NOTES/pdf notes/note158.pdf) that provides a comprehensive 

look at competing views. For Trustees Reports, we have always taken a long-term view of 

mortality improvement, setting ultimate rates of reduction based on expected future conditions. 

Our approach considers medical advances and spending, behavioral aspects of our population, 

and the historical persistent fact that death rates have declined much faster at younger ages than 

at older ages. Our approach has stood the test of time: the projected improvement from 1980 to 

2010 in unisex life expectancy at age 65 that was included in the 1982 Trustees Report (the 

baseline used for development of the 1983 Social Security Amendments) has been realized 

almost exactly. Going forward, we project a continued "age gradient" in mortality improvement, 

but with a somewhat diminished difference between younger and older ages. 
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In 2013 , CBO for the first time diverged from our mortality projections. CBO assumed a very 

high rate of improvement overall and applied this rate for all ages. CBO' s approach produced 

slower mortality declines at younger ages and faster declines at older ages. Both of these 

changes increase the aged dependency ratio and the cost of the program as a percent of payroll. 

Since 2009, mortality rate improvement has slowed markedly, resulting in small changes in the 

2015 and 2016 Trustees Report mortality rate projections, as seen in the figure below. 

13 

Recently, noted demographer Ronald Lee made a new projection of future mortality rates, using 

for the first time the Medicare data for ages 65 and over. The Medicare data are universally 

accepted as the most accurate death rate data available. Lee fitted death rates to historical 

experience from 1950 through 20 II using his "Lee and Carter" method, which essentially 

assumes that mortality will decline at the same rate in the future as it has in the past, for each age 

and sex. As Actuarial Note !58 indicated, using Lee 's new projection resulted in the same 

overall Social Security actuarial status over the 75-year projection period as does our mortality 

projection. Lee 's method extrapolates a faster overall rate of decline, effectively assuming that 

the positive experience seen over the last 50 years, including the effects of dramatic health 

spending growth and the startup of Medicare and Medicaid, will be replicated in the future. His 

method also assumes that there will be no deceleration in mortality improvement in the future. 

However, these presumptions are offset by his method's maintaining the same large age gradient 

in mortality of the past for the future. Overall, we believe that a slight decelerating rate of 

improvement in mortality with a lessened age gradient is the most likely scenario for the future. 
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14 

As seen in the figure below, CBO's 2015 projections assumed a much faster rate of decline in 

mortality. (The same was true for their 2013 and 2014 projections.) However, recognizing the 

recent slowdown in mortality improvement, and the importance of the age gradient, CBO 

changed their mortality projection for 20 16 to be close to what Ron Lee has produced. Again, 

while the new CBO projection has a faster overall rate of decline, it has a much larger age 

gradient than the projections for the Trustees Report. Overall, the 2016 difference in the CBO 

and Trustees aged dependency ratio and the cost of the program due to mortality assumptions is 

assumed to be much smaller than in 2015. 

1,600 

1,400 

1,200 

1,000 

800 

600 

400 

200 

Total Age-Sex-Adjusted Mortality Rates 

Deaths per 100,000 

Average Annual 

Rate of Dedine 

lR2015 Oli'18% 

CB02015 111! 

Ronlee2015 0.96 

CB02016 .... 

Age 

Gradient 

Partial 

None 

Full 

Full 

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 

The 20 15 Technical Panel appointed by the Social Security Advisory Board recommended that 

the Trustees retain the age gradient and the cause-specific mortality rates, but that we increase 

the average rate of decline to 1 percent. As mentioned above, after seeing the recent historical 

data, the chairperson of the panel stated that it is good that the Trustees did not follow the panel's 

recommendation for faster mortality reduction in the future. 
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15 

Economic Factors 

Projections of employment, and particularly labor force participation rates (LFPRs), are a source 

of substantial difference between C.BO and the Trustees Reports. The recent extraord.inary 

recession resulted in large reductions in employment and LFPRs, from which we have only 

begun to recover. The figure below shows historical and projected age-sex-adjusted LFPRs from 

the 2016 projections. CBO projections shown are for "full-employment" conditions as "actual" 

LFPR were not available from CBO at this time. By 2030, CBO values likely match their actual. 

CBO projects little recovery from the recession with a steady decline in LFPRs to levels not 

experienced since the early 1980's, before women fully participated in the labor force. The 

Trustees Report includes projections with LFPRs basically recovering to prerecession levels and 

then rising very gradually after 2020, reflecting the assumed increasing health, longevity, and 

ability to work by the population over age 65 in the future. We note that the 201 I Technical 

Panel recommended even higher ultimate LFPRs. The 20 I 5 panel also recommended higher 

LFPRs than assumed for the Trustees Reports. We continue to believe that the more 

conservative assumptions used in the Trustees Report are the most reasonable assumption at this 

time. 

&9% Labor Force Participation Rates, Age-Sex-Adjusted to 2011 Population 

68% - 2016 TRUSTEES REPORT 

2011 Social Security Advisory Board ~ 68.2°/o 

Technical Panel Recommendation: ~ 

2015 Panel also recommended higher 

67% - 2016 C80 LT80 

66.8% 

66% 

6S% 

64% 

63% 

62.9o/o 

62% 

1981 1991 2001 2011 2021 2031 2041 20S1 2061 2071 2081 

Note: CBO values are high early os they are •tuiJ-employment ... rotes. Actuol rates would~ lower. 
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16 

The second economic factor that contributes to the CBO' s higher cost for Social Security is the 

difference in earnings growth between high earners and low earners. Since 1983, there has been 

a substantial increase in the concentration of earnings in the top few percent of workers. 

Because annual earnings subject to the Social Security payroll tax for each worker are limited to 

$118,500 in 2016, the top 6 percent of earners do not pay any tax on their earnings above this 

level. The increasing concentration at the top has reduced the percent of all covered earnings 

that are taxable from over 89 percent in 1983 to about 83 percent in 2014. 

90 

88 

86 

84 

82 

80 

78 

76 

1983 

Percentage of OASDI Reported Covered Earnings Below 

the Taxable Maximum: 2016 Trustees Report and 

2016 CBO Long-Term Budget Outlook 

- cso LT2D16 

TR 2016 Update * 

1988 1993 

Average Annu al Rate of Change 

in OASDI Taxabl e Ratio 

IR_2ll_ti; QJlQ_2J)j_2 

1983-20 01 -0.32% 

2QQ1.=2QH 

2014-20 27 -0.04

~ 

% 

1998 2003 2008 

-0.32% 

-0

~ 

.53% 

2013 2018 2023 2028 

*Updated with data through July2016_ Also 2010, 2011 , and 2016 values as ifthere had been COLAs for Dec 2009 , 2010, and 2015 

Fortunately, the rate of increase in such concentration has been decreasing. Between 2001 and 

2014, the rate of decline in the percent of earnings taxable dropped to only one-third of the rate 

observed between 1983 and 2001. For the Trustees Report, we assume this deceleration will 

continue, with the rate of change in the taxable percentage declining between 2014 and 2027 at 

one-third the rate experienced from 2001 to 2014. However, CBO assumes a significant 

reacceleration in the concentration of earnings for the highest earners, with a rate of decline in 

the taxable percentage from 2014 to 2027 of almost double the rapid rate between 1983 and 

2001 , and over four times the rate experienced between 2001 and 2014. We do not expect that 

conditions over the next 11 years would result in this dramatic increase in the concentration of 

earnings for the highest earners. 
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17 

Result: 2016 Trustees vs. CBO Cost Rate Projections 

The result of the differences in demographic and economic assumptions described above, plus 

the unexplained differences likely related to model structure, is a sharp and immediate rise in the 

CBO projected Social Security cost as a percent of taxable payroll, well above the level projected 

in the Trustees Report. 

OASDI Cost as Percent of Taxable Payroll 

20 

18 

16 

14 

12 

10 

1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 

As seen above, the differences in demographic assumptions cause the CBO aged dependency 

ratio, and thus the cost as a percent of payroll, to exceed our projections after about 2040. The 

striking and increasing difference in the cost rate that occurs between 2016 and 2040 is largely 

the result of CBO 's drop in LFPRs and increase in the concentration of earnings for the highest 

earners. 

It is worth noting that differences in mortality by earnings and benefit level appear to be reflected 

similarly in the CBO and Trustees Report projections. This is also true for disability incidence 

rate assumptions, which CBO reduced for their 2016 projections, matching the assumptions used 

for the Trustees Report. 
31 

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18 

Conclusion 

An accurate estimate of Social Security's solvency challenge will be critical for lawmakers in the 

upcoming discussions on how to best address the program's financing shortfall. Since 1941, the 

Trustees Reports have provided the Congress, the Administration, and the American people 

carefully developed projections. These projections have proven to be reliable, consistent, 

transparent, and reflect the latest data and expectations incrementally. The Trustees Report 

projections have been subject to immense oversight, scrutiny, and care in preparation. 

The 2016 Trustees Report projects an actuarial deficit of 2.66 percent of payroll. Lawmakers 

need to make changes by 2034 that provide: (1) 33 percent higher revenue, (2) 25 percent lower 

scheduled benefits, or (3) some combination of these changes. I and all in the Office of the Chief 

Actuary look forward to continued work with you and your staffs on developing options for 

consideration to best address that solvency challenge. 

Please note that the 2016 and all prior year's Trustees Reports are available at 

https://www.ssa.gov/oact/pubs.html, along with a wide variety of additional actuarial analysis 

related to the reports, and to changes policymakers have considered for making adjustments to 

the program. 

Again, thank you for the opportunity to talk about the actuarial status of the Social Security 

program. I will be happy to answer any questions you may have. 
32 

Chairman JOHNSON. You are recognized, sir. 

STATEMENT OF KEITH HALL, PH.D., DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Mr. HALL. Chairman Johnson, Ranking Member Becerra, and 

Members of the Subcommittee, thank you for inviting me to testify 

this morning. For some time, both the Congressional Budget Office 

and the Social Security Trustees have projected that, if full benefits 

are paid under the formula specified in current law, Social Security 

spending would rise significantly during the coming decades. 

In contrast, total revenues for the program are anticipated to 

grow more slowly than outlays. The faster growth projected for 

total benefits than for total revenues means that a shortfall in the 

program’s finances is expected to continue. 

Although both CBO and the Trustees project such a shortfall, we 

differ in our assessment of its magnitude. Over the next 75 years, 

if current laws remain in place, CBO projects that the program’s 

actuarial deficit would be up 1.55 percent of gross domestic product. There are several ways to explain what the actuarial deficit 

represents. For instance, it would be possible to pay the benefits 

prescribed by current law and maintain the necessary balances in 

the program’s combined trust funds through 2090 if payroll taxes 

were raised immediately and permanently by 1.55 percent of GDP, 

scheduled benefits were reduced by an equivalent amount or some 

combination of tax increases and spending reductions of equal 

present value was adopted. In 2017, 1.55 percent of GDP would be 

about $300 billion. 

Another way to understand the magnitude of the shortfall is to 

consider the effects of policies that could be combined to address 

it. Last year, we estimated the effects of 32 options that would provide the actuarial balance. For example, gradually increasing the 

payroll tax rate by 3 percentage points over 60 years would improve the 75-year actuarial balance by one-half of 1 percentage 

point of GDP, as would reducing benefits across the board by 15 

percent by the mid-2030s. 

The Social Security Trustees’ projection of the 75-year actuarial 

deficit is 0.95 percent of GDP, six-tenths of a percentage point less 

than CBO’s projection. Two-thirds of the difference comes from four 

major inputs into estimates of the system’s finances. First, the 

Trustees’ higher estimate of earnings subject to the program’s payroll tax explains 23 percent of the difference. Key components of 

nominal GDP growth projected by the Trustees—higher labor force 

participation rates partially offset by higher unemployment rates, 

higher productivity growth, and higher inflation explain 22 percent. 

Demographics—projections by the Trustees of higher fertility rates 

partially offset by lower immigration rates and of slower improvements in mortality rates explain 15 percent. 

The Trustees’ projection of higher interest rates, higher real interest rates in the long run—that is, rates adjusted to remove the 

effects of inflation—explain 6 percent. 

The remaining one-third of the difference arises mainly because 

the approaches used by CBO and the Trustees to make estimates 

differ in various ways, even when the four major inputs are the 

same. For example, in CBO’s modeling, payroll taxes collected from 


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33 

and Social Security benefits received by a retired worker are calculated on the basis of earnings projected for that person, thus ensuring consistency in the projections of payroll taxes and benefits. 

The Trustees project benefits on the basis of earnings data for a 

recent cohort of beneficiaries who are retired workers. Those data 

are adjusted to account for future earnings growth and for other 

projected changes in the labor market. The Trustees project payroll 

taxes separately. 

The exhaustion date of the programs combined trust funds is another measure of its finances. CBO projects that the trust funds 

will be exhausted in 2029. If CBO adopted the Trustees’ projections 

of the four major inputs, it would project the trust funds to be exhausted in 2033, 1 year earlier than the Trustees project. 

Each of the major inputs into our estimates is uncertain, especially over a 75-year period. We update our projections each year 

to incorporate the best information available from the research 

community as well as feedback on our analytical approach and 

other improvements in modeling. 

As a result of updates in the past year, for instance, our estimates of the actuarial deficit in 2016 is slightly larger than it was 

in 2015. Contributing factors include lower projected interest rates, 

GDP, and taxable payroll amounts, changes to projected educational attainment and to the ages at which future retirees choose 

to claim Social Security, and the effects of the 1-year shift in the 

projection period. Those factors are partially offset by revised demographic projections and lower projected rates of disability incidents. 

My written testimony provides much more information about the 

basis for CBO’s projections. I am happy to answer any questions 

that you may have. Thank you. 

Chairman JOHNSON. Thank you, sir. I appreciate your testimony. 

[The prepared testimony of Mr. Hall follows:] 


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Congressional Budget Office 

Testimony 

Comparing CBO's Long-Tenn Projections 

With Those of the Social Security Trustees 

Keith HaU 

Director 

Before the Subcommittee on Social Security 

Committee on Ways and Means 

U.S. House of Representatives 

Set>tember 21, 2016 

ThiJ tlocumt>IU is mtbargottl until it is J~liv~J nJ 

/0.-00n.m. (ED1) on Wednndny, &ptembrr 21,20/6. 

TIN contmiS ma,y IWI b~ pub/is/mi. transmiu<d. or 

otiNrWisr "'"''''""irat<d by any print, broadcas1, or 

~l<ttronit' mwlia bdiJr< thaltimt>. 

CONGRESS OF THE UNITED STATES 
35 


ralbany on LAP520R082 with HEARINGS23191.030

Chairman Johnson, Ranking Mt'mlxr Becerra, and 

Members of the Subcommilfee:, th:mk you for inviting 

me to testify this morning. As you know, Social Securiry 

P."YS bendits tO rt'tired workers, ro 1heir digible dependents, and to some sun•ivors of dcce.scd workers. and 

also makes: payments ro <lisabkd workers and to their 

dependents unti_l those workers are old <nough lO claim 

fuJI retiremcm benefits. The program is funded by dcdic:tted tax rtvenue:s from two sourcc:s-mostly from a 

p.'lyroll tax, but also from income taxe:s le...,i«< on Soci.:ll 

S«uritY benefits. Those revenues are credited to the two 

trust Fdnds that finance: the program's benefits. 

Since 20 I 0. annual oudays for Social Security have 

exceeded the program's receipts. exdudin.g interest credited to the trusr funds. In 2015. outlays exceeded recciprs, 

excluding interest. by 8 percent. \'\/hen such a gap exists, 

dlC difference is a draw on the government's cash in that 

year that mun be made up either by running a surplus 

itl the resr of che federal budget or through additional 

government borrowing in that yc:ar. 

For some cime. both the Congressional Budge• Office 

and the Social Security T rusrccs have projected that, if 

fuJI benefits were paid under the formulas specified in 

current law, the program's spending would rise significandy during the coming decadc.s. In contrast, tocal rcve. 

nues for che program arc amici pared to grow more slowly 

chan outlays: 'T'he faSlcr growth proj«red for tocal bene· 

firs than for tocal revenues means that a shortfall in the 

program's finances is expected ro continue. Although 

both CBO and the T ruS<ccs projoct such a shonfall, they 

differ in their assessment of its magnitude. This rc-sti· 

mony describes char difference and the major factors that 

contribute to it. 

What Is CBO's Estimate of Social Security's 

Actuarial Balance'! 

Q,•er the next 75 years. if currem laws remained in place, 

che program's acwarial balance would be ·1.55 percent of 

gross domestic product (GOP), CBO projects.' Theesrimared acwarial balance O\·er a given period is a common 

measure of 1hc susrainability of a program thar has a crwt 

fund and a dedicated re"enue source. \'<lhen char balance 

I, FOJ additional discus..sion of CBCYs rnost n:<cnt long·c<:rm 

projections for Social S«urity, see CongtC$SM>na18uda:n Off't«', 

11NZ0/6 Ltmt·Tmn ButJut0111WUuly 2016), Chapl<:r1, 

www.cbo.f_ov/ publ.ieatKnt/5 I )80. Tbosc ptoj«:tions incorpor.ucd 

CBO'si0-)'W:'attcOnomicfOftcaSt rdtucdinJanutry20 J6and iu 

10-ytar budget pr-ojcclie)ns K" a~ in Man:h 2016. 

is neg:ui\'t, i1 is a deficit. The actu.uial bal:mct is calculated 

as the sum of the present value of projected cax re"cnues 

and the: curre:nt truSt fund balance minus the sum of the: 

pre:s-enr value of proje:cted outlays and a year's wonh of 

benefics at the ld of the period. (A prc.senr value is a sin. 

gk numb.er rhar apre:s$tS a flow of fUlure: income or payment-S in tc.rms of an equivalem lump sum recei\·ed or 

paid at a $ptciric point in time:.) Ahhough the 75-year 

aauarial balance is traditionally presented as a share of 

mxable Jnrroll-that is, as a share of 1he earnings subject 

ro Social Security's payroll tax- CllO has gcner>lly 

focused on rhal balance: as a percemage of COP because 

doing so bencr captures the share of nationaJ economic 

activiry devoted to Social Securi 1y's revenues and oudays, 

which determine the syscem's fin a nets. 

There arc several ways to explain whar che acluarial baJ. 

ance representS. For instance, it , .. ·ould be possible tO pay 

the benefits prescribed by currcm law and maio rain lhc 

necessary balance$ in the program's combin«< rruSt funds 

(one each for the program's two paru: Old-Age and 

Survivors Insurance and OisabiliL)' lnsur.~nct) through 

2090 if pa)TOII caxcs were raised immediately and permanently by 1.;5 percent of COP. schedukd lxnerits were 

reduced by an equi\•alem amoum, or some combination 

of rax incrta$Cs and spending r«<uctions of <qual present 

value was adopted. ln 2017, 1.55 percent ofGOI' would 

be abom $300 billion. Last yor, CBOestimated 1he effects 

of32 options chat would improve the aoruarial balance 

and that iliU$trate rhe magnituck of specific policy changes 

that could be combined to make up cl1e shonfall in the 

program's finances.2 For example, gr.:1du.ally increasing the 

pa)TOII t2X rare by 3 perccmage poincs over 60 years would 

imprO\'t rhe 7S·ye:tr actuarial balance by 0.5 percentage 

poinu of GO I), as would reducing benefilsacross the 

board by 15 percen1 by 1he mid-2030s. 

How Docs CBO's Estimate Compare With 

ntat of the Social Security Trustees? 

The Social Se:curity Tru.~ e<::s' projecrion of rhe 75·ye:ar 

acruarial balance is -0.95 percent of GOP. 0.6 perccmage 

poinlS iess neg::uive: •han CBO's projection (see Figure I 

-and Table 1 ). Two~ thirds of the difference between chose 

two numbers would be: eli minat«< ifCBO adopred the 

T rustces' projoctiolls of four major inputs into eSlimates 

nf the sysrem"s finances: 

2. Stt Conc.rcs.sional ~ Offi«. Stxia/ &oiril] P()/i(J OpN•m, 

2015 (l)«cm~r 20 IS). www.cbo.guv/publieuion/SIOII. 
36 


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2 

CBO 

COMPARING CBO'S LONG-TERM PROJECTIONS WI1ll1l!OSE OF THE SOCIAL SECURI1YTRUSTEES SEPTEMBER2 1, 20 16 

Figure 1. 

Distribution of Differences Between CBO's and the Social Security Trustees' Projections 

Percentage of Gross Domestic Product 

75·Year Actuarial Balance 

CBO Trustees 

-0.4 

.0.11 

-0.8 

-1.2 

-1.6 

Sources: Congressional Budget Office; Social Security Trustees. 

Other Differences Between 

Analytical Approachesb 

0.21 

Fourmajorlnputs 

account for two-thirds 

of the difference. 

These projections Incorporate the assumption that spending for Social Security continues as scheduled even If Its trust funds are exhausted. 

The actuarial balance Is the difference between the present value of annual tax revenues plus the Initial trust fund balance, and the present value of 

annual outlays plus the present value of a year's worth of benefits as a reserve at the end of the period, each divided by the present value of GDP or 

taxable payroll. (The present value of a flow of revenues or outlays over time Is a single number that expresses that flow In terms of an equivalent sum 

received or paid at a specific time. The present value depends on a rate of Interest, known as the discount rate, that Is used to translate past and future 

cash flows Into current dollars.) 

GDP =gross domestic product. 

a. The key components of nominal GDP growth are the labor force participation rate, the unemployment rate, the rate of productivity growth, and the 

Inflation rate. 

b. Other differences Include the estimated Income taxes paid on Social Security benefits and the Interactions among the four major Inputs-earnings subject 

to Social Security taxes, key components of nominal GDP growth, demographics, and real (Inflation-adjusted) Interest rates-and differences that arise 

mainly because the approaches used by CBO and the Trustees to make estimates differ In various ways even when the major Inputs are the same. 

• The T rusrees' higher esrimare of earnings subjecr to 

the program's payroll rax; 

• Key components of nominal GDP growrh projecred 

by the Trustees-higher labor force parriciparion rates 

(parrially offser by higher unemployment rates), 

higher producriviry growrh, and higher inflarion; 

• Demographics-projecrions by the T rusrees of higher 

ferriliry rates (parrially offser by lower immigrarion rates) 

and of slower improvements in mortality rares; and 

• The Trustees' projecrion of higher real interest rares in 

the long run (thar is, rates adjusred to remove the 

effects ofinflarion). 
37 


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TESTIMONY COMPARING CBO'S LONG-TERM PROJECfiONS WITH TIIOSE OF THE SOCIAL SECURI1Y TRUSTEES 

Tab le 1. 

Differences Between CBO's and the Social Security Trustees' Projections of the 75-Year Actuarial Balance 

Published Projections 

As a Percentage of 

GOP 

As a Percentage of 

Taxable Payroll 

CBO -1.55 -4.68 

Trustees -0.95 -2.66 

Difference Between the Projections 0.60 2.02 

Changes to CBO's Projections That Would Result From Adopting 

Each of the Trustees' Major Inputs to the Projections 

As a Percentage of GOP As a Percentage of Taxable Payroll 

Earnings Subject to Social Security Taxes 

Key Components of Nominal GDP Growth a 

Demographics 

Real Interest Rates 

Other" 

Sum of all changes 

Percentage-Point 

Change 

0.14 

0. 13 

0.09 

0.03 

0.39 

Sources: Congressional Budget Office: Social Security Trustees. 

Difference 

Explained 

(Percent) 

23 

22 

15 

-1 

65 

Difference 

Percentage-Point Explained 

Change (Percent) 

0.72 36 

0.40 20 

0.28 14 

0. 11 

-0.08 -4 

1.43 71 

These projections Incorporate the assumption that spending for Social Security continues as scheduled even If Its trust funds are exhausted. 

The actuarial balance Is the difference between the present value of annual tax revenues plus the Initial trust fund balance, and the present value of 

annual outlays plus the present value of a year's worth of benefits as a reserve at the end of the period, each divided by the present value of GDP or 

taxable payroll. (The present value of a flow of revenues or outlays over time Is a single number that expresses that flow In terms of an equivalent sum 

received or paid at a specific time. The present value depends on a rate of Interest, known as the discount rate, that Is used to translate past and future 

cashflowslntocurrentdollars.) 

The 75-year projection period for the financial measures reported here begins In 2016 and ends In 2090. 

GDP =gross domestic product: ·= between -0.005 and 0.005 percentage points. 

a. The key components of nominal GDP growth are the labor force participation rate, the unemployment rate, the rate of productivity growth, and the 

Inflation rate. 

b. Other changes Include the differences In estimated Income taxes paid on Social Security benefits and the Interactions among the four major Inputs: 

earnings subject to Social Security taxes, key components of nominal GDP growth, demographics, and real (Inflation-adjusted) Interest rates. 

The remaining one-third of the difference arises mainly 

because the approaches used by CBO and the T rusrees to 

make estimates differ in various ways even when the four 

major inputs are the same. For example, in CBO's modeling, payroll taxes collected from and Social Security benefits received by a retired worker are calculated on the basis 

of earn ings projected for that person, thus ensuring consistency in the projections of payroll taxes and benefits. 

The T rusrees project benefits on the basis of earnings data 

for a recent cohort of beneficiaries who are retired workers. Those data are adjusted to account for future earnings growth and for other projected changes in the labor 

market. The T rusrees project payroll taxes separately. 

Outlays as a percentage of GDP (also known as the cost 

rare) and revenues as a percentage ofGDP (the income 

rare) are two other useful measures of the system's 

finances. Over the next 75 yea rs, CBO projects, Social 

Security's outlays as a percentage of GDP will be higher 

and revenues will be lower than the T rusrees project (see 

Figure 2). For example, for 2090, CBO's projections of 

revenues as a percentage ofGDP are 8 percent below 

and its projections of outlays are 3 percent above the 

T rusrees' projections (see Table 2). If CBO adopted 

the Trustees' projections for the four major inputs, its 

projection of outlays in 2090 (a yea r that is representative 

of long-term trends in the program) would be 4 percent 

higher than the Trustees', bur both CBO and the Trustees 

3 

CBO 
38 


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4 OOMP.IRISG OlO'S LOSG·Tl'.RM PRQJ>XTIOS.< WITII TIIW. OF 111E SOCIAl. SF.())RIW 'llliSTIU~ 

Figure 2. 

Social Security Tax Revenues and Outlays 

Pefceolllge of Gross Domesttc Product 

Actual Projected OUtlays CBO 

........... :::::::: :::::::::::::::::::::::::::::::::::::::::::::::::::::::: Tax Revenue-s 

L-----._----~----~----~------~----~----~----~----~ 

2000 2010 2020 2030 2040 20SO 2060 2070 2080 2090 

Souces: Coo~essklnal Budget Otfke; Soda! Security TruS1ffi. 

These ptojectlons lncorpcM'ate the assumption that spending for SocJal Securlty contfnues as scheduled even if its trust funds are exhausted. 

lauevenues geoefally consist of payroll taxes and Income taxts paid on benefits. Outlays consist of benefits and administrative costs, which typic.aly 

a«-Ount f01 les$ than 1 pet cent of program costs. 

would projcc1 essentially the same revenues for that year 

as a percentagt of COP. The differena in the projection 

of earnings subjec1 to Social Security payroll taxes is the 

most imporrnnt comribut<)r tO tho~ rrsuhs. 

CBO projects rhat the program's combined trust funds 

will be exhauS<<d in 2029. lfCBO adopt«! the T rust""s' 

projections of the four major inpuu. it would projocr the 

trusr fun ~ robe exhau.n«< in 2033-one ,·ear earl ier 

thai:); the Trustees project. . 

How Did CBO Proj«t Social Security's 

Finances? 

The ag<ncy's long-tern> projc:aions for Social Security 

spcn<ling and re\•enues are based on a derniled micro-. 

simulation model fhat srnns with darn al.>om individuals 

from a rcprescmarivc: sample of the population and pro--

j«tSdemogrnphic and «Onomic outcomes for that sam· 

pic rhrough tinte.J F'or c.ach person in the sample. the 

model simul:ues bi nh. death, immigration and emigration, marital srarus and changes ro it. fe rriliry. labor force 

p:micipation. hours worked, earnin&$> and payroll taxes, 

along with Social Scrurity reriremem. disability. and 

dependentS' and $Urvivors• benefits. 

The amounts of Social Security benefits received and 

taxes paid. and the resulting gap between tOtal revenues 

and benefirs, depend on cSlim:ucs of life expectancy, 

conditions in the labor market, and other factors. COO's 

microsimulation modd is designed so 1hat, on average. 

the simulated economic outcomes of the sample equal the 

a~ncy•s long-cerm «onomic projecrions. Those eco- nomic projections arc extensions of the I 0-year economic 

forecast thaL underlies the agt-ncy's budget projections:. 

11ley reflect no' just historK:al averages bUl also trends 

that many economic forecasters expect will cominuc.<~ 

3. The core indi:vidual·IC"'·tl <b:n usN i" CBO•s model come fiotn 

dt<' Continuous Work Htstory Stmpl<, an ad.min&s.mi''<' data S<t 

provid«< by th< Social Security Admin'isu·uion. Those data 

contain a h.istor:r of indi\.jdu:tl camiRp «'CCrds for a sampk, 

~nirtt in 19)1. of I p«<<nt of all people who hav< ~ WuOO 

Social Stturity numbets. The data aJsocontain demographic: 

information and Social SM.uit:y informat'ioh for c-.Kh individual. 

'fhe inform1rion for ld -~. Survi,'()n,and Ois:.biliry lnsunncc 

ind udcs<biming dares.cbim type (retiree. nuvivor .ordi~>Jbili ty), 

primary in$UDn<e :.mount, monrhly bemfit amoum, :and the 

n for dis1bility. For moredeoil, see Jon:u.h1n Sdn\-:abish :mel 

Julie Tc>~ki. MINklinr lndivU!wll Strninp in CBO's Vmg--T nm 

MiNOsimuhuionMDikl, Work,ing Pa~ 20 3.04 (Cong.rCilSional 

Budget: Offitt. June 2013), ww'W.d>o.gov/pubiM:::uion/44306: and 

Co gl\$ion~l Buclgft Offit:e, CBOi l.ong·14-nn MMd: An 

Oumtitw {lunt> 2009). """w,c;bo.jl:Ov/pubtic.uionf20807. 

4, CBO rq.ul:.uly oomput:s th ~ accuracy of its two· and 6v(>o)'etr 

«<oom.i< fotooUu with forecast$ from mt-Offic~of Manas,ement 

and Budgott and org".lnizatM>ns in th~ pri\'Ue sector. SttCo g~onal Budget Offitt. CBOi E~»4mil' F.-m~Wing /UwM: 

2015 Updn~ (F<bru:uy 201 )). www.c:bo.gov/publKuiorJ49S91 . 
39 


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TESTIMONY COMPARING CBO'S LONG-TERM PROJECfiONS WITH TIIOSE OF THE SOCIAL SECURI1Y TRUSTEES 

Tab le 2. 

Differences Between CBO's and the Social Security Trustees' Projections of Tax Revenues and Outlays in 2090 

As a Percentage of GOP As a Percentage of Taxable Payroll 

Tax Revenues Outlays Tax Revenues Outlays 

CBO 

Trustees 

Difference Between the Projections 

Percentage Difference Between the Projections 

EamlngsSubjecttoSoclaiSecurlty Taxes 

Key Components of Nominal GDP Growth" 

Demographics 

Real Interest Rates 

other" 

Sum of all changes 

CBO With Trustees' Major Inputs 

Trustees' Projections 

Difference Between the Projections 

Percentage Difference Between the Projections 

Sources: Congressional Budget Office: Social Security Trustees. 

4.29 

4.63 

0.34 

0.41 

-0.01 

-0.02 

-0.05 

0.33 

4.62 

4.63 

0.01 

Publlshed Projections 

6.34 13.59 

6.14 

-0.20 

-3 

13.33 

-0.26 

-2 

Changes to CBO's Profedloos That Would Result From 

Adopting Each of the Trustees' Mafor Inputs 

0.36 -0.06 

-0.07 

-0.25 

0.04 

0.08 

-0.01 

-0.05 

-0.15 

-0.28 

Pro}ectlons Using All of the Trustees' Major Inputs 

6.42 

6.14 

-0.28 

-4 

13.31 

13.33 

0.02 

20.08 

17.68 

-2.40 

-12 

-0.81 

-0.22 

-0.75 

0.19 

-1.58 

18.50 

17.68 

-0.82 

-4 

These projections Incorporate the assumption that spending for Social Security continues as scheduled even If Its trust funds are exhausted. 

Tax revenues consist of payroll taxes and Income taxes paid on benefits. Outlays consist of scheduled benefits and administrative costs, which typically 

account for less than 1 percent of program costs. 

GDP = gross domestic product. 

a. The key components of nominal GDP growth are the labor force participation rate, the unemployment rate, the rate of productivity growth, and the 

Inflation rate 

b. other changes Include the differences In estimated Income taxes paid on Social Security benefits and the Interactions among the four major Inputs: 

earnings subject to Social Security taxes, key components of nominal GDP growth, demographics, and real (Inflation-adjusted) Interest rates. 

Average benefits per recipient are projected to continue to 

increase because of future increases in the earnings that 

are the basis of those benefits. Other things being equal, 

that relationship would tend to keep total benefits roughly 

stable as a percentage ofGDP. However, as a larger share 

of the baby-boom generation reaches retirement age and 

as longer life spans lead to longer retirements, a significantly larger portion of the population will draw benefits. 

Those developments combine to cause the total amount 

of benefits scheduled to be paid under current law to 

grow faster than the economy, in CBO's projections. 

Almost all Social Security revenues come from a payroll 

tax. Consequently, the program's total revenues depend in 

large part on the share of earn ings subject to that tax. Payroll tax revenues as a percentage of GDP decline in 

CBO's projections, mosrly because the taxable share of 

earnings is expected to continue to fa ll, furthering the 

decline of the past several decades. The decline in payroll 

taxes more than offsets a small increase in income taxes 

on Social Security benefits-the other source of Social 

Security revenues-that results from increases in the 

number of Social Security recipients whose benefits are 

subject to taxation, the amount of their benefits that is 

taxed, and their average income tax rates. 

CBO updates its projections each year to incorporate the 

best information available from the research community 

as well as feedback on the agency's analytical approach and 

other improvements in modeling. As a result of updates in 

the past year, for instance, the agency's estimate of the actuarial balance in 2016 is slightly more negative than it was 

in 2015. Contributing factors included lower projected 

interest rates, GDP, and taxable payroll amounts; changes 

to projected educational attainment and to the ages at 

which future retirees choose to claim Social Security 

benefits; and the effects of the one-year shift in the 

CBO 
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• OOMP.IRISG QlO'S LOSC.Tl'RM PROJOCTIOSS WITII moo; OF111E SOCIAl. Sf.(l 'RIW TRI\'1!1U~ ~FJ.UU!R '1 1, 1'0 16 

Figure 3. 

Share of Covered Earnings Below Social Security's Taxable Maximum 

I'<Koot 

tOO 

95 

90 

Actual Projed.ed 

Sot.c~: Coo~es$klnal Budget Office; Soda1 Securlty Trustees. 

2033 2043 

ceo 

2053 2063 2073 2033 

Social Security payrol taxes are le'Md only on earniRQS up to a maximum amount (St18,SOO In 2016), which Increases annuallywtlh the national average 

W3QQ h:Mx exc,e.JX In years \\twm thttt IS IIO<os.t-of-!Mng adjustment to OO~flt.s. Covered e-arnings are those received bywcrloors In JObs sut)fe<t to 

Social SeNtty pa)'foll taxes. The gowmmens. colleas payroH taxtS on the earnings of most work~s. although a smal group of ~ers-mostty ~s ate 

and k>cal gcwernmet~t «In the deorgy-are txtmpt. The taxablt share of covert<! eilrnfngs: affects revenues of th.e Socl.al Se<urlty sys«em as well as 

beMtlts paid In future ytars{bec.aus~ taxable eamrngs art used to calculate beneflts). 

projec[ion period. Those factors were partially offset 

by revised demographic projections and lower projecccd 

r:uc:s of di53bili1y incid enc~ j 

What Is the Role ofTa~ e Earnings in the 

Projections? The amount of <.":trnings subject t<) the Social Security 

payroll mx. as a percentage ofCDI', dtpends largdy on 

the share of toral earnings that a rear or below the maximum raxablc amount ($118.500 in 2016), rhe share of 

rom) compensarion thar is paid as earnings, and t<)ral 

compensation as a share of GOP. The currem year's tax~ 

able earnings al'(; the primary determinant of dte program's revenues for d1at ye:tr. hut those earnings also figure in the calculation of benefits to be paid in the future. 

Thus, a larger amount of taxable earnings initially incre-.1$("$ 

revenues and Iacer increases spending. In the calculation 

S. Cb:mt,~ 10 C8<Ys Soci~l S«uricy proj«ti<)n$ :ue d~ibt'cl each 

}'t'.U in th<" agrocy'slont·t<"rm budgct oudook and in a publicarion 

wirh additional inJomuOon about Social S«:Uiit't'. S« 

Congmsionsl Bud$<"t Offic:<", 17H 20161Ang-T;,., Budg" 

0~JJhok Quly 2016), ApJI'<"ndix B. www.cbo.gov/publicationl 

51580, and CBQj 20151Ang· Tt'l'm /"wJj«tionsforStxinl S«w-ril]: 

.Adtliti4fllll INfo,.,ul~n (Dootmbtr 20L5). www.-cbo.gov/ 

publkation/5 L 047. 

of thC' acltlarial balance, earlier years receive greater 

weight chan larcr years-so a larger amount of proj~ted 

taxable earnings outweighs the dTc:ct of larger bendiu in 

fhe flllure and improves the actuarial b.1lancc:. 

In CBO's projections, rhe ponion of earnings subjecl f(} 

fhe Social Secu · p:tyroll rax falls from 82 percem in 

2015 co below 78 percem by 2026 and remains near that 

level therc:after (sec Figure 3). The share of compensouion 

fhat workers receiv~ :u earnings is projected (() remain 

near 81 percent through 2046; it then decline:$ through 

2090. Total compensation rises from 61 .6 percent of 

GOP in 2015 co 62.0 percent in 2026 and rem:tins at 

fhat lc:vd in l:uer years. The amount of earnings ubj~t 

to the Social Security pa)'roll ta.x also depends 10 a lesser 

extent on the ratio of covertd e;trnings 10 total earnings 

and other f3ctOrs. Covered earnings are t.h0$e recc:i,•ed by 

workc:rs in jobs subject to Social Security payroll mx~." 

In CBO's projections, caxable earnings measured as a 

percenrngc of CDP fa ll from 35.7 percem in 2015 to 

33.9 percent b~· 2026 and ro 3 1.6 percent by 2090. 

6. The gov<"mment colkcu payroll UIXCS on the t:arn:inp of most 

"''otk('ts. a.ltboug.h a $mall s.roup of worktt'$-nlostly in state and 

local J;Ovtomme.nt or in £he~(' <"X<"rnpt. 
41 


ralbany on LAP520R082 with HEARINGS23191.036

T~MO~'\' ('.OMP.\ RIX<i (: 0'~ I.O~G Tf.R}I PROJ~:C:.110X~ '\\1ITI I n IQ.'\E OF TifF. SOC:L\1. Sf.CI.IRI1Y TRI 'Sfi:F.S 

f..c•mparison With the Truste-es' Projections 

The Trum:es' esti m:ttes of 0\'ernll taxable earnings 3$ a 

per«nmg< of GOP-which peak at36.7 per«nr in 2025 

before f.tlling to 34.8 percent by 209G-are higher than 

CBO's esrimares for two main re:lsons: 

• The T rustees estimate 1ha1 rhe portion of earnings 

CO\•cred by Social Sccuril)' on which payroll taxes arc 

collected will inc~:ue slightly between 2016 and 

2025. in contrast to CBO's estimate of a falling share, 

and remain consnmr a1 82.5 JXrc<:nt cherea.fter. Their 

projections suggest that they anriciprare th:u the growth 

r.ue or ttrnings will b-e simi,lar ror those with earning$ 

above the taxable maximum and others. 

• 'fhe Tru.nees' projections of oompens:uion as a share 

ofCDP rise more than CBO's over the next decade, 

reaching 63.3 percent in 2025. afccr which thar share 

remains unchanged. 

lhe T ruscccs' estimate of the proportion of compensation 

thar will be p.'lid 3S earnings is similar [0 CBO's for rhe 

next four decades and larger than CBO projects thcrc.Urcr. 

lfCBO adoptod the Trustees' projections oftaxable 

earn ing~spetifiolly, for the share of earnings s-ubjtc-r to 

the payroll ta.~, the share of total compensation paid as 

earnings. and compensa1ion as a share of COP-but 

d id nor aJJow those changes to aff~t project ions of other 

f.'1ccors, th~ n its eslimare.s of payroll ra,x receipu and, 

evennoally, benefits paid also would be higher. (Although 

adopring that projecliOn would improve the projectiOn$ 

for Social Security's finances. orhcr aspects of the federal 

budge-r would be affecr«<. f. or ~xam le, individual 

income tax roceiprs wouJd decrease more rhan payroll tax 

receipts would increase because a smaller share of income 

would be subjecl tO high~r income ux r.tt(:s.) CBO's 

resulting projection of the 75-ycar actuarial balance wouJd 

improve by 0.14 pcrcenr of COP, accounting for 23 percent of the difference berwecn CBO's and the T n•stces' 

projecrions. Most of tha1 reduc1ion is au ribUlable to differences in projections of the share of earnings subject ro 

the payroll tax. 

Tite Ba•is of CBO's P~ojectio s 

CBO's projec-1ions ofrhe amount of earningssubj«c to che 

Social Security payroll rax: are deri\•ed from projections of 

the entire diSlribution of compensation that underlie the 

agenc~··s revenue projections. Those projections rt:flect an 

expccr.uion that earnings wiU grow faner for higher· 

income ple lh;ln for orhers during rhe next decade-. 

as they have o''er the past severnl decades-and that <he 

rorn ings of all taxpa~•ers will grow at s-imilar rates the~­

after. CBO's projecrions of earnings as a share of compensation rdlecc trends in the con ofhcahh insurance and 

incorpOr.Ue expected responses l() f UlU~ r.lXe$ ()n heal£h 

insurnncc. The projections of comtxnsation as a share of 

COP reHect the distribution or income among variow 

categories, such as labor income and domestic economic 

profits. &ch of those projeccions is unccnain. 

l11e Shar~ of Earnings Subject w the Payroll Tax. Soc~ .. J 

Securiry payroll taxd a.re levied only on e:trnings up 10 

the taxable maximum, whtc.h incn:a.ses annually with the 

narional average wage index except in years when chere is 

no cost#of-living adjusrmem co benefits. Abom 6 percent 

of earners have earnings abo,•e the taxable maximum. 

Earnings lxlow rhat amoum arc taxed at a combined rate 

of 12.4 JXrcenr, shared equally by the employer and 

employee (self-employed workers pay the full amount); 

no tax is paid on earnings above the cap. The taxable 

maxin1um has remained a nearly constant proportion of 

rhe average \\-age since the early 1980s, bur because earnings have grown fasrer for higher earners than for others, 

the ponion of covered earnings on which Social Security 

payroll raxes are collected fell from 90 percent in 1983 10 

83 percent in 2014. 

t\•1ost of the historical d«line in the share of earnings 

covered by the pa~·roll tax has been caused by an increase 

in che share or earnings for worker$ in the rop percemile 

of the income dj,striburion; that shart- rose steadily in 

<he 1980s and 1990s but since then has fluctuated with 

condi1ions in the «:onomy (~Figure 4). The a~ fell 

during the teCC$Sion that began in 2007 and has nor 

returned to its p~ «-essio n level. In CBO)s \•iew, the d.'lla 

from 2008 through 2014 about the top I percent are 

probabl)· no1 infomlali\'e about long-rem1 c rends because 

rhe 2007- 2009 teCC$.Sion WJS unusually severe, especially 

for high-income earners, and the subsequenl reco"ery was 

unusually slow. It also islikdy th:u many high-income 

workers shifted earnings from 2013 into 2012 to avoid 

the rmc rar~ incre:tses that wok dTecr in 2013. The ~a rnings share of the top l percent rose in 2014. although ic 

7 
42 


ralbany on LAP520R082 with HEARINGS23191.037

• OO"mUUSG OKl'S LOXC·TF.RM 'ROJ ;r.nO.'.;.~ WlTII TIIO!'Ii OfTIIESOCL\Ul"';IUlYTIU.mf.£1; SFJYJ'f.MfiF.R2 1, 2'016 

Figure 4. 

Share of Wage and Salary Income Earned by the Top 1 Percent of Earners 

Percent 

20 

1978 1983 1988 1993 1998 2003 2008 2013 2023 

So<.ttes: Coogresll0no18udget Offlce bos..ton data kom l<ojxnA<.Sm. and Soog (2010) and Social Socurlty Ad"*"'lratiOn. 

For 1978 to 1989. estimate-s are basro on tabulatiOnS oC indMcb:ll earrfngsrec«ds. as reported r. suppl~data to ~le<h KopczY<. Emmanuel Sooz. 

andJae Song, "Ean*lgs lnequally andMctiilyhlhe 1kllted Sl:ates:Evtdence From Soc:laiSeadyData Since 937.~ Ooorter¥ Jouroolo/ Economics, vol. 125, 

no. tl)'ebrU81)' 2010). pp. 91-128. htlpi/dx.dol«g/10.1162/~2010 12$.1 91. For 19901o 2014. tho_,..., are bas&don 031'*'9< as roport&d by 

~mntemal Reven~ Service forms W.2 and lab(jated bv the Social Secudy Administration, ~Social SeadyQiine., Al.Comatk Increases: Wage 

Sta!JSiles tor 2014" (accossod S&plemb&r 16. 2016). \Wffl,ssa.gov/cgl-l>W""c«np<gily%,.2014. To acc...,.lo< d~ferences in ,..hodoiogybotwt<n the 

two S@ries, CBO actJsted the 1978-1989 e'Stlmates b 1M avernge difference In YiN'tfS for V'Hch data were avalable for both series (1990-2004). 

CBO's projections ewe extrapolations based on data from the a.tentPoptjation Survey and fromlndMduallncome taxreb.ms. The fiends fomd In !hose 

data are stnllar to the ueoos Sound In tndM!llal eamngs re«<ds. 

The vtftleal bars Indicate the cbauonof re<essiOOS. each of ~h mtnets from the J)Nic oC a bus:iness cycte to Its trough. 

a. The lhecomectsdata points tor eachgfoup·ssnartof eamngs rt 1978 and 2008 and exuapo&ates the trend (he(e-after. 

remained bdow the longer~term trend. CBO anributes 

some of that weakness to the faa that the economy was 

still o~rnr ng appreciably below its potential in 2014. 

Preliminary data for 2015 suggest that the <-amings share 

of the tOp I perctnr rote again l:as-t year. For its projections of earnings sha~U over the coming decade. CBO 

rd ies on irs revtew of onb~'t'r-teml trends.. Specifically. tht 

agency ex peers that the earnings share of the top I percem will riS<", reaching the level suggested by extrapolation of the trend from 1978 to 2008 over the ne.xt few 

rears and then following that trend for the remainder of 

the coming decade. 

A smaller amount of the hiSlorical decline in the share of 

e-arnings cove~d b~· the payroll rnx has been caused by an 

increase in the share of earnings for workers in the 96th 

to 99th pc:rcrnriJes of the earnings distribUtion. Their 

earnings share has grown srodily-by about one-half of 

a percent per decade- since the late 1970s, when the 

rdc:vant data beg:1n o~ collecr«<. That trend, which 

CBO projects wiJI continue for the next I 0 yean. is 

expected to contribute to the declining share of arn ings 

subject co the payroll rax over the same period. 

The Share of Compensation Paid as Earnings. \'<lorkcrs' 

rornl c(nntxnsation consists of raxable e:trnings and nontaxable benefits, such as employers' contributions to 

health insurance and pensions. Over lilt ~'~ars. the sha.re 

of tolal compensation paid in the form of earnings has 

slipped-from aboul 90 per« nt in 1960 to aboul 81 percxnl i.n 201_5.-mainJy because thc<Jost: of health insurance 

has risen more quickly than has to£31 compens:uion.

7 

CBO ~x pects that d in health care cosrs to cominuc, 

and that by itselfwouki further decrease the proponion 

of compens:;uion rh:;n workers ive as earnings. However, sraning in 2018. [he Arfordable Ca ~ Acr will 

impose an excise tax on some employmenr-basOO he,alrh 

insur:mct premium$ abO\'t specified amounts. Some 

7. i=Oc mo~ detail$. see Cong~iotul Budge1 Offtc,e, Hew CBO 

llrejrm ftiC'IJ,~ Qui)· 2013). \\.'Yo"W.cbo.t<JVIP'iblialion/44433. 
43 


ralbany on LAP520R082 with HEARINGS23191.038

0:'1. ' (XIMP \Rl~G CliO ~ l.O~C TI:R.\1 PRO]l:c110~S \!iff1111106F. Of TIIR SOCLIL Sf.C.lllti1Y Tlii'Sfl!li$ 

employers and workers will respond by shif,ing to less 

expensive plans. thereby rOOucing the share of compensation consisting of nsumn~ premiums :1nd increasing the 

share that consists of earnings. CBO projc<:ts tltat. for a 

few decades. the dTtcts of the tax on the mix of compenS..'tdon will roughly offset the dTects of rising costs for 

health are; after th:u, the effecu of rising ~ahh c:tre 

OOSIS will outweigh those: of the e-xcise cax, and the share 

of compenlltuion paid :lS earnings will decline. 

Compensation as a Share of GOP. From 1960 tO 

2000, compens.uion as a share of GOP varied. 3\'eraging 

62.9 percenr. That share has fallen since, reaching 

61.6 percent Jan year. Although CBO projects that 

compensation as a share of COP will rise slightly over the 

next decade as the economy strengthens. the agency 

expects some factors thai have depressed that share since 

2000 to continue. One such factor is globalization, which 

has tended to mo,•e the production oflabor-intensive 

goods and sel"\'ices tO countries with labor costs chat are 

lower man those in the United States. Another faa:or is 

technological change, which may have= increased returns 

on capital more than returns on labor. As a rc:sulc of such 

f.'lctor$. in CBO's projections, compensation as a share of 

COP does not return to its hinorical average but equals 

62.0 percent by 2026 and remains at that level thereafter. 

Unctrtainl)'· ProjectiOn$ of mxableearnings are subject to 

considerable un«naincy. A body of research bas consid· 

ered the wars that many ('actors could contribtue to 

changC$ in inequality in earnings and other compcnsa· 

tion. For insrance, changes in the site and structure of 

industries and busineSo1:cs will probably continue to affect 

earnings dis-tributions. In CBO's projections, the supply 

of worker$ with more cation incrtaSes mo~ quickly 

than the su · of workers with Jess education, a.nd that 

could cause the premium paid to wo~ers with mort edu· 

cation to rise more slowly than it has in tltc past or to stop 

rising alrogcther in the long tenn. Tha1 process would tend 

to slow me growth of earnings for high earners. However, a 

bck of consensus abour the relative impt')rtance of rhost 

and other factors has made the projections especially 

uncertain. CBO continue.s to refine its methods for proj«ting raxable earni ngs and tO e\taluate new dam a.:; they 

become available, 

What Is the Role of the Key Components of 

Nominal (;DP (;rowth in the Projections? The siz.c oftht economy significantly affects Social 

S«urity'$ revenues and spending. \Xfhen nominal GOP is 

larger, Social Security receives more revenues initially, and 

rhen later- when beneficiaries retire- it pays higher bend ies. Higher nominal GOP improves Social Security's 

actuarial balance because: earlier y<an re-ceive greater 

weight in the calcularion of that balance. In CBO's pro-.-

jections, nominal GOP growth :.wer:tges 4.1 ~rcent ov~r 

the 2016-2046 period; it is !ilightly stronger in l:uer 

years.' This sec.rion focuses on key componenrs of nominal GOP growth: che rates or labor ror«' panicipation, 

unemployment, productivity growth, and inflation. 

·n te rare of inflation also affects the actuarial balance. In 

addition to raising nominal GOP, a higher rate ofinfla. 

tion mises nominal im~rt:$t r.ues, and those higher intNcst rates impr<wt> the actuarial balance. (For discussion of 

why that occurs. sc:e the section on the role of real interest 

mtes in the projections.) 

Comparison Will1 the Trustees' Projections 

The Trustees project avemge annlt:tl growth in nominal 

GDJ> to be 0.7 percentage poinlS faster than CBO 

does over the next lO years and slightly fas.tcr over the 

subsequent fWC) d«::adesi after rhat, th~ projections are 

similar (see Figure S). As a result, the T ru-stec:s project 

total ocottomic output that is 7.4 percent higher after a 

decad< and 13.4 percent higher by 2046 than CBO d<><s; 

that differen« increa,St's slightly by the end of the 75-year 

projection period, l11e fusttr growth <hrough 2046 is cl1e 

result of sevel'31 factors: 

• Mosr important. the Trunecs project that the labor 

force participation rate will rise until 202l before 

slowly declining. ''1tt:rtaS CBO projocls a continuous 

dedine in panidpation that is auribu bl ~ largely to 

projecced changl!s in ckmographt.cs (see Figure 6); 

• The Trustees' projection of COP growth su~sts 

stronger productivity growth than CBO's docs 

through the mid-2040s; and 

• The Trustees project faster growth in prices rhan CBO 

doc.s.' 

8. 11u<>ug.h 2046, t~ pmj«rions inoorpor.ue rhe ld~·~~eoo ornM: 

dTect$ of riling fcdeDI <ktu d nu.rgi.ul t:ax nles. Afier 2046, 

th~do l'lC)t a«ount (or such ~fftoeu. 

9. The a.naly:sls in th.is $00.ioo i.odudcs the eff«t ofhi&Jlc-r i.ofblion 

on nominal inu•reu tate'S. 

• 
44 


ralbany on LAP520R082 with HEARINGS23191.039

10 OOM .IR ~I: OlO'S LOSC..Tf.RM PROJ l;TIO.~~ WITII TIIO<>li OF TilE SOCL\1. SE<lJRIW TRI'STIU~ :PTJ~\lB R 11,2016 

Figure 5. 

Growth of Nominal Gross Domestic Product 

AduaJ PrOjeCted 

·2 

4L-----~----~------~----~----~------~----~----~----~ 

2000 2010 2020 2030 2040 

Sowces: CongresSklnal Budget Office: Social Securi1y Trustees. 

The T rustees also projocl that dtc unemployment r.ne wlll 

srnbilize- at alevd nor:ably ov~ ch~ current rate, whereas 

CBO projects that the uoemploymenl rate will stay roughly 

unchanged. That higherunC"ntp o~ nte t rntt' in th~Trus!· 

ees' projections igh · offsets the other fac.ors t.h:u raise 

nominal GOP relative to CBO's estimates. That occurs 

beca~, under CBO's projections, a higher unC'ntpiO),nen t 

rate implies that a smaller ponion of dtc labor force is 

empi (>~·«L 

lfCBO adoptc:d the Trust«S' proje<:1ions for rar<s of 

labor fortt panK:ipation, un~mployment, and inAation 

and also set the race of productivity growth so that its 

pro;tclion of nominal GOP matched tl1at Oflhe.Trustee$, 

bur the agency did not aiJow those changes £0 affecl proj«tions of other fuctors, thC'n rhC' actuarial babnce would 

improve by 0. 13 pcrcem ofGOI'. acoouming for22 percent of the difference between CBO and the Trustees. 

The Basis of COO's Proj(!(:tions 

CBO's forecast of nominal GO!' growdt over dte long 

ter m is based on projc:ccions of trt:nds in real C DP and 

innation. Projocrions of real C DP growth are based on 

such underlring fucu>rs as growth in the use of laborwhich is the result of determinants that include labor 

force participation and the unemployment rate-and 

labor productiviry. or average real output pc:r hour of 

labor. (Real GOP is also aiTect<d by 1hesizeand age Slrucrun.- of1hc popu on ~ di.o>cwsM in rht next section.) The 

nominal GOP growth ra1e equals the real GOP growth 

2050 2000 2070 2080 2090 

rate plus the rate of inflation. Each component is subject 

t() considerable unc~nainry . 

CBO's current projections of nominaJ COP growth rates 

an: significancly slower th.'ln thC' p::ut three decade$' av~

age of 4.8 percent. The diffen:ncc is anributable mainly 

f(> facfOrs chat a~ proj«:ted toconsu ain growrh in real 

COP and, to a lesser degree, co ~sult from lower innation. "f'ogcrher, those factors point to a slowdown in nom. 

inal COP growth of a liulc more than one-half of a per· 

centagc poim relative to the rates· of the pasr three decades.. 

Labor Force Participation. Dediningpanicipalion in the 

labor force has been a major factor slowing growlh in real 

GOP. a trend lhat CBO projocls will oonrinue. The rare 

of labor force particip.1ti0n has dropped notice:Jbly in 

recent years, from 67.1 percent in 2000 to 62.5 percent 

mday. It will continue tO dedine co 60.6 ~rcC" t in 2026 

and further in later years. CBO projccts.

10 In pan icular. 

the growing ~ti t of baby boomers is expected to 

lead to continued dee:llnes in labor force panicipation. 

Today, rhC' number of people who are age 65 or older 

is one...quancr the size of the population ages 20 to 64: 

75 years from now, CBO projects, the older group will b< 

nearly one-half the size of thC' younger group. In addi1ion, 

CBO an1icipan:s thai there will be slighdy less participation in the lahor force" by younger workers and by lw 

educated workers lhan there has been in the past, as longlerm trends fc>r those groups continue'. 

10. [n c.ontnn, the Trwtt(":S pcojoo tb:n d'lf: labor fom- patticip:uion 

r:uewill rise to 63.1 percent i.n 2020and 202llxforcdcdinina. 
45 


ralbany on LAP520R082 with HEARINGS23191.040

T~MO~'\' ('.OMP.\ RIX<i (: O'~ I.O~G Tf.R}I PROJ~:C:.110X~ '\\1ITI I n IQ.'\E OF TifF. SOC:L\1. Sf.CI.IRI1Y TRI 'Sfi:F.S 11 

f igure 6. 

Labor Force Participation Rate 

Pefoont 

70 Actual Projected 

Trustett 

ss ceo 

so 

L-----~------~------~----~~----~------~------~----~------~ 

1000 1010 2010 2030 2040 1050 1060 2070 1080 2090 

Soo'ces: COflC)fesslonaiBudget Office; Social Securly Trustees. 

The labof fOfce particlpalionrate ts the petcentage of people in the ctvllan nootlstitt.ekloallzed populatiOf'l who are age l6 or older and elthef working or 

aaJWiy se-eking work. 

The fore« lhal damprn participoltion will be modesdy 

omet by a pair of lr ds worldng in the opposirc= di «~ 

tion. in CSO's \•fe..v. First, increasing g~·ity will lead 

people to work longer: In the conling decades, the average person is likdy l() work abour lhree months longer for 

each ackiitional year oflife expectancy. Second, the population is becoming more «tuca(ed. and work<"n: with 

more educuion tend tO sta~· in the l:tbor forct" longer than 

do people wirh less education. 

The Unemploymenr Rate. In CBO's projections. the 

unemploymC'nt r.ue rists slightly OVC'r thC' next dC"Cack 

from its averag<= of 4.9 percent for lhe first half of2016 10 

5.0 percent by 2020. The change i$ anticipated as business 

cycle fac[OI'S [bar currendy influence [he labor market 

begin to abate, and-in panicuJar--as the emp o~·menc 

rate moves in line with underlying trends. The unemployment rate is projcc<ed <0 fall slightly over <he longer 

term because of changes in demographics and education: 

Older and more educated workers tend to have lower 

rates of uncmploymenr. so [he overaJI unemploymenc 

rate is expected to decline both as the labor force ages 

and as it beGomc::s increasingly more cduca~<:d. ln CBO's 

projections, <har ra<c declines to 4.8 pen:en< by 2046 and 

then remains at that levcl.11 

Productivil)' Crowth. In CBO's projections, growth in 

labor producc:ivicy• will be modesdy lower than its average 

ov('r long periods before the n:ocession of2007 [0 2009, 

:t\•emging 1.6 pc-rccnr berween 2016 and 2026 and then 

increasing to 1.8 percent in later years. •: The rising bud# 

get deficitS project«< unckr current law would slow rhe 

groW[h of the capiral srock and therefore capiral s~rvices, 

whkh contribute to labor producrivily. CBO also projects 

that total factor productivity (or output per un it of combined labor and capiral service$) will grow igh cl ~· more 

$lowly than it$ hisLOricnl a\•erag~in pan becauseJ with 

the exception of a period of rapid gro"•h in the late 1990s 

and e:uly 2000s. productivily has tend«<to grow more 

slowly in recent decades than it has averaged since the 

1950s and 1960s. Total factQr productivity growth will 

average 1.3 percen< between 2016 and 2026 and remain 

at that levd in later ~·e:us. CBO projecrs. 

lnAac:ion. CBO projcas that the annual rare ofinAarion 

for all final goods and 5en'Kes produced in the economy, 

as mC".asored by the ratC' of increase in the GOP price 

I I. 'lh~ ·rrustetS pro,iecr 1h:u th~ ploym~ r r:ue will incras.e 10 

S.6 pereen• in 2024 and 2025 beforc$ettlingat 5.5 perernr for 1~ 

rest of the projc:ction period. 

12. l'he T rust«S project producri\•iry CJ'O"'th for the U.S. coo no my 

(JV(f'~, and dc6nt it as the n cio of real COP to houn WOJkOO by aU 

wo~ tnC'.lSUtC simib.r in<onot'p( to CBO's reponed meuurc. 

That $10\\'th a~ 1.8 pttttnt bctw«n 2016 and 2026and then 

1.7 pt'r«ftt in b tct )'('.)1$ in cbe Trust«S' pro;octions. 
46 


ralbany on LAP520R082 with HEARINGS23191.041

t2 OOMP.IRISG OlO'S LOSG·Tl'.RM PRQJ>XTIOS.<WITII TIIO<>li OF TilE SOCL\1. Sll(l RIW TIII'STIU~ 

Figure 7. 

Increase in Population In Different Age Groups, 2016 to 2090 

20 40 60 

Sowces: Coo~esSklnal Budget Office: Social Securi1y Trustees. 

index, will :average 2 percent (Wc:r £he n~x1 75 years. Th:u 

rate is consistent with the federal Reserve's longer. nan 

goal for i.nnariCJn and i.s br()adly in Jine with widely hdd 

expocta{ions- implying that the GOP price index will 

increase slightly more slowly than it has over the pan three 

decades. ''fhe consumer price index, another gauge of 

inAation and the one that is used to adjust Social Security 

benefits for incrc:a.<;t'S in l11e cost of living, i.s projc:ctc:d tO 

rise at ru1 average rate of2.4 percent over the-same period. IJ 

The 0.4 pertentage·poim di ffe~ ce is generaJiy equal fO 

the historical difference between d1e lWO indexe-s. which 

are ba~ on the prices of different sets of goods and 

services and t•se different methods of calculation. 

Uncertainty. Estimates of economic activity over the next 

75 years are subject to a great deal of uncertainty. For 

example, the nation could experience fu.ste r gr()wth in 

produai\•ity than is refleaed in CBO's projeccions. either 

sreadily (as a resul t of ongoing gains from the integration 

of infQrmation technology into the ~onomy. for e.xample) 

or more suddenly (from a tcchnologiC'31 breakthrough. 

such as the de\'dopmem of a nc:w source of energy). Con· 

versely. the growth of productivity could bc slower than 

pro;tc£c:d (if, for example, 1echnological innovation or the 

difli.ssion of pre\•ious tcchnologietl innovations throughout 

13. ihe ·rruscea: pn;ect higher intl;uion r.llt>S. In their projet'tion.s, 

che ~ in che COP priOt index 1\'"-'ges 2.2 perunc 0\'eJ lhe 

75·)'t'.lt pro;ecrion puiod. and £fowth in tb~: consumer price i.ndcx 

ave:rt~.cs 2.6 pct<tnt. 

so 

Pefcent 

100 120 140 160 

the economy diminished more tlmn expected). cso·s projections of productivit)' growth and Other determi· 

n:mts of economic grQwth are estimated to be in the mid~ 

die of the distribution of potemial ou1c0mes. 

What Is the Role of Demographics in the 

Projections? 

Social Security's revenues depend to a large degree on the 

size of dtc labor force, whic.h is related to the number of 

adul{s between the ages of20 and 64, and i{S outlays arc 

dosdy linked to the nation's population age 65 or older. 

The actuarial balan~ improves when a L-uger St'gment of 

the: popuhttion pay$ into the cruse funds th:u support Social 

s~cu rityand when asm.11le.r portion rCCC'ivcs lts from 

che progrnm. 

In CBO's projeccions, che number of people between the 

ages of 20 and 64 will increase by 3 percent betwec:n now 

and 2026. by 14 pc:rcent benvetn now and 2046, and by 

36 p<rccnt be !Ween now and 2090 (see Figure 7}. T he 

number of people age 65 or older. by connan, will 

increase by 37 percent be{ween now and 2026. by 75 per· 

cent be£wccn now and 2046. and by 153 percent be£wecn 

now and 2090. CBO bases its popularion enimates on 

dcmogr~phic projections £hat incorporate recent popula. 

tion data and eStimates of future: rntes of f~rt il ty (binhs). 

immigration (people e ntering the: country. on net), and 

mor10liry (dearhs}. 
47 


ralbany on LAP520R082 with HEARINGS23191.042

T~MO~'\' ('.O IX(i(: O'~ I.O~G Tf.R}I RO :C:.110X~'\\ ITI I n iQ.'\E OF TifF. SOC:L\I.Sf.CI.IRI1YTRI'Sfi:F.S 13 

f..c•mparison With the Truste-es' Projections 

The Trum:es project that rhe total fcnility rare will be 

slightly higher, the net rare ofimmigr.uion will be lower, 

and the mortality rate will d«:line slightly more slowly 

than COO estimates. The TntStees' projec{ion for the 

increase in {he size of the 20...64 age group over the next 

75 years is similar to COO's projection. However, 

between now :md 2090. the T rusrees proj«t 3 138 per· 

cent increase in the numbe-r of p«>ple age 65 or older, 

which is 16 pc:r« nmgr points e~Sthan CBO's projection. 

All tOld, compared wirh CBO's projecrions, rhe TruS<ees 

expect a similar number of working~age people and fewer 

elderly people over rhe period, 

lfCBO adopred rhe TruS<ees' demographic projeerions, 

but the agency did not allow those changes 10 affect projections of othe-r facmrs. then the actuarial balance would 

improve by 0.09 percenr ofGOP, acoounring for 15 percent of the difference bel\veen the r ruscces· and COO's 

projections. 

Tire Basis of CRO's Projections 

CBO antjcip;ues chat tht annual growth rare of the U.S. 

population will decline gradually from ahout 0.8 c~ t 

in 2016 to about 0.5 p<: c~ t 30 years from now and ro 

slightly less than 0.5 percent 75 years from now. In 

cao·s projections. the population not only grows more 

slowly bUl also becomes older, on average-, rdadve to past 

trends because of changes in feniJiry. immigration, and 

mortality. E..<tch of those changes is unttrrain. 

Fertility. fenility rates ofren decline dur-ing rcus.sions 

and rebound during reco,·eries-. However, after the 2007-

2009 recession. the U.S. fc:rtiliry r:tte dropped (it was 

2.1 children per woman in 2007), and it has remained 

below 1.9 since then. CBO estimates a total fenilirv rare 

of 1.9 for the 2016-2090 period." (That rate is rh~ average number of children I hat 3 woman would have in 

her lifetime if. al och age of her life, she experienced the 

birthrate observed or assumed for rhac vear and if she sur· 

vi,•ed her entire childbearing period.) Alrhough CBO 

projects a total fertility rate, in its long·term modd , the 

14. CBO'f J,IOjection il. ~H cnl wilh lhat rectlmmen&d by 1he$ocial 

Security Advi$0ry Bou<l's 201 S 'l"«:hniol l'anel on Assumpcionsand 

Mccbodt. See 20 IS T «hnical Pand on A$sumpti4>ns and Mtchcxb. 

Rrport 10 tlx-$ada/ $«11riry .MtiJ07 &mJ ($qlcembn 201 S). p. 9. 

hnp1/e>·~wcJYR; (PDF, JAMB). ln. Tru""' projccr a 

slighdyhi$her toW fcnil.icy tate of2.0<hiWrm pcr'WOI"Rln. 

likelihood that a panicular wornan will have a child 

depends on such faccors as rhat woman's education. mari· 

tal status. immigration status,. and childbe-aring history. 

Immigration. CBO's immigration projcction.s marc:h 

those underlying irs 1 O·ye:tr baseline: The ntt annlL'll 

immigr.uion r.t(e (which accountS for all prople wl10 

either emer or le:we the United States in any year) is 

roughly ronsranr from 2017 through 2026 and slightly 

higher than in the previous few years to accounr for the 

projected srrengrhening of rhe U.S. e<:onomy. After 2026, 

that rate is proj«ted to decline slowly until2036. when it 

is exptcted ro qual the rate pro~ red by the Census 

Burtau.

1

s (CBO anticipates that net annual immigration 

will conrinue to march the Census Bureau's projections 

thereafter.) On thac basis. the rate of nee annual immigra. 

cion to the United Scares is projocted to be 4.0 per thou· 

sand people in the U.S. population in 2026,3.7 in 2046, 

and 3.6 in 2090. Ahhough rhar r.ue declines, CBO projeers rhat the total population will rise faster, so the net 

annuaJ number ofimmigranrs is anticipated to .s~ from 

1.4 million people in 2026 to 1.5 million people in 2046 

and to 1.8 miHion in 2090. '' 

Mortality. The mortality rate generally declined in the 

Unir«< Smres frc)m 1950 lO 2012, tht period on which 

CBO b!lSe$ its projections. Over that time, the morraliry 

r.ue has ~nerall · impro,•NJ more quickly for younger 

people than for older people. In particular, a recent 

review of the data by CBO suggcsrs that rhe diffcrcnc¢S in 

rda c improvements in tnonalit}' exhibited by Yarious 

age groups are signifiont and likdy tO continue. For 

example, mort3lity rates for people under rhea~ of 15 

declined by an a\·erage of more rhan 2\n percent per year 

between 1950 and 2012; monaliry rates for people over 

the age of SO dedi ned by an average of less than I percenr 

per year over the same period. CBO projects that mortality 

r:ues for each f.ve-yearagegroup will continue to decline at 

the average ac~ exhibited over th~ 1950-2012 pc:riod. 

CBO proj«tS that life xpecta c~· at age 65 will be 

21.6 y<al'$ in 2046 and 24.6 year$ in 2090; in 2016, life 

IS. See ~IUU$ 8u ~u. "Population Projeaions, 2014 N:.nion.al 

Popuhcion Projeaions: Summllry ab ~ ... T-:.bf~ I ~ 

September 1(). 2016). hup://go.un.p/t3308. 

16.- The Trus:te'U projc'C't net inunig111don of lA million people in 

2026, I,) million in 204~ .and 1.2 million in 2090. 
48 


ralbany on LAP520R082 with HEARINGS23191.043

t4 OOM .IR ~I: tllO'S LOSC..Tf.RM PROJI'X;TIOX< WITII TIIO<>li OF TilE SOCL\1. SE<lJRIW TRI'STI!F.I 

expa:tancy at age 65 is 19.4 )'<=.:us. 

17 Once CBO projects 

average mortality rates for men and women by age group. 

it incorporates diA"erences in th<>st: rates on the basi.s of 

marical srarus, education. and lifetime household earnings. 

(For people under 30, che rnomtl ity projections account 

for age and sex only.) CBO projects a greater lifeexptcrancy for people who are married. have more education, 

and arc= in higher income groups.18 

Uncertainty. Although in 1hc pas!, demographic rrends 

have changed mo~ slowly ()\'Cr long p<=riods rhan have 

some orher major inputs into CBO's projections (such :u 

real interest rates). population projections are still subject 

co unctrrninty. For example. mortality r.ues have dedi ned 

over the past half cemury. and in CBO's projections, that 

u-end continues. His:toric:ally, rhe average annu:tl change in 

the morral icy rate has varied b~· about l percentage point 

for men a nd for women during the 25·year periods 

beginning wilh 1942 to 1966 and <nding wi1h 1986 10 

2010. In CBO's view, 1he projec1ions rdlec1 d>e middle 

of the= dist ribmion of possible outcomes for all demo· 

graphic factors, including morcalicy rates. 

What Is the Role of Real Interest Rates in the 

Projections? I merest rates affect measures of rhc syncm's finances in 

rwo particular way.s. First, they determine the i.mereS[ 

recei\'ed on balances in ~ Social Security tru..'a funds--

and thus affect the exhaustion of the trun funds. Second, 

in the ta_lculation of rhe actuarial balance, rhey are used 

to compute the present values of future cash flows. (Pres. 

enr \'a_lues cleprnd on an interest rare--known as the db;. 

count rate-chat is used tO translate future income or 

paymencs into currem dolla.rs.) Thus, a higher interest 

17. Life ap«:r.mc:y u US«l be« is JX'fiod Ilk cxp«tan<y-thc amount 

of titm that ~ pcuon in a given yto.U would cxp«~ to survi"e 

bc)'()nd his or htt current ~con tbe buis of th•t y<~r's monality 

ru~ ror \'atious ages. coo·$ proj«:tion of l.ik e:q>('Ct\U\Cf in 20?0 

is longer than tht Trusc:«S' projcaion o(23.6 yc-m at ~ge65 but 

$honer h~n the ptoj«tion ofl5J )'eatS '&I agt' 65 rcoon\n\(-ndt'd 

inthercpon of the 2015 T«:hnical P•ncl on Assumptioruand 

Me<~ hods, itl-por1 Ul rlw Soda/ &mriiJ Atlriutry &,uti $eptenll~oer 

20lS). pp. I :1-20. hnp,l/go.ua .g<)'I<JYRS (J>OF. 3.4 Mil). 

18. fQC more n(Qfm~ci n about mort:.aliry differences amonggToups 

with different eunin15, ~ C4ng.rotion1l Budgd ORiee. Grrnlling 

Oilp.tritin in Lift £:~fJ«ttlnty (April 2008). v.·ww.d>o.guvf 

publia ttQnf41681; and Juli;an P. Cri$tia., ilx Emp/riQt/ R~ltfio,uhip 

&tu.'«"~ Lifnimt> &mi11p and M()Ykllity. Wotklns Paper 2007 • J I 

(ConsrenionaJ d~t Offi«. ust 2007), www.cbo.gov/ 

publ)cuion/19096. 

rate improves 1he acll. i.:~ l balance because cash flows in 

future years-in which large shortfalls between outlays 

a nd revenues are proje<:ted--rect'ive less weight in the 

calculations. (A no1ninal interest rateequ.aJs the real inter· 

dt rate plus the r.ue of inflation as measured by the con· 

sumer price index. The analysis in Lhis section foc-usd on 

real interest rates because the dl'ecu of inflation were 

included in the= analysis of the: key component$ of nominal 

CDP grow1h, wscussed above.) 

Interest rates on federal borrowing incrc:tse over 1he next 

few years in Cl30's projections, as tbe slack in the coon· 

omy continues to dimini~h. inflation returns 10 the FMed 

Reserve's 2 percent target, a.nd the cent raJ bank gradually 

reduces the e.xtent to which irs monetary policy supporrs 

economic growth. The real r.uc on I Q.ycar Treasury notes 

(calculated by subuacting che nue ofi c~:tse in che con· 

sumer pric~ index from the nominal ridd on tho~ notes) 

has averaged 0.8 pcrccn1 since 2009 and will reach 

1.7 percent in 2026, CBO estimates. After that, 1he 

rate continues to rise. reaching 2.3 percent in 2046 and 

remaining at chat level indefinitely. 

In CBO's projections, rhe special-issue bonds issued by 1he 

trust funds gt"nerally earn interest ::u races 1hat match 

the IO·year rate. Because interen ta(CS on ne, .. iy issued 

bonds arc expected to increase in ooming years, CBO 

projects that the a\'erage imertSI r:.ue earned br all bonds 

held b~· 1he Social Securiry l NSl funds will be slighdy 

lower than the JO.year rate during the next decade and a 

h.aJfbut the same as the I vear rate thereafter. For the 

discount rate in t.he caJculac'ion of the accuarial balance. 

CBO tLSes the IO·)'t':3r Treasury note rate.'' 

CompariS<>n With the Trustees' Projections 

The Trustce5 we the avcr~gc interest rate on special. issue 

bonds hdd in che trust funds as the d iscoun1 rate." 0 That 

real rate--that is, the nominal rate minus the inflation mte 

as measurtd by the consumer price. index-is 2.4 percent 

in 2016 and cllen increases from 0.4 percent in 201 7 to 

2.7 percent it\ 203 1 and remains at that level thereafter, 

according to CBO's calculations using the Trustet:s' 

19. lf CBO us«l iu ~j«tion ofche :we~ imercst r:uc euned b)· 

all bond.\ held by the SocUI Securit;t uw1 fi.mch :Ill che di~ou t 

r.ue instea-d of irs ,,roj«cion of lhe nte on the IO·)elr ·rrwury 

note, rhe 75-)'t'ar XI\Uril.ltt.ll:mcc. mea¥ur«t rd;uive co COP, 

would wor.sen by 0.02 pe: oe ca~ poinu. 

20. That nut" ~ulls the rue on newly issued bonds in 1:031 and l:utt 

yel.rs, 
49 


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T~MO~'\' ('.O IX(i(: O'~ I.O~G Tf.R}I PROJ~:C:.110X~'\\ ITII n iQ.'\E OF TifF. SOC:L\I.Sf.CI.IRI1YTRI'Sfi:F.S 15 

figure 8 . 

Real Interest Rate Used to Calculate the 75-Year Actuarial Balance 

Perc-ent 

Trustees 

CBO 

2010 2020 2030 2040 2050 2060 2070 2080 2090 

Sowces: CoogsesslonaiBudget Oftiar. Social Securl:y Trustees. 

Actual rates and CBO's protections of real (lnflalloo-adjusted) Interest ratescorrstst oC the nominal rate oo )().ye-ar Treasury notes mhls the rate of 

ncr ease In 1ht oonsumff ptlce IOOI?:x. The Trustees' actwl and protected ratM are the a·wage tHI inttrest rate on special bonds held tt the trust lim 

00111 2031; lhereatt«. the projedlons are tor the real interest rate on special bonds e&eh year. That rate plus 1M rate of Inflation as mNSured by the 

consumer price hSex equals lhe nombal lntetest rate used ln lhe calneatlonof the actucwlal balance. 

The aduarlal ba!aoce Is the difference between the present value of annual tax revenue-s plus lhe frttlaltrust fund balance. and the Jl(esent value ot annual lays plus tnt pr<'Sent value of i )'Nr'S wonh ol benefits as a reserve at ttMt end of the pertod, tach diVIded by the pr~tot vafoo of GOP or 

taxable payroll (TOO present value of a llowof re es « outlays over lime is a single nunber that eiCpfess.t-S tllat flow In terms of an equivalent sum 

received or palda.t a specific Ume. The present vakle depends on a rate of interest. known asthe<lscoont rate, thatts used to translate pa:st and tuUe 

cash Rows into co:rent doliars.) 

projections. By contmt, CBO's proj«t ions show higher 

r.ues until th~ lat(: 2020s and lower r.ues th~re:tf c:r (~ 

Figure 8). 

lfCBO adopr«< the Tmstcoes' figure, but the :tb~ cy 

did not allow those changes t O affect projectiOnS of Other 

fattors, then th(: attuarial balan~ would imprO\'C' by 

0.03 percent of COP. accounting for 6 percent of the 

dirferentt lxlw«n th(: Trustees' and CBO's projections. 

(Higher inter(:St r.tt(:S, however. a~ not fa,•orable for 

the federal budger as a whol(: because they raise the cost 

of f«<eral borrowing and add tO fed(:ral budger deficits.) 

11te Basis of COO's Projections 

CBO exp«ts re:al interest r.utS on ~le al borrowing ro 

be lower in the future than 1hey hav(: b« n, on average, 

over the past few deadc:s. The real imerest rare on I O·ye:tr 

Treasury no res ave l'3g~ 3.1 percent be[wetn 1990 and 

2007.

21 In C'3Ch year ofCBO's projecrions, however, that 

rate is ar least 0.7 percentage points lower than that :werage. Nevenheless, ~:.1 1 intert$l rates ha\'C' been higher and 

lowtr than :t\'er.tgt for sus-rained periods in rhe past, and 

the level of future interest rates is uncenain. 

Reallnteren Rates. According to CBO's analysis, ave-rage 

rea.l interest r.ues on T reasun· s«urides will be below 

their past 3'-'erages for rcason.s that include- slower growlh 

in rht labor fi)rce and slightly slowe.r growth of productivitv, both oF which rend tO rtduc~ the rate of return on 

~pitaJ. Funhermorc-, a gre-ater share of total income is 

projecr«< to go lO high-income households, which will 

increase saving and make more fUnds available for borrowing. Th(' premium on risky as$Cr$ is expected to be 

21. COO USC$ the 1990-2007 p«iod for comparison lxaus.t ir k-~tuttd 

r~i ly mblt npcetati()ns or inftu ion :.nd no ,$C\·~~ to::>nomk 

dowmurM or fin:mcial crik5. 6tt\1.~1 1?70 and 2007. h~ re:d 

inln$ r.u.e on 10-)·e:.r ~.u:ury nord ;;~v<:r.~£.'«13.2 pt"~nt~ the 

wer.1ttt' (rom l9S3to 2007 was 2.? peroe111. Hinoric:d inA.:niM 

ntd :u~ r:~i:en fromLh.e<:on.sumer pcioe index, :.djustc:d 10 :.C::CIOulll 

for ch:.np Ovn' tim~ in th~ w:ay th:u the indtx llll":l$ ~ .:~.t Qn. 

See Suft'.:.u of l.olbor SutistKs. "CPI R~rch Series U$ing. Currn11 

M«hods (CPI-U-RS)" (April13. 2016), "'"w,b!s.gov/cp~ 

cpiun.htm. 
50 

f 


ralbany on LAP520R082 with HEARINGS23191.045

M OOMP.IRISG OlO'S LOSG·Tl'.RM PRQJ>XTIOS.<WITII TIIW. OF TilE SOCL\1. l(l RIW TIII'STIU~ 

ov~ iu averat,~ from 1990 tO 2007-bc>OSting d:uiv~ 

c:kmand fi,r Treasury securities, increasing u~i r prices, and 

thereby lowering their interest rates. And net inAows of 

capiral from other countries, mcaStared as a perc:entagc 

of GOP, also are cxp«:ted to be higher, making more 

funds available for borrowing. 

CBO ex~ts the term prc=mium-thc.o ex'tra return paid 

ro bondholders for the added risk as..liociated with hc>lding 

long-term bonds-.to be smaller, on average, than it was 

before the late 1990s. Over the past two decades, the 

prices oflong-tcml Treasury securities and of risi..'Y assets 

in the United Srnccs have moved in opposite directions: 

Periods with weaker economic growtl1 and lower rerurns 

in the stock market have b«n associauxl with increasrs in 

the prices ofTreasury ~c ties, whicl1 \ '/'aS not the case 

before the early 2000s. As a result, investors trying to 

protect rhenudves from adverse economic surprises may 

be more likely than they were in the past to demand 

long·term T rea$ury secu rities. Jnvt.stors also may havt' 

incrta.Sed th('ir demand for g·u~ m invt:stmt'.ntS, $uch 

as Treasury S('Curitit'.$1 that offer protection from unex· 

pe ed!~· low inflation. All together, CBO anticipates rhat 

greater demand for long·tcrm Treasury securities will 

resuh in a term premium and long·term ime~st roues 

rhat arc Iowa chan tl1ey were before the late 1990s. 

Other facrors arc= projc::cte<.1 to boost real intt'.rt'.$t rates, 

ahhough not enough ro offset the opposirt'. force$ nmcd 

above=. Federal dcbt, for example. is projected to grow as a 

percentage ofGDP. increasing the Slapply of Treasury 

s«urities.22 The ratio of older people. who will be draw. 

ing down their savings. to younger workers, who are in 

their prime saving year$, will be greater than it was befon:. 

Tl1at shit1 will decreast" total s;wingand ma_ke les$ money 

a\•ailabk ro borrowers. At the sa.me time. a larger share of 

income is projected to come from capital, increasing 

returns on capital assets with which T f«lSury securities 

compete ro attract buyers in financial markets. 

In addition to considering those fac:t.ors [hat aA-Ca imer· 

est r.ues, CBO relies on information from financiaJ mar· 

k ('fS, which in rec~ m years J1as rcnded tO lo r th~ agency's 

projeaions ofinterest rates. For example, the current rare 

on long· term T rcasurysccurities isdet.emlined by investors' 

expectations for interest rates on sborteHenn securities 

22. ThtolJ8h 2046, CBO'$ imtfest r-ate projoo:ions rcllea the dfoo: of 

ri.sins (cdfr.al d<-bt. After 2046.. whc·n interest mtcs areaS$umOO to 

remain conStant, they do not account (or thou ctfoct. 

sever3l vears inro ch(' fut l11a t market forecast inform$ 

CBO"s ~'Jssess t of markt't <':Xpecrations for the risk pr('· 

mium and for invc:stmem opporrun ities in the United 

States and abroad, and it poinlS to consKierably lower 

interest r.ttes wdl into th(' future ativ~ to those of 

recent decades. 

Uncertaimy. Some factors mentioned above are easier 

than others t.o quantify. For instance, the effect. of labor 

force= grow1h a nd rising federal dd ,t can l>e c:stimarC<I 

from available:: dam, theorc::tical modd s, and estimates in 

the literature. But the extent t.o whioh other f.1.ctors will 

affcc.t interest rates is more diflicul[ rocompute. A shift in 

~ftre ca for low- rathtr than high-risk as:R($ is nor 

directly SC"rvab ~, ror insmncc:. And although the distri· 

but ion of income is observable. neilher models nor 

empirical estimates offer much guidance for quantifying 

its effect on interest rate~ . Moreover,currc::nt interest rntes 

arc not a rcliablc indicator of investors' cxpcc.tations 

about interest rates over the long ternl, in pan be-cause 

maturities of mOSt of the government's Outstanding t 

securities a rc= much ~r than the period that is the 

foctLs of CBO's long-term projections. In light of those 

sources of uncenainty, CBO relied oa\ economic models. 

the res('arch literJture. and 01her information lO guide it.s 

assessments of the dfects of various factor$ on inr<:resr 

rates over the long term. 

This tc.stimon)' was prqxtred by Charles PinclesM:.lrk, Mid ucl Simpson. and Julie TopolC$ki. with 

t."'nuibutions from Stcphanjc HugiC' Bardlo, 

Gtena Kim, Marina Kuty-.t\·ina, and Xiaotong Niu 

-and with guidanc~ from Jeffrey KJing. O:>mmtnrs 

were provided by Mark Booth, Molly Dahl, Ed Ha.rris. 

Joru than Hunde)•.John Mc.OdJand. NoohMertrson, 

Roberc Shackleton. Emil)' Sttrn. and jeffrey Werling. 

In kttping wirh rhe Congrcss.iorutl Sud&cr Offtee's 

m:tnd;lte ro provide objccrive. mp~.rtial :lll:lJysis. this 

testimony cont<lins no recommendations. 

Wendy Edclberg and Robcn Sunshi11e rC\•iewed the 

tt"Stimon)'. Kate Kdl)' edited it, :tnd je.1nine Ret$ 

prepa.red it for public::ation. An d('(:tronic verSion ila\',UJable on CBO's website (www.cbo.gov/ 

public:arion/51988). 

Keith Hall 

Oir«tor 
51 

Chairman JOHNSON. We will now turn to questions, and as is 

customary for each round of questions, I will limit my time to 5 

minutes and ask my colleagues to also limit their questioning time 

to 5 minutes as well. 

We all know experts aren’t going to agree exactly. In fact, they 

never do. You both represent well-respected organizations that do 

good work, but given these huge differences, I just don’t know how 

you both can be right. Can either one of you tell me? 

Mr. HALL. I am happy to start. Let me start out with how we 

are the same. Both projections show a system with significant financial shortfalls. Both CBO and the Trustees expect the combined 

trust funds to be exhausted in the second decade of the projection, 

but we differ in our estimate of the cost relative to GDP. The 

Trustees’ forecast of costs is about 4 percent lower than CBO’s, and 

their forecast of income is about 7 percent higher. So we do have 

a difference. 

But I do want to stress that there is uncertainty. All projections 

are uncertain. And to give you an idea, we haven’t done it this year 

yet, but last year, when we projected an actuarial balance of negative 1.45 percent of GDP, we did an analysis looking at the historical variations and the variables, and we put out an 80-percent certainty range. We think we are 80 percent certain within a certain 

range. That range was negative 0.8 percent of GDP to 2.2 percent 

of GDP. So that is a pretty significant range. 

Mr. GOSS. I would just want to add, on certainty, absolutely the 

only thing we know for sure is that any point estimate will be 

wrong with almost certainty in the future, so we really do come up 

with the best possible projection we can here. As I mentioned initially, I think one of the most important things that we try to go 

for is to have a stability and have only incrementalism in the 

changes because we understand that if you all are going to be making modifications to this program and other programs, having the 

goal posts moving around is really, really kind of a problem. 

Dr. Hall mentioned something about the way that we project 

benefits and the way CBO does. I mean, I would just remind, back 

in 2004, when CBO had only half as large a deficit as we did, it 

was suggested by folks at CBO at the time that, in fact, we were 

projecting benefits to be too high at that time, and that is why we 

had a larger deficit. We believe that that differential kind of dissipated over 5 or 6 years. Now, through methodologies, it appears 

as though CBO is suggesting we are projecting benefits too low. 

So we have been very, very consistent the way we are approaching things, and I think we have a pretty good track record on making projections. You will probably recall, for example, the reserve 

depletion dates for the DI program, which back at the time of the 

1994 reallocation, we were projecting around 2016. Well, lo and behold, it pretty much came out to be around that before the reallocation that you all enacted just last year. 

Chairman JOHNSON. Have you all changed the way you look at 

things? 

Mr. HALL. We have over time. And I suppose our philosophy is 

a bit different. Our goal is to be independent and objective and 

offer the best estimate available, and so we look at a lot of things. 

We look at historical data. We look at other people’s forecasts. We 


ralbany on LAP520R082 with HEARINGS
52 

vet things with our panel of advisers. We look at what the Social 

Security technical panel says. And we look at literature. And we 

make judgments based on this. And things change over time. 

I think one of the difficulties right now is coming off the Great 

Recession, in general, some things have changed permanently; 

some things, well, will not change as much. So part of what one 

has to do, for example, in economic forecasting is sort of decide 

what is going to revert back to prior to the Great Recession and 

what has been a permanent change, and of course, we have some 

significant differences on the demographic side. 

Chairman JOHNSON. Well, you all just started doing these in 

the early 2000s. What made the CBO start doing the estimates as 

compared to the Trustees? 

Mr. HALL. Well, the short answer would be we were asked to, 

that there was an increased interest and concern with the longterm budgetary implications of current laws. And part of it, of 

course, is that it was a prelude for us to evaluate any legislation 

that is aimed at trying to improve the Social Security balance. 

Chairman JOHNSON. Well, you talk about a lot of assumptions 

used in the CBO Social Security estimates. Are these assumptions 

only used in Social Security projections, or do you use them in 

other estimates as well? 

Mr. HALL. Yeah. Actually, our assumptions are kind of mixed in 

with a lot of things that we do. For example, the 75-year Social Security projection is built upon the long-term budget outlook projection that we make. So we go from 75 years down to 30 years. We 

make sure those are consistent. And then that 30 years is based 

on our 10-year economic and budget forecast. We do that three 

times a year. 

So all three of these things are consistent, and in fact, when we 

just do regular work on the 10-year budget forecast even, we spend 

a lot of time looking at changes and variables and changes in 

things that we think are going to impact the long run. 

For example, one of the things that we looked at most recently 

over the long run is we have done a significant amount of work on 

labor force participation, and we think that there is looking like 

there is some significant decline in labor force participation based 

on cohorts. So, for example, if you look at people who are age 25 

to 34 right now, their labor force participation is significantly below 

other cohorts. Baby boomers had much higher participation, and 

part of what looks to us like is that that is going to maybe be a 

permanent impact on labor force participation going forward. So we 

do these things all the time. It is all mixed in, but we try to be 

consistent. 

Chairman JOHNSON. Okay. Well, thank you very much. 

I will recognize Mr. Larson. 

Mr. LARSON. Thank you, Mr. Chairman, and let me add, it is 

great to see you back. What a privilege to serve on a committee 

that has two American iconic heroes in Sam Johnson and John 

Lewis. We should all take stock in that, and always good to see you 

back. 

Chairman JOHNSON. Thank you. 

Mr. LARSON. And I think it is a great hearing. I think it is 

going to give us an opportunity to explore, and I have more of a 


ralbany on LAP520R082 with HEARINGS
53 

statement to begin with and I hope which will follow with other 

questions. But the last time we really constructively as a Congress 

really looked at Social Security in any meaningful and significant 

way was in 1983. 

This is an insurance program, an insurance program. People talk 

about this as though it is an entitlement. Yes, you are entitled to 

your Social Security because you paid for it. It is an insurance program. Has anyone’s—in this audience—insurance premiums gone 

up since 1983 when this was last touched? I dare say that everyone’s hand in the audience, if I requested, would go up. Yet Social 

Security has not been adjusted and yet has not missed a payment, 

as Javier Becerra was pointing out earlier on. 

So what we have here is there are statistics, as has been indicated by two venerated groups, both in the Social Security actuaries and CBO; one doing it over a long period of time, the other 

since 2004, but both with outstanding results. I think what the 

American people want to see is, what is Congress going to do? Because you both say that this is based on projections, and those projections depend upon what we are actually going to do. 

And I think what we need to do, it is kind of like what the AARP 

puts out there, you have got to show what your proposal is to— 

with regard to Social Security. We have to strengthen this program. We have to strengthen it for a number of reasons, largely because of what happened in 2008 when people saw their 401(k)s become 101(k)s, but the only program during that time that remained 

consistent was, of course, Social Security. 

So it is incumbent upon us to make sure that it meets those actuarial standards so they are solvent for the next 75 years. And not 

only do we have to—and we are constantly arguing up here about 

whether we have to cut it or increase the premiums, as I like to 

say. 

I don’t think we can afford to cut it. All you have to do is go back 

home and look at your constituents and find out the situation that 

they find themselves in. What we need to do is expand it and then 

expand it in a way that makes sense for the American people. 

We have a proposal out there that says we should increase the 

funding by what people receive by 2 percent across the board. We 

should make sure that no one retires into poverty who has participated in the program. We should make sure that our cost of living, 

our COLAs, reflect actual cost, and you know what else? We should 

give people a tax break. We can do all that, but we would have to 

increase the premium. 

Well, how would you increase the premium? Well, under our proposal, we would scrap the cap. Over-$400,000 people would pay, 

and they would receive more benefits for what they pay in. And 

then what I truly believe, because there has to be skin in the game 

for everybody, we increase the contribution by 1 percent, but then 

phase that in, just like any insurance actuary would do looking at 

this program, increase it by 1 percent, phase it in over 25 years, 

which would be .05 percent a year; or for a person making $50,000 

a year, be 50 cents a week; or if you bought one of these Starbucks 

lattes for $4.50, that would represent 9 weeks of Social Security 

payments. 


ralbany on LAP520R082 with HEARINGS
54 

My point is this: This is an insurance issue that is very solvable 

actuarially by just making sure that we adjust premiums that 

haven’t been touched since 1983 but do it in a way that is not going 

to burden anybody; 50 cents a week for someone making $50,000 

a year is not going to be a significant burden. And when you look 

at what we get in terms of Social Security, most importantly its 

guarantee, then we can combine the genius of what we have 

through insurance, a private sector concept, tax cuts, which I think 

everybody on the committee enjoys, and then the certainty for 

which people rely and depend on this, including the number of 

quarters that you put in, especially if you are female and you have 

less quarters. This will allow an equalization of that, and I look forward to my questions. I realize I ran over. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. Mr. Dold, you are recognized. 

Mr. DOLD. Thank you. 

I look forward to going over to Starbucks with you, John. Absolutely. 

Mr. Goss, I wanted to just start with you, and again, I think 

those that are tuning into the hearing and trying to understand 

what is going on and the difference between what is happening at 

CBO and at Social Security, your office really supports the work of 

the Trustees, but ultimately, it is going to be their report that is 

reported out. So can you talk a little bit about your office’s role in 

the process and how decisions and assumptions are made, and do 

you make recommendations to them? 

Mr. GOSS. We definitely do. Thank you very much. For every 

Trustees report, the process within the Trustees working group 

starts out with our recommendations to them. We do not disclose 

them to you or to anybody else, but we do make recommendations 

to those within the working group and to the Trustees. There is 

much discussion and opining and then a decision as to what the 

Trustees want to go with. 

I would suggest that there is usually pretty much similarity between what we recommend. And the one thing that I can assure 

you is that if ever the Trustees’ process ends up resulting in as assumption that is really dramatically or unreasonably different from 

what we believe should be the case, we will report that to you in 

the actuarial opinion. 

Now, in the process of determining these assumptions—— 

Mr. DOLD. Yeah. 

Mr. GOSS [continuing]. We get incredible amounts of input. For 

example, labor force participation rates that were mentioned just 

a moment ago, labor force participation rates, we have talked over 

the past year or two to folks from the Federal Reserve Board who 

have sort of fostered the notion of looking at cohort analysis, and 

what is really happening in this recession is quite remarkable. People under 25, labor force participation rates, which are really just 

the extent to which the American people are trying to get a job to 

feed their families, So the labor force participation rates under age 

25 have really dropped a lot in this recession. Cohort analysis, by 

some who have done this, suggested those cohorts are permanently 

affected, damaged, whatever, and they are going to work a lot less 

at all higher ages in the future. 


ralbany on LAP520R082 with HEARINGS
55 

We kind of don’t believe that. We are not projecting that kind of 

notion into the future, and our last two technical panels, by the 

way, have suggested that our projections of labor force participation rates are too low. They have recommended that we go even 

higher. We, the Trustees, and we have recommended to the Trustees, we have collectively resisted the idea of getting more optimistic 

about labor force participation rates, but we really do not believe 

that labor force participation rates should be taken down to the 

levels of the early 1980s, before women were largely engaged in our 

workforce. 

So we just think that that is kind of an interesting thing. We 

look forward to dealing with Keith and company more about how 

they come up with that assumption. 

Mr. DOLD. Okay. But the labor force participation rate is one of 

the key ones that you are looking at. 

Mr. GOSS. It is one of the major ones. At this point, probably 

one of the three biggest ones, other than methodological differences, as Dr. Hall mentioned, and that is something that is a 

very interesting area because our methodologies are really quite 

different. 

Mr. DOLD. Sure. I look forward to diving into more of that, but 

I did want to talk, as we look at the administration, we are coming 

up to the close of this administration, and we still don’t have public 

Trustees, right. So that is obviously an issue. There are six Trustees, two of them public Trustees. 

The next Trustees report is going to be due in April, just when 

we are going to have a new administration coming in, about the 

same time they are getting settled. And these are big reports that 

can take almost a year to produce. So who is making the decisions 

on that now, and what happens if the new Trustees disagree with 

some of the assumptions that are made in the report? 

Mr. GOSS. Well, for better or for worse, I have been around for 

a few transitions of administrations. 

Mr. DOLD. We will say that is better. 

Mr. GOSS. Thank you very much. Experience counts, hopefully, 

a little bit. 

We have gone through a number of transitions, and as you would 

imagine, we are required, we really have an obligation with our 

current Trustees and with our staffs to be working toward the next 

Trustees report, and we will be working on developing assumptions, developing projections. However, when we have a new administration come in, whoever it is, and if they bring in different 

people, they get people confirmed, whoever they bring in, if they 

have different views, we will move in the direction of the different 

views because, as you mentioned, this is the Trustees report, and 

they do get to make the call on what assumptions we absolutely 

have. 

So if new Trustees come in and they bring in new people and 

they want to do things differently and have different assumptions, 

clearly, the Trustees report will reflect that. If they make dramatic 

changes that we think are unreasonable, though, again, we will report that in the actuarial opinion at the end of the report, so we 

can give you that assurance. 


ralbany on LAP520R082 with HEARINGS
56 

Mr. DOLD. Can you shed a little bit of historical light? Have you 

seen that happen from administration to administration where 

there has been real changes from one trustee—set of Trustees to 

a second set? 

Mr. GOSS. I think the wonderful thing is that when people put 

that hat on, the trustee’s hat, regardless of their politics, we have 

been really impressed, I have been impressed for a few decades 

now, at how people take that so seriously because they know how 

important this program is. And we tend not to have a lot of sort 

of flip-flopping around in terms of the assumptions that people get. 

They really get it is a long-term projection; incrementalism really 

matters. And we really had tremendous consistency across the different people coming in. We sometimes have presentational issues 

that have changed from one administration to the next, but the 

basic assumptions that we used have really been quite consistent. 

And I think having public Trustees really helps on that because 

we have really not just one party represented on the Board of 

Trustees. 

Mr. DOLD. Mr. Goss, thank you. 

My time has expired, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

Mr. Blumenauer, you are recognized. 

Mr. BLUMENAUER. Thank you very much, Mr. Chairman. 

And I appreciate the thrust of the hearing to be able to get into 

some of the details, not only because how serious the deficit—or 

how immediate, I guess, the deficit we have to contend with really 

serves to, I think, constrict what Congress does. If it is more immediate and bigger, that might be a greater incentive for action, although given some of past congressional behavior, it might inspire 

more paralysis because it is really big and complex. 

But piecing out the differences in terms of workforce participation, interest rates, what is going to happen with payroll, I think 

is a very important picture for us to be able to have the better understanding of the workings of the economy. 

And, basically, I am of the opinion that the 4 or 5 years difference that you have in terms of the exhaustion of the trust fund 

balance, while not insignificant, really shouldn’t color what we do 

because I think all of us appreciate that if we are getting down to 

the wire and it is 2 and 3 years and we are running a persistent 

8 percent deficit, that makes the challenge more difficult, and it 

has ancillary effects that are going to be more difficult for the people who follow us. And no one is going to tolerate a reduction of 

a quarter in Social Security benefits. Ain’t going to happen. But 

what we do to avoid that and when we do it matters a great deal. 

I am hopeful that this inspires us to be able to think about ways 

to move a little faster. I have opined in sessions before that I would 

love for us to come together and declare a national Save Social Security Day sometime early in the next Congress where we invite 

people to come together and look at this information, where we invite people to come together to look at what the choices are. 

And I have tried this experiment at home in high school civics 

classes, retirement homes, rotary clubs, and I find that most citizens, even without using some of the sophisticated calculators that 

are available to us, most citizens are willing to take action. They 


ralbany on LAP520R082 with HEARINGS
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are willing to make a little adjustment. They are willing to pay a 

little more or look at adjustments in the long term for some benefits that they think maybe some people don’t need. 

They don’t want to undercut the integrity of this service that is 

becoming more critical for more people. Certainly, there are lots of 

people in Congress can continue serving indefinitely. I mean—but 

for a lot of people who have more demanding positions in the workplace, whose life expectancies are actually shortening, we need to 

be careful about how we maintain what they get. 

I am hopeful that this is something that we might be able to 

come together to promote because I think the American public 

would like to roll up their sleeves and help us discuss it. I think 

they can help us develop alternatives that are not draconian and 

that could be phased in earlier in a way that would avoid the cliff, 

avoid disruption, and avoid making this one more political battlefield. We don’t know—we don’t need any more political battlefields, 

and we don’t need any unease for the people who rely on this service. 

I wondered if either of you could help me understand. You talk 

about assumptions about covered payroll. How does this change if 

we are looking at total Medicare payroll in terms of making a modest adjustment to what tax people pay if we get rid of the arbitrary 

limit and we are operating on Medicare wages? 

Mr. GOSS. I would just offer if we were to go that direction, that 

hypothetical—and by the way, we have on our website estimates 

for several proposals to eliminate the taxable maximum or raise it 

to some higher level—that basically would eliminate, I think, to a 

large extent, if not completely, the difference that we have in our 

projections about the share of earnings that will be dropping down 

below this taxable maximum; that is, the share that we are concentrating much more so up above. The earnings concentration would 

not matter nearly as much if we did not have the taxable maximum as, you are exactly right, as Medicare does not at this point. 

Mr. BLUMENAUER. But I should go to your website. 

Mr. GOSS. Yeah. 

Chairman JOHNSON. The time of the gentleman has expired. 

Mr. BLUMENAUER. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Can you all send him an answer in writing? 

Mr. GOSS. Absolutely. We can even get you—right after the 

hearing, we will give you this stuff. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. 

Chairman JOHNSON. Mr. Buchanan, you are recognized. 

Mr. BUCHANAN. Thank you, Mr. Chairman. 

I want to thank both of our witnesses today. They keep us focused and dialed in, and this is very good information. 

I can tell you that the numbers I hear, a third—I am from Sarasota, Florida, and in Florida, 237,000 recipients count on Social Security just in my district. I think it is second highest in the country. But a third of the people that receive Social Security, that is 

all they have. There might be a different number; another third, 

it is something but not enough, I mean, or whatever. And then I 

read the other day, 62 percent of Americans don’t have $1,000 in 


ralbany on LAP520R082 with HEARINGS
58 

the bank, so that is why—it was out of USA Today, I think, I read 

that, but I had to read it twice because it is hard to imagine. 

But the bottom line is I agree with my colleagues totally. We 

have got to find a way to work together on a bipartisan basis to 

look at Social Security long term, the viability, whether it is 5 

years short or not, and we have got to find also the other—even 

the bigger issue is Medicare in terms of dealing with that from a 

viability standpoint. 

And then the other thing is just, you know, we all know the 

number, 10,000, 12,000 people a day turn 65 for the next 30 years. 

I can see—you know, come to Sarasota; you see a lot of people at 

90. My mother-in-law just celebrated her birthday, 97. Her sister 

is 103. Another one is 101. You see a lot of that in Sarasota. I don’t 

know about up north, but you see it down—you see it down in the 

Sunshine State, I can tell you that much. 

Mr. LARSON. They are from the north. 

Mr. BUCHANAN. I am just telling you. I did want to touch on 

two things. One is COLA. There is a projection—last year, they 

didn’t get an increase. I do a lot of townhall meetings. It is a big 

issue. I can’t believe how big it is, but it is a big issue. I think one 

of you is projecting .2; the other one is .6. What is the difference, 

if you could do that quickly because I have one other question, comment? 

Mr. HALL. The big difference for us is that our economic projection was done well in advance of the long-term budget outlook, so 

we didn’t have very much data for this year. That is the big reason 

why we were so low. 

Mr. BUCHANAN. Okay. 

Anything? 

Mr. GOSS. Our projection was actually developed sort of very, 

very early in this calendar year—because, as Chairman Johnson 

mentioned before, it takes a while to get the reports together after 

we get all the assumptions together. 

Mr. BUCHANAN. So what are you both projecting as the COLA 

rate next year? 

Mr. GOSS. We, in the Trustees report, were projecting a .2 percent. And remember, we were in the hole on the CPI—— 

Mr. BUCHANAN. Okay. 

Mr. GOSS [continuing]. For the last COLA, four-tenths negative 

change in the CPI, so we didn’t have a COLA. So we have to make 

up that four-tenths and have even more increase in the CPI in 

order to have a COLA. 

Mr. BUCHANAN. Okay. 

Mr. GOSS. Our Trustees report at the time was suggesting we 

would have a net .2. At this point, our best guess is about .4, which 

wonderfully is right in between—— 

Mr. BUCHANAN. Right in the middle—— 

Mr. GOSS [continuing]. Where CBO and—— 

Mr. BUCHANAN [continuing]. Split—— 

Mr. GOSS [continuing]. Our best guess at this moment—by the 

way, it is through September of this year—the prices—so it is pretty much locked—— 

Mr. BUCHANAN. Let me say to you all this one other comment 

I want to make, and I am an optimist by nature, but I do have to 


ralbany on LAP520R082 with HEARINGS
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put this out here because I have seen too much as a guy that has 

been in business about being overleveraged. You know, I was born 

in Detroit, grew up in the Detroit area, great American city. It is 

on the comeback, but it was in bankruptcy. I looked at General Motors, iconic. A lot of our friends, you know, worked at General Motors. Both of these, the city and General Motors, a lot of their benefits got cut. 

So, when I look at this whole thing, and I—you know, about the 

ability to pay, it concerns me when we got—we used to be at, when 

I got here, was $8 trillion and change, $9 trillion, now we are close 

to $19 trillion, $20 trillion in debt. Does that concern either of you, 

or are we just kind of kidding ourselves? I mean, Social Security 

has had a great history and great ability to pay, but it does concern 

me, because I have seen a lot of great iconic companies, and I have 

seen big cities, and just the ability to pay. And what happens to 

those Americans—a lot of them were family and friends of mine— 

a lot of their benefits they were counting on all their life, paid in 

for 30 years, earned it for 30 years, and then got shortchanged at 

the end. 

And just in terms of looking forward—and I know in the trust 

fund, there is no money basically. You are counting on the ability 

of the government to be able to make its commitments. What is either of your thoughts quickly because I am sure my time is running out? Mr. Goss. 

Mr. GOSS. I would just say that really you cannot compare Social Security and its solvency challenge to the Federal Government 

as a whole, because the Social Security trust funds really are so 

very different. The Social Security trust funds cannot go negative. 

There is no borrowing authority. So we do have $2.8 trillion. That 

is small relative to the long-term obligations it brings us. So it is 

a pay-as-you-go basically system, and really, I think the assurance 

that I would suggest that the American people should take about 

having the benefits come forward is your commitment. 

We are absolutely confident that you, people on the Senate side, 

will maintain this program for the American people who elected 

you because it is so important to them, and that really is the ultimate—— 

Mr. BUCHANAN. Mr. Hall, quickly, do you have any comments? 

I just would like, both of you, to just get your thoughts on it. 

Mr. HALL. Sure. Well, certainly, by assumption, in our forecast, 

and we assume that you are going to live up to your commitment 

on this. We have never done a scenario, but if we did a scenario 

where if you all did not and let the trust funds go down, we would 

have a pretty significant impact on not only the budget but probably economic growth and a lot of the economic numbers that 

would be shocking probably. 

Mr. BUCHANAN. Well, I thank both of you. 

And I yield back. 

Chairman JOHNSON. Thank you. 

Mr. Smith, you are recognized. 

Mr. SMITH. Thank you, Mr. Chairman, and thank you to our 

witnesses here today. Obviously, despite the differences in various 

reports, both of you point to some realities that are out there. 


ralbany on LAP520R082 with HEARINGS
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Mr. Goss, your office routinely produces memos on Social Security reform plans introduced by Members of Congress and others. 

Along with information on Social Security solvency, these memos 

also show the effects of any benefit changes the plan makes. However, the memos do not include any information about additional 

taxes an individual pays due to the plan. Yet some plans, the tax 

changes are the big story, so why not show these effects? And certainly I would add that tax changes affect workers as well. Can you 

respond to that? 

Mr. GOSS. Very, very good point, and we have been talking with 

members of your collective staff about changing this. Really, I 

think, essentially, the reason for this has been that, by and large, 

when there would be a change in revenue, most proposals through 

change in revenue would be to simply change our 12.4 percent tax 

rate, 6.2 percent paid by the employee, to raise it to something 

higher; or for people who have earnings above our $118,500 taxable 

maximum, to start applying the tax rate there as opposed to not. 

And that is relatively straightforward. That is a lot easier to comprehend what is going on there and just sort of understand that 

than it is to say, if we change the normal retirement age by a year, 

what does that really mean for benefits? 

I think we really should have—point well taken. We are working 

towards developing sort of a comparative table that would show 

something about revenues as well, because some of the revenue 

proposals can get more complicated, as many people on this bench 

today know. So we are going to move toward that. 

Mr. SMITH. I appreciate that. 

And this discussion we are having today, I think, is especially 

productive. I would share the sentiments of my colleague from Connecticut that it is an insurance program, and I would add that we 

should probably keep it that way and be mindful of those dynamics 

of what an insurance, you know, structure is, and what it is not. 

But back to the labor force participation. I mean, you are suggesting that the labor force participation goes back up. What assumptions would that be based on? 

Mr. GOSS. Well, recessions have happened before. Our most recent recession was a special recession. Many have opined it is sort 

of the worst thing since the Great Depression, but this is a strong 

country. We have recovered from recessions before, and we assume 

absolutely we are going to recover from this recession. 

Being as deep and strong a recession as it was, we are not surprised that it is taking longer than the recovery from those past 

recessions. We are pretty confident it is going to keep coming back. 

On the labor force participation rates, the place where they have 

been hit most are people who are younger. Some have opined that 

the people under 25, the share of them that are either in the workforce or in education hasn’t really changed a lot. 

So we are pretty confident that, as the economy gets stronger, as 

more jobs become available, that people will get back in the labor 

force and want to work, and most particularly, people under 25 

who have been out of the labor force in this bad recession, we do 

not believe that as they get to be 35, 45, and 55, they are going 

to be permanently not in the labor force. We don’t see how they can 


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possibly have lower participation rates in the future really than cohorts in the past. 

And the only reason that we have our overall age-adjusted rate 

going up is because that includes people over 65. People over 65 in 

the future, I will attest to this, I hope, we believe are going to be 

living longer. At any given age, they are going to be living 

healthier, and they are going to be more capable than people at 

those ages in the past. 

That being the case and knowing they are living longer, they 

know they are going to have to live—they are going to have to work 

longer to build up their nest egg, and they will have a greater ability to do so. So we believe that all these things suggest we will not 

only recover, because people want to eat, they need to have a job, 

and that people at older and older ages will be wanting to work 

somewhat longer in the future and have a greater ability to do so. 

Mr. SMITH. So what growth rate would you suggest would—I 

didn’t see it here, would trigger a return to a labor force participation rate that you find to be optimal? 

Mr. GOSS. Well, if we look at labor force—— 

Mr. SMITH. And probable—— 

Mr. GOSS [continuing]. Participation rates sort of age by age, 

which I would suggest is the way to look at it, if you say our population is changing its age distribution and you allow that to affect 

what you are saying is the labor force participation rate, then that 

will be very difficult to understand what is going on, could be misleading. So we will look age by age, look age-adjusted, and we basically are returning to essentially the labor force participation rates 

we had at younger ages, below 65, as in the past. But for higher 

ages, over maybe 55, because of the longevity factor, because we all 

agree that people are going to be living longer and living healthier, 

we believe that people will have the ability and even the need to 

be working longer in the future. 

I mean, there has been considerable mention here of defined benefit plans by large corporations have been on the wane for quite 

some time now, so people, we believe, are understanding and will 

be understanding a greater need to work longer in the future. 

Mr. SMITH. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Mr. Kelly, you are recognized. 

Mr. KELLY. Thank you, Mr. Chairman. It is great to see you 

back. 

Mr. Larson, Mr. Blumenauer, it is good to be with you all. 

Because what you are touching on, now, the two of you, the one 

thing you do agree on is that this thing hits a wall, one 5 years 

later than the other. But you both agree on that, and you both 

come down to it is just because of—and just maybe explain it, very 

short, where does the revenue for Social Security come from? How 

are the benefits paid? Where does the money come from? 

Mr. HALL. Well, obviously, it is from the labor force, the number 

of people working. 

Mr. KELLY. Right. 

Mr. HALL. We have pretty different forecasts of GDP growth, I 

think, nominal GDP growth. That is one of the big differences and, 

of course, the labor force participation. We talked about that a little 


ralbany on LAP520R082 with HEARINGS
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bit, but I didn’t mean to be misleading when I pointed out that one 

of our differences is that the historically low levels of labor force 

participation by almost all ages below baby boomers, but the biggest difference is we see a bigger impact of the retirement of baby 

boomers. 

We see a bigger age impact. So, for example, right now, we look 

at labor force participation about 67.1 percent. We think it is going 

to go down to 62.5 percent and then down to 60 percent in 10 

years. That is a pretty big drop, and those are baby boomers retiring. And to give you some idea, right now, those 65 and older are 

about 25 percent. They are about—of all the people who are working age 20 to 64, the people above—65 and above is about 25 percent of those folks. 

In 75 years, it is going to be about 50 percent of those folks. So 

it is this demographic, this aging, that is having the biggest impact 

on revenues going forward, and then, of course GDP growth. We 

have really lowered our GDP growth for—— 

Mr. KELLY. Yeah, I think there is confusion sometimes when I 

am back home—and it is almost 40 percent of the people in the district that I live receive Social Security benefits. 

Mr. KELLY. Now, not all those who receive benefits are actually 

donors to the fund, but we have changed that dramatically from 

what Social Security started at to what it is today. In other words, 

who puts money in and who gets to take money out, that also distorts the model. 

But I think the confusion does come down to when you talk 

about the participation rate, the money does not come from the 

government. The money comes from working people. That is where 

the money comes from. Also, this is so basic, and I think when we 

talk about these things, we make it something that is really complicated that is not that complicated. You either have more money 

going in and less money going out, or if there is too much money 

going out, you have got to get more money going in. It is just that 

simple. And, unfortunately, when they first devised this plan, people weren’t living as long. For somebody my age, I am glad that 

they were wrong, but we still have a problem with revenue. It 

doesn’t change. 

A dynamic and robust economy is the only thing that fixes this, 

right? Is there something I am missing here? Because, unless we 

get more people working, we are not going to have the revenue that 

we need. And so when we talk about all these marvelous plans and 

what we could do to save Social Security, the one thing we better 

do is find people jobs. It is just that simple. My whole life—listen, 

I own a business; 12.4 percent of every paycheck went into Social 

Security, right? That is just by law: 6.2 from the owner of the business, 6.2 from the person out there working. So we play this ring– 

around–a–rosy about who is going to do what. I tell you what to 

do: Get people back to work. Give them a chance to get up in the 

morning and go to work. They will put money in. They don’t have 

any problem with helping to fix it, but they have to have a job to 

do it. 

So a dynamic and robust economy is the whole answer to this. 

And while we talk about how we could adjust the plan, I would 

rather fix it at the source. And that is the people who put it in. 


ralbany on LAP520R082 with HEARINGS
63 

I know you guys do marvelous work. And, believe me, the Chairman said we need to get ready. Here is what we need to get ready 

for: We are all partners in this. We are joined at the hip, not as 

Congressional people and you as working. As Americans, we are 

joined at the hip. Why we can’t see that—and I don’t want people 

to think that somehow there is somebody in a beautiful knight’s 

outfit on a white charger is going to come running and save the 

day. It is going to happen with working people and Congressional 

leaders and government people who work together to fix it. So I 

know you are 5 years apart, but there is one thing you agree on. 

Mr. GOSS. Could I just add on the labor force participation 

rates—— 

Mr. KELLY. Yeah, sure. 

Mr. GOSS. Dr. Hall was mentioning what we would call sort of 

like an overall or a gross participation rate. It is really, really important, because we do have demographic assumptions, and we 

have economic assumptions, and separating them is really important. 

No question our population is aging in the future. We are going 

to have a greater share of our adult population over 65. That is absolutely true. But when we talk about labor force participation, if 

you just want to look at it sort of all the 16 and over, a smaller 

share will be working, yes, because a lot of people will be over 65, 

more than in the past. If we really want to talk about the tendency 

for people to be in the labor force, though, we have to look age by 

age or taking out the age distribution effect. And that is what we 

have really done in these projections, and that is where we are 

showing that we are going to be basically stable with a little bit 

of rise in the future because people living beyond 65, we believe, 

will be healthier and living longer and have a greater ability and 

that we will return after the recession, for people under 65, back 

to levels similar to what we had before the recession. If we don’t, 

then we—— 

Mr. KELLY. I get it. I get it. The number one problem that people have who are trying to hire people is finding people who are 

qualified to do the jobs that are available today. It starts at a level 

of educating people. I sat on a school board, and I would go in and 

talk to guidance counselors. You know what they talked about? 

They talked about the kids who were going to Harvard, the guys 

who were going to Yale, the guys who were going to Princeton. I 

said: Don’t tell me about that. Tell me about the kids who aren’t 

going anywhere. Tell me about the kids who, when they graduate, 

have no place to go. Are we getting them ready for any jobs that 

are out there? 

I come from a steel town in a railroad-car-making town. And if 

there is anything that has been hit worse than that, I would like 

to see where it is. But it is getting people ready for the world we 

live in today so that they can walk out of that schoolroom and onto 

the field and play and participate. It is the low participation rate 

that is killing us. 

Now, we changed the metrics of how we were going to pay out 

Social Security. I get that. Beneficiaries, not every single beneficiary ever put any money in the account. As a guy that handles 

a pension account for my own people, I could not do what the govVerDate Sep 11 2014 06:46 Jun 16, 2017 Jkt 023191 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\23191.XXX 23191

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ernment has done to the account. If I did it with my pension plan, 

I would be in jail. So we have played with this thing for far too 

long. I agree with my colleagues on the other side, and we talk 

about this when we are off the floor and sometimes on the floor. 

We have got to fix this thing. 

The other thing, we have got to get the American people aware 

that you have got to get to work. It is about jobs, jobs, jobs, and 

more jobs. We have got to get this labor force participation rate up. 

That is where the answer is. We have got to create a dynamic and 

robust economy where every single American can get up every day 

and not just walk to their job but run to their job, because they 

can take care of themselves, their families, and the future. 

Mr. Chairman, thank you so much for calling this. Listen, John 

and I and Earl, we get along so well in this, I just think people 

at home would be shocked at how well we get along because they 

seem to listen to people on the Internet rather than people who actually are here. So God bless you for what you are doing. We want 

to work with you. 

Chairman JOHNSON. Thank you. 

Mr. Rice, you are recognized. 

Mr. RICE. Thank you, Mr. Chairman. Thank you for holding this 

hearing today, and I am glad to see you back. 

You know, this is a difficult problem. It is not terribly complex. 

As Mr. Kelly says, we make it more complex than it is, but it is 

just math. We have got less money coming in than going out in the 

long run, and that money will run out eventually, and so people’s 

benefits will have to be reduced unless we do something. Everybody 

in the room knows that, eventually, we will do something. The 

President says the Social Security trust fund will expire sometime 

in this timeframe, 2030 to 2033. Every Republican, every Democrat 

in the House and the Senate, they all say the same thing. They all 

go home, tell all their people back home: this is happening and 

needs to be dealt with. 

And yet there is a dearth of solutions, specific solutions offered. 

Why? Because it is difficult. Why? Because if you talk about reducing the outgo, cutting people’s benefits, you make that population 

angry. If you talk about raising the revenue, you make another 

population angry. And politicians are loath to make people angry. 

But we have to offer solutions. I believe it is one of the factors that 

is holding our economy back. I believe it is one of the five major 

issues that are holding our economy back, that are holding our job 

creation back, that are holding our American optimism back, and 

that it is something that is solvable. We just have to—as AARP 

used to run commercials just recently—take a stand. Of course, if 

you ask them what their plan is, they won’t tell you. They won’t 

take a stand. 

So what we have to do is we have to show political courage here, 

and I am very, very hopeful that this committee through these 

hearings is preparing to do exactly that, to offer a plan to solve this 

problem, to take this problem off the table, once and for all, and 

to resolve it so that we can move forward. But if we have CBO and 

we have the Social Security Trustees differing on the numbers so 

that we don’t know exactly what target we need to hit, that obviously makes the problem a little more difficult—a lot more difficult. 


ralbany on LAP520R082 with HEARINGS
65 

When we deal with this problem, we want to get to 75-year solvency. That is how both of you-all defined solvency, right, 75 years, 

right, both of you? So I really hope that you can sit down together 

and pull a little closer on exactly what that will take, because if 

we have to, when we come up with our solutions and put those on 

the table and go through the wrangling that we need, we sure don’t 

want to have to revisit this in just a few years. Once we resolve 

it, let’s get it resolved and put it to bed. 

So I am hopeful that you all can come together and compromise 

on your assumptions like we are going to have to compromise on 

our solutions and put this thing to bed for the American people so 

that they don’t have to be threatened by the fact, by Republicans 

and Democrats, by the President and the House and Senate, every 

time we speak about Social Security and this potential for the trust 

fund to go bankrupt. Thank you. 

Chairman JOHNSON. Thank you. 

Mrs. Black, you are recognized. 

Mrs. BLACK. Thank you, Mr. Chairman. 

And it really is good to see you back looking so good and out 

kicking butt with a new knee. We are really happy to have you 

back and being the Chairman of this Subcommittee. 

Such an important issue for us to discuss, and as my colleague 

to my left has indicated, you have got to have good information in 

order to make good decisions on how you fix the problem. 

So, Mr. Hall, I want to go to you. In the past, the CBO used some 

of the Trustees’ demographic assumptions in their forecast of Social 

Security solvency, but recently that has changed. How does CBO 

decide which numbers to use from those external sources, including 

the actuary, and which numbers to produce internally? 

Mr. HALL. Sure. First of all, to put this in perspective, up 

through 2012, we simply used the demographic assumptions as the 

Social Security Trustees. In 2013, we changed that, and that actually was the biggest change I think, in our actuarial balance. And 

the biggest change we made there was we looked at the rate of increase in mortality, mortality improvements over time, which 

would, which looked to be going—the improvements were much 

quicker, I think, than our previous assumption. So we followed the 

recommendations of demographers. We followed the recommendations of the Social Security technical panel, and we did our own 

analysis when we made the decision to increase the improvements 

in mortality, and it raised the longevity of the population 75 years 

from now, and that had a pretty big impact on our actuarial balance. 

So the way we are operating is we are there to be independent 

and objective and make decisions that we think are the best. So we 

continually talk with our panel. Most of our changes, we talk to our 

panel of economic advisers. They are very prominent people. We 

look at research. We do our own research, and I say we look at 

what Social Security folks are doing and what the technical panel 

is recommending, and we make decisions that we think give us the 

best forecast at any point in time for the next 75 years. 

Mrs. BLACK. Mr. Goss, do you want to respond to that? 

Mr. GOSS. Yeah—actually, I am going to—perhaps the detail, 

but actually CBO was using our population projections lock, stock, 


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66 

and barrel through 2010. Then, in 2011 and 2012, CBO made some 

changes to use somewhat different immigration assumptions. Dr. 

Hall is exactly right. It was in 2013 that truly dramatic changes 

were made at CBO on the mortality projections. They stopped 

using ours. Also disability incidence rate assumptions were 

changed at CBO. Lots of different things were changed, but the 

mortality in particular was really, really critical. 

Longevity is really, really important. One thing that we have recognized over the years is that there is an age gradient, that mortality rates tend to drop, have dropped historically, a lot faster at 

younger ages than at older ages. And in 2012, based on the recommendation of one of our technical panels—and by the way, we 

get recommendations from people all over the place. Every 4 years, 

another technical panel, we get lots of recommendations. We and 

the Trustees look at them all and take them all under advisement. 

But that panel—and CBO went with it—said let’s go to roughly 1.2 

percent per year reduction, all ages the same. And we are assuming about .8 percent overall with a slower rate of decline at high 

ages and a faster rate of decline at younger ages. 

Now, I am happy to say that Keith and CBO have now gone 

away from that assumption that they went to in 2013, and as of 

2016, they have modified their mortality assumptions in a way now 

that come back very, very much closer to ours. I think the net effect on mortality should be very similar to ours, from the best we 

understand it, because we actually put out an actuarial note, No. 

158, right around the time of our last Trustees report that analyzed some work by Ron Lee, a really good demographer out, formerly of Berkeley. I think our impression is that what CBO is 

doing now is very similar to what Ron Lee did. Ron Lee has a little 

bit faster rate of overall decline in death rates, but a much bigger 

differentiation between high and low ages. And the impression we 

have at least is that’s where CBO is at this point. The bottom line, 

though, is the net on mortality is now very similar. So CBO, as of 

2016, is not having as big an extra shortfall from mortality as it 

did in 2013, 2014, and 2015. But at the same time that change was 

made, also the birth rate was altered at CBO that literally went 

in the direction of assuming a substantially lower birth rate going 

on indefinitely into the future, which would result in a big change 

in our age distribution and, therefore, in the cost as a percent of 

payroll for this program. 

Mrs. BLACK. Would you like to respond? 

Mr. HALL. Sure. Let me just jump to, I was sort of giving you 

an idea of why we started changing things, because we really started changing things in 2013. Where we are right now, the biggest 

difference comes from the share of earnings subject to Social Security tax. That accounts for the biggest difference. Second is our 

nominal GDP, our economic forecast, is pretty significant. That 

makes a big impact. And then the third thing is the demographics. 

So, at the moment now, most of the differences are more basic than 

that. They are sort of economic differences rather than demographic differences. 

Mrs. BLACK. Thank you for that clarification. 

I yield back. 

Chairman JOHNSON. Thank you. 


ralbany on LAP520R082 with HEARINGS
67 

Mr. Becerra, do you care to question? 

Mr. BECERRA. Yes, Mr. Chairman. Thank you very much. 

First, gentlemen, thank you for your testimony and your work 

over the years. I know you have covered a number of things, so let 

me just zero in on a few. 

Mr. Hall, you just talked about the earnings subject to Social Security tax. I suspect the two of you will agree that the earnings 

subject to Social Security tax has remained consistent for—how 

long has it been since we have had the 12 and a quarter, 6 and 

an eighth, 6 and an eighth? So—— 

Mr. GOSS [continuing]. 6.2 for—— 

Mr. BECERRA. Mr. Goss, clarify. How much is paid in by a 

worker, and how much is paid in by the employer of the worker? 

Mr. GOSS. For wage and salary workers, they paid in 6.2 percent of the employee’s wage and salaries each. So they split it even. 

Self-employed workers are responsible for paying the whole thing. 

Mr. BECERRA. 12.4. 

Mr. GOSS. 12.4. 

Mr. BECERRA. Okay. So 12.4 percent, Mr. Hall, you’d agree 

with that? 

Mr. HALL. That is right, although let me just clarify, when I say 

the share of earnings subject to tax, I am really talking about the 

effects of the maximum, the tax max, on a payroll. 

Mr. BECERRA. Let’s go there. Let’s go there, because there is a 

maximum amount that you can have withdrawn from your paycheck to cover the 6.2 plus 6.2 percent of the payroll tax. And, Mr. 

Hall, what is that maximum now? 

Mr. HALL. Oh, the tax max? 

Mr. BECERRA. Yeah, the tax maximum. 

Mr. HALL. I don’t remember now. $116,000? 

Mr. GOSS. $118,500. 

Mr. HALL. So the real difference for us is we forecast growing 

income inequality. We think that income inequality is going to continue to grow—— 

Mr. BECERRA. I want to go in a different direction. What I am 

trying to just do is establish what we do know as fact and the hard 

things that we can work with because from there, we make our 

projections. And as it has become clear, you have differences in 

your projections. And which one comes true, probably none of us 

will be alive to see. But they are projections, and they are very important because that is how we are going to base our policy and 

how we act. 

But we know that Americans are contributing 6.2 percent of 

their paycheck and their employers are contributing another 6.2 

percent for a total of 12.4 percent. I showed a chart that indicated 

that, over the course of the 80 or more years that Social Security 

has been around, we have contributed a total of about $19 trillion—well, it is $19 trillion that the trust fund has collected and 

the Social Security system has collected, but that would include 

also the money that has earned interest on those tax contributions 

that have been paid in. 

Mr. Goss, how much of that money that Social Security has 

brought in under the program, Social Security program, has come 


ralbany on LAP520R082 with HEARINGS
68 

from the interest earned on the tax contributions of American 

workers? 

Mr. GOSS. We do have that in our Trustees report. I could look 

it up. I don’t know if we have the time to do that now. Mr. BECERRA. I know it is roughly $2 trillion. I just don’t know how close to the $2 trillion—— 

Mr. GOSS. It is a relatively small portion because really the aim 

historically of Social Security is not to be a fully advanced—a little 

actuarial term here—a fully advanced funded system like a private 

pension. Mr. BECERRA. Spoken like a true actuary, that $2 trillion is a 

small portion. Mr. GOSS. Sorry. The $2.8 trillion, in the context of this program, it is only 3 years’ worth of our benefits, and the kind of pensions that we might be familiar with out in private industry typically to be fully advanced funded have to have about 25 times annual outgo. 

Mr. BECERRA. So here is what I think is important that gives 

us a chance to come up with some policy solutions to track that 

challenge that is coming up, and that is that, along with those $2 

trillion that have been earned in interest from Americans’ tax contributions into Social Security over 80 years, that complements— 

the number I have here is $17 trillion that Americans have paid 

into Social Security since its inception in 1935. To me, what is remarkable about that number, $17 trillion plus $2 trillion, $19 trillion, is that we continue to pay it. A lot of Americans could have 

been skeptical about the program and said: You are taking money 

out of my paycheck. That is money out of my pocket that I could 

be using right now to buy that house or maybe save for my retirement myself. 

But we continue to do it to the point now where tens of millions 

of Americans are now benefitting from having believed that the 

system was going to work. And so far, every American who paid 

in, as I said, has been able to know that he or she is going to get 

his or her money in full on time until they die. And that is the 

beauty of Social Security, where the reason why I think we are 

going to find Americans saying: You better make sure you fix Social Security the right way because it is about the only thing that 

we have found reliable over the years, public or private. 

And if you think about what has gone on with the financial services institutions, with Wells Fargo and how it defrauded a number 

of Americans, you need to have confidence in your programs. And 

that is where I think your testimony, both of you, has been valuable. 

Mr. Chairman, I am glad we are doing these hearings because 

this is going to take us a little closer to having those conversations 

we need to actually come up with some policy. So, Mr. Chairman, 

I thank you for holding this hearing. 

I thank our two witnesses for their expert testimony. 

Chairman JOHNSON. I do too. 

And we all know Social Security is in trouble, and just how much 

depends on who you talk to. While 75-year estimates aren’t ever 

going to be perfect, having CBO and the Trustees so far apart does 

raise questions, and rightfully so. Congress relies on these well-reVerDate Sep 11 2014 06:46 Jun 16, 2017 Jkt 023191 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\23191.XXX 23191

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spected experts to give us the best information so we can make decisions on the best ways to strengthen Social Security for our children and grandchildren so they can count on it, just like seniors 

and individuals with disabilities do today. 

And I appreciate you two being so straightforward with us. 

Thank you for being here. Thank you for your testimony. 

And thank you to all the Members who are still here. I appreciate that too. 

And that concludes our testimony today. And, with that, the Subcommittee stands adjourned. 

[Whereupon, at 11:24 a.m., the subcommittee was adjourned.] 


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70 

Member Questions for the Record 


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The Honorable Xavier Becerra 

,t-'- SE(""-?: 

cf~ .. ;~;~~~''' USA ~ 

\ lllllll,l /l\lls-r~"' 

SOCIAL SECURITY 

Office o f t h t' Chi ef Actuary 

December 6, 2016 

Ranking Member, Subcomrniuce on Social Security 

Commiuee on Ways and Means 

House of Representatives 

Washington, DC 20515 

Dear Mr. Becerra: 

Thank you again for the opponunity to testify before the Conunittee on Ways and Means. 

Subcommittee on Social Security. at the September 21, 2016, bearing on "Understanding Social 

Security's Solvency Ch:lllenge." It is always a pleMure working with you, Kathryn Olson, and 

everyone associated with the Subcommiuec. I hope the information that I provided at the hearing 

will be helpful. Below I have restated the seven questions you sent to me on November 4. 2016, 

and have provided answers. 

1. Please describe tbe model or approach tbe Office of the Chief Actuary (OCACT) 

uses for making long-range pr ojections, and what you know of the model and 

approach used by tbe Congressional Budget Office (CBO), comparing and 

contrasting the relative strengths and weaknesses of each appt·oach. 

'fhe model our office employs for making long-range projections is motivated by the 

requirement in the law for annual reporting on the "actuarial status" of the OASl and Dl 

Trust Ftmds. Our model has been under constant development and refinement for over 80 

years, since before the original Social Security Act was signed in 1935. 

Because the Social Security and Medicare programs provide coverage for vimta lly the 

entire United States population, plus several outlying areas, we stan with a 

comprehensive projection of the entire "Social Security area" population. retlecting 

de~ailed asswnptions about birth, death. in1rnigrac ion. marriage. and divorc.e assumptions 

by age and sex. Great detail is necessary due to the differences in empiO)Oncnt experience 

and benefit options for these groups. 

These population projections are then passed tO separate models for projecting the 

percentages of the population by age, sex. and marital status that are employed. become 

insured for potential receipt of benefits, and ultimately receive benefits. Additional 

models then build on the projected beneficiary population. developing detailed 
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distributions of benefit levels and total amounts of benefits as scheduled in the law. A 

final model combines the projected benefit costs with projected payroll tax revenue, 

projected income tax on the benefits, and interest on tn1st reserves to project the annual 

levels of reserves on hand. This determines the solvency of the trust funds and the degree 

to which Congress will need to make adjustments in program specifications so that future 

scheduled benefits can be paid in full on a timely basis. 

The main actuarial model described above incorporates both a short-term 10-year 

actuarial model and a long-term 75 -year actuarial model that are developed separately but 

are closely coordinated to assure both perspectives are reflected in the results. The model 

uses various types of analyses, including, for example, regression models for labor force 

projections and microsimulation models for projecting benefit levels for those who begin 

receiving monthly benefits. Extensive documentation of the model, assumptions, and 

results are publicly available and reviewed on a regular basis by a range of oversight 

entities, both formal and informal. We strive for transparency in all aspects of our model, 

except for disclosing data that could compromise personally identifiable information. 

In addition, our office develops and regularly runs separate comprehensive stochastic and 

microsimulation models to assure that the main actuarial model can be informed by all 

that these separate models offer. In this way, we are able to take advantage of the 

strengths of all of these models in developing not only the projected actuarial status under 

current law, but also the implications of potential modifications of the Social Security Act 

considered by Congress and other policymakers. 

Our understanding of the models employed by CBO is less detailed. We understand that 

projections for the first 10 years are provided by various divisions outside of the division 

responsible for long-term projections. CBO's long-term projections use a 

microsimulation model (CBOL1) that was developed around 2000. Comprehensive 

microsimulation models, like CBOLT and our Polisim model, are very useful in 

developing distributional analysis of the individuals simulated in the model. However, 

because "transitional probabilities" must be developed and applied on an individual 

person basis, such comprehensive microsimulation models can be complex and 

cumbersome, while at the same time potentially limited in the numbers of individuals that 

can be included in the simulation. As a result, microsimulation models can produce 

somewhat uneven results over time and across age groups. Given the complexity of 

making many transition determinations for each simulated individual for each year, it can 

be difficult to manage overall aggregate results from such models. It is for this reason that 

we utilize microsimulation in our main actuarial model only for limited areas where 

detailed distributional results are essential. Beyond these general considerations based on 

our extensive experience with all types of models, we are unable to provide specific 

analysis of the CBO model, much of which is closely held by CBO. 

2. Please elaborate further on your projections regarding changes in the rate of labor 

force participation, and the reasoning behind the assumptions you make about the 

future, compared to past experience. Also, why are these rates shown in 
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Page 3 - The Honorable Xavier Becerra 

presentation after adjustment for age and sex, and what is the impact of this on your 

modeling and projections? 

Our labor-force participation rate model reflects historical experiences and future 

expectations for disability prevalence, marital status and child presence, the state of the 

economy, trends in educational attainment, and trends in longevity. We also incorporate 

cohort effects where appropriate. We find these factors are related to changes in labor 

force participation rates (LFPR) by age and sex, particularly the declines in male rates at 

ages 25-54. Over the past several decades, increases in disability prevalence and the 

percent never married appear to explain most of the decline. 

In order to understand the effects of changes in LFPR over the past and the future, we 

look at age and sex specific rates, summarizing these rates into an age-sex-adjusted rate 

by applying all age-sex-specific rates across years to a single standard population. This 

approach allows us to see the specific rate of engagement in the labor force, free of the 

effects of a changing age distribution of the population over time. Effects from the 

changing age distribution of the population are best considered separately from the basic 

propensity to engage in the labor force by age and sex. If LFPR is presented for the adult 

population as a whole on a "gross" basis (total number of individuals in the labor force 

divided by the total population age 16 or over), the time trend provides an inconsistent 

comparison of tendency to engage in the labor force. In addition, if underlying population 

projections produce different age distributions for the adult population (as for our 

projections and CBO projections), then gross LFPR is not even comparable for the same 

year. Age-sex-specific, or age-sex-adjusted LFPRs are necessary to make a valid 

comparison over time or across two or more projection models. 

Our LFPR model projects that once the economy returns to full employment, the ageadjusted LFPR for males will rebound to nearly the same historical levels as seen in the 

1990's and early 2000's, and the age-adjusted LFPR for females will rebound to levels 

higher than seen in this historical period. Thereafter, our model projects some modest 

further increase in age-adjusted LFPRs based on the assumption that increasing 

longevity will reflect in part better health and ability to work to higher ages. In fact, our 

2011 and 2015 Technical Panels both recommended that we project LFPRs even higher 

than we have for recent Trustees Reports. 

One area of difference among some forecasters is the extent to which recent declines in 

LFPRs, particularly at ages under 25, will persist as the cohort ages. Some believe that 

the reduction for those under age 25 will be permanent for the rest of their lives, and will 

result in lower LFPRs for all future generations at all ages. We have not seen a 

convincing rationale for this dramatic permanent level shift in LFPR at all ages. In 

addition, we do not believe that the slow recovery from a very deep recession should be 

interpreted as evidence of a permanent shift. The degree to which LFPRs by age and sex 

may have been permanently affected by the recent recession is yet to be determined. 
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3. Please elaborate further on your projections regarding the rate of increase in 

income inequality, and the rationale for the assumptions you make about the future, 

compared to past experience. 

We focus carefully on several aspects of income distribution and changes in the 

distribution. The share of national income from the sale of all products and services that 

is paid in the form of employee compensation and self-employment earnings is 

important, and has been relatively constant in the past. The share of employee 

compensation that is paid in the form of wages and salaries is particularly important, 

because most "fringe benefits" are not subject to the Social Security payroll tax. We 

proj ect a small rate of decline in the share of employee compensation that will be paid in 

wages and salaries, largely based on expected increases in the cost of health insmance 

provided to employees by their employees. 

Most important for the past several decades has been the increasing concentration of 

earnings (wages, salaries, and self-employment income) among the top 6 percent of our 

workforce. In the early 1980's, Congress set the Social Security taxable maximum level 

with the intent that about 90 percent of all covered earnings would be below that taxable 

maximum and thus subject to the payroll tax. For 1983, the share of earnings below the 

taxable maximum was about 89 percent. In order to maintain this share, Congress 

specified that the taxable maximum would be indexed to the annual rate of increase in the 

economy-wide average wage level. Had the relative distribution of the workforce by 

earnings level remained as it was in 1983, the share of earnings that is taxable would 

have remained at 89 percent. Instead, this "taxable share" has declined to about 83 

percent. 

As we have detailed in testimony, the increasing concentration of earnings among the top 

6 percent of earners has reduced the share that is below the taxable maximum at a rapid 

rate of0.34 percent per year between 1983 and 2001 . However, this rate of reduction in 

the taxable share slowed considerably between 2001 and 2014, to only 0.1 2 percent per 

year. Our current proj ections continue this slowing to 0.04 percent per year between 2014 

and 2027. We believe that there is a limit to such earnings concentration, and that the 

deceleration we have seen recently signals that we are approaching that limit. 

We understand that CBO projects a strong reacceleration in earnings concentration and 

reduction in the taxable share of covered earnings between 2014 and 2027. A further drop 

in the taxable share from the current 83 percent to just 77.4 percent by 2027, as projected 

by CBO, suggests substantial structural changes in the economy and employment in the 

near future. 

As a further note, we believe that the actuarial status of the Social Security program 

should be assessed relative to taxable payroll, which is the tax base available to support 

the program. Considering Social Security cost as a percent of Gross Domestic Product 

(GOP) is interesting, but is not directly relevant to the actuarial status of the trust funds. 

Moreover, comparing program costs, income, or shortfalls as a percent of GDP across 

two or more proj ection models can be misleading. For example, in a model where payroll 
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Page 5 - The Honorable Xavier Becerra 

is declining as a share of GDP (as it does if the model assumes increasing earnings 

inequality), considering cost as a percent of GDP makes the cost of the program appear to 

be small and rising slowly. At the same time, the cost of the program will be rising faster 

as a percent of taxable payroll, the actual revenue base for the program. 

4. Are there special considerations that should be taken into account when making 

long-term (75 year) projections as compared to making near-term projections, such 

as the 1, 5 or 10 years that have long been a focus for CBO? 

Projections of 5 years or less for the economy, the population, and operations of the trust 

funds are generally done by extrapolating very recent trends. It is difficult in this short 

time frame to accmately project turning points in trends and changes in underlying 

conditions. For a long-term proj ection of 50 or 75 years, it is essential to make judgments 

about the ultimate average levels or rates of change for parameters, reflecting expected 

changes in underlying conditions and movements within economic and other cycles. A 

10-year projection is generally too long to use a simple extrapolation of recent trends and 

requires consideration of how and when recent trends will transition into long-term 

ultimate levels or rates. 

For long-term assumptions, we generally consider longer-term historical average levels 

or trend rates of change as a starting point. However, analysis of the underlying 

conditions that contributed to the historical experience, and an assessment of the degree 

to which these underlying conditions are likely to change in the future, is criticaL Every 

long-term assumption should be analyzed for reasonableness. 

5. Please discuss the notion of making incremental changes in assumptions from year 

to year, and how you approach whether and to what extent your assumptions 

should reflect recently-observed changes in economic and demographic behavior. 

In selecting longer -term assumptions, it is important to be clear on why the future value 

or trend for each parameter is expected to be the same or different from the past. Recently 

observed changes in any parameter can be simple aberrations due to unexpected one-time 

events, or stages of a cycle. Such recent changes should be given little weight in selecting 

long-term ultimate assumptions. However, some recently observed changes are the result 

of well-understood fundamental modifications in conditions that are highly likely to 

persist, such as the drop in the birth rate after 1965, increased labor force participation by 

women over the last three decades, and of course changes in law. Changes of this sort 

should be reflected in long-term assumptions quickly, potentially even before substantial 

new experience is recorded to reflect the changing condition. 

When recently observed changes persist for several years without evidence that they 

represent a cyclic movement, then some incremental change in the expected ultimate 

level or trend rate is reasonable. If the change persists longer, then further modification in 

the long-tenn assumption may be warranted to the degree that a fundamental or structural 

change in underlying conditions can be identified. The credibility of long-term 
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Page 6 - The Honorable Xavier Becerra 

assumptions and projections depends on the reasonableness of the rationale for 

maintaining or deviating from long-term past levels or trends. 

Adherence to the principle of incremental change has served us well in producing 

consistent and stable proj ections of the actuarial status of the Social Security Trust Funds 

in the annual Trustees Reports starting in 1941. 

6. What is the oversight structure regarding your projections- what other entities 

review or have input into the development of the assumptions, the methods, and the 

results produced by the staff working on the projections? 

The assumptions and methods used for the projections in the Trustees Reports are subject 

to a very substantial level of oversight and demand for transparency. The methods and 

assumptions are reviewed and approved by the members of the Boards of Trustees each 

year, and are certified to be reasonable by the Social Security and Medicare Chief 

Actuaries, as required by the law. 

In addition, Technical Panels composed of actuaries, demographers, and economists from 

outside of the Trustees' process have been appointed by the independent Social Security 

Advisory Board (and earlier by Advisory Councils) every 4 years for several decades. 

These Panels openly and publicly review our assumptions and methods and make 

recommendations for any changes they feel appropriate. Their conclusions are made 

public, along with their rationale for suggested changes. In addition, the Tmstees Report 

projections are subject to an annual full-scope audit by the SSA's inspector general (!G), 

including participation by both a maj or auditing firm selected by the IG and the 

Government Accountability Office . Their findings are published in the agency's Annual 

Financial Reports. 

OCACT publishes extensive documentation, so our methods, assumptions, and the 

projections themselves are scrutinized by a wide range of academics, interest groups, and 

members of Congress. Questions and criticisms that arise from this transparency push us 

to continually develop and refine our projections. In addition, we continually engage with 

outside experts in relevant areas, through conferences and informal contacts, in order to 

solicit other views and discuss the widest possible range of considerations for future 

assumptions. For these reasons, we believe that our projections and methods are the best 

possible at this time and will continue to be in the future. 

7. Why is the discipline of actuarial science relied upon for making long-term 

valuations of insurance systems? 

Actuarial science has existed and has been evolving for centuries. It combines knowledge 

and understanding of demographics, economics, insurance risks, and actuarial valuation. 

These multidisciplinary aspects are necessary to assess the "actuarial status" as required 

by law for our major national social insurance programs. 
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Page 7- The Honorable Xavier Becerra 

Making a valuation of any insurance system requires a precise understanding of the 

nature of the coverage and the basis for its financing. The solvency of the insurer is the 

first priority, to assure that insured status that has been earned by paying premiums will 

be met with benefits as prescribed. Actuaries are uniquely educated, trained, and 

equipped to make these valuations. 

Unlike most other professions, actuaries focus on long-term analysis, which is 

fundamental for many types of insurance. Individuals who have attained insured status 

for Social Security benefits may be decades away from the time when they may claim 

and begin receiving benefits. Thus, experience and training in long-term modeling and 

risk considerations are essential in developing credible valuations of the actuarial status 

of the Social Security program. 

In addition to training, actuaries are subject to a stringent credentialing process, involving 

exams assessing competency in the multidisciplinary aspects of the profession. Once 

credentialed, actuaries are subject to strict continuing education requirements, standards 

of practice, and counseling and discipline imposed by the profession. For these reasons, 

actuaries are essential for performing the valuations required by the Social Security Act. 

Finally, due to the special nature of social insurance at the national level, our office 

employs not only actuaries, but also specialists in demography, and economists 

experienced in all aspects of employment and earnings analysis and modeling. This 

integrated team of professionals carries on the legacy of Bob Myers, who started the 

actuarial work on the Social Security program, even before enactment in 1935. 

I hope this further information will be helpful. If you have any additional questions or need 

assistance in any way, please let me know. 

Enclosures 

cc: Kathryn Olson 

Sincerely, 

Stephen C. Goss, ASA, MAAA 

Chief Actuary 
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COMMITTEE ON WAYS AND MEANS 

Stephen C. Go"s 

Chief Actuary 

Office oft he Chief Actuary Soc:iaJ Security Admlnisttation 

6401 S<:<urily Boulevard 

Bahimor<, MD 21235 

Dear Mr. Ooss: 

U.S. HOU$1; OF REPAESENTATIVES 

WASHIOOTOH. DC 20$1S 

Novembe.r4. 2016 

Thank you for )'Our tc:slimony before the Subcommittt."C: on September 21 at its hearing on 

"Understanding Social Security's Solvency Challenges." h\ order to complcle the n.-cord fM the 

hearing. plea.~c respond lo the following questions: 

I. J>lea.c;e describe tht: model or upproac..:h 'he Office of the Chief Actuary (OCACT) uses for 

making tong·range projections., and what you know of the model and approach used by the 

Congressional Budget Officx: (CliO), eompoting and contrn.lling the relative strengths and weaknesses of <.-ach approach. 

2. Please elaborate further on your projections regarding changes in the rate of labor force 

participation. and t11c rea.soning behind the: assumptions you rnake about the future, compare.d 10 

past experience. Also, why are the.'le rates shown in presentation ~\ftc r adjustment for age and 

sex, and what is the impact of this on your modelir\g and projections? 

3. Please elaborate fun her 011 your projc."Ciions regarding the rate of increase in incon1e 

inequality. and the rationale for the a.c:sumptions you make about the future, compared 10 pa:st 

experience. 

4. Arc thl.:rc spc<:ial considemtions that should be l.:l.kcn into :~;ccount when making long· 

tcnn (75 year) projt.~tions as compared to makin1; near•tem1 pi'Ojec.tions, ~uc h ns the l. S or 10 

years that have long btcn a focus for CBO? 

5. Please discuss the notion of making incremental chaJlgcs iu assumptions from year to 

y.;ar, and how you approach whether and to what extent your assumptions shouJd reflect 

recently·obse:rvcd changes in economic and demographic behavior. 

6. What is the oversight Slructure rcgardina your projcclions - whal other entities review or 

h3vc input into the developmenl of the assumptions, lhc melhods. and the resullS produced by lhe 

stofl" working on the projections? 
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Mr. Goss November4, '2016 

Page2 

7. Why is the diSlCipline of aclUarial scie11ce telied upon for making long.term valuations of insuraJlce systems? 

I would appreciate receiving your response to these questions by November 28, 2016. Please send your response to the attenuon of Kathryn Olson, Democratic Staff Director, Subcommittee 

on Social Security, Committee on Ways and Means, 2017 Rayburn House Office Building, 

Washington, DC 20515. In addition to:\ hard copy, please submit an cltclronic copy of your 

n"'Sponse 10 Kathryn.Oison@mnil.hous.e.gov and to the Subcommittee clerk at 

MM.Russcll@mail.house.gov. 

11lank you agWn for your testimony and your attention to these questions. 
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The Honorable Sam Johnson 

..,;t-'- SEcc, 

~0 ~ w'usll''x 

\ lllllll,l :tl\1/ST\\i" 

SOCIAL SECURITY 

Office of t.he Chie f Actuary 

November I , 2016 

Chaim1an, Subcommittee on Social Security 

Committee on Ways and Means 

House ofRepresentMives 

Washington, DC 20515 

Dear Mr. Johnson: 

Thank you again tor the opportunity to testify before the Committee on Ways and Means, 

Subcommittee on Social Security at the September 21, 2016, hearing on "'Social Security's 

Solvency Challenge." It is always a pleasure working with you, Amy Shuart, and everyone 

associated with the Subcommittee. I hope the infonnation that I provided at the hearing will be 

helpful. Below I have restated the seven questions you sent to me on October 5, 2016, and have 

provided answers. 

1. In your testimony you mention tbat tbe Trustees make gradual changes to 

a ssumptions and do so only after ther e's "compelling evidence" for tbe change. 

What does it take for something to be "compelling evidence?" 

Thank you for the oppommity to clarify. Of course, we update our projections every year 

with all data available since the previous report. This <>fien results in small changes in 

near-tem1 assumptions over the first 5 or 10 years of the projection period. A 10-year 

window is generally used for budget estimates. However, a single year's new data is 

seldom compelling as a basis for a change in the long-term or ultimate assumptions used 

for periods between I 0 and 75 years into the futtue. These longer time horizo11s must be 

considered in assessi11g the actuarial stattiS of the Social Security and Medicare Tntst 

Funds. We have historically made signiticant changes in Trustees Report ultimate 

asstuuptions only when there has been a fundamemal change in the long-range outlook 

for a particular parameter, based on accumulating experience thai differs from the past 

and an understanding of changes in conditions that th;u are expected to persist into the 

future. One example is the drop in the birth rate in the United St:ues afier 1965, when 

binh contro l became widely available and women participated much more in higher 

education and the workforce. This has proven to be a structural ch:mge in our society and 

Trustees Repon ultimate assumptions reOectthis. In other cases, experience can change 

temporarily due to cyclical conditions, like an economic recession or a recovery. Again, 

binh rates provide a good example. The birth rate bas dropped somewhat in the recent 
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Page 2 - The Honorable Sam Johnson 

economic downturn, well below a level consistent with expectations of women in 

national surveys. In a case like this, a Trustees Report ultimate assumption is generally 

not modified rmless the changed experience extends, and a rationale becomes evident for 

believing that the change will be permanent. 

2. The Trustees and the Congressional Budget Office (CBO) are looking at the same, 

or at least very similar, historical data on earnings growth, but come to very 

different conclusions about the share of earnings that will be subject to payroll 

taxes. Can you please explain why this is? Please also provide the dollar values 

equivalent to 90°/o of covered earnings for each of the next 10 years. 

We monitor growth in average earnings levels and the distribution of earnings very 

closely. We determine the growth in average wage levels in the U.S. economy annually 

in order to update several program parameters, like the taxable maximum level of 

earnings covered under the program. As indicated in my testimony, the percentage of 

OASDI covered earnings that is below the taxable maximum has fallen between 1983 

and 2001 . from 89.3 percent to 84. 3 percent. The ratio of taxable to total covered 

earnings declined at a rapid rate of 0.32 percent per year over this period. However, 

between 2001 and 2014. this ratio dropped from 84. 3 to 83.0 percent. declining at a much 

slower rate of 0.1 2 percent per year. The overall drop in this ratio over the past 31 years 

(1 983 to 2014) has been large. but slowing. We believe that this trend will continue to 

slow, with the ratio reaching 82.5 percent by 2027, declining at a slower rate of0.04 

percent per year. We believe that there is a limit to the degree to which earned income 

will be concentrated in only the top six percent of workers - in other words, workers who 

earn more than the taxable maximum amount ($11 8.500 for 201 6, and $127,200 for 

201 7). CBO. on the other hand. assumes that concentration of earnings will accelerate to 

a pace not seen in the past. CBO projects a ratio of about 77.4 percent by 2027, for an 

average annual rate of decline of0. 53 percent, or nearly twice the rate of decline 

experienced from 1983 to 200 L 

Under the intermediate assumptions of the 201 6 Trustees Report. we project the dollar 

values for the annual taxable maximum amounts that would be needed to have 90 percent 

of covered earnings subject to the OASDI payroll tax for years 201 6 through 2025 are 

$269.700,$282,900, $295.800. $307,800, $3 18.900. $330,000, $339.300. $347.700. 

356,400, and $365,400, respectively. 

3. The Social Security Advisory Board periodically convenes a Technical Panel to 

examine the Trustees' assumptions and methods. The Technical Panel then 

publishes a report with detailed recommendations for changes. These panels have 

consistently called for the Trustees to increase assumptions about life expectancy. 

However, the Trustees have not followed this recommendation. In general, how is 

the decision made about whether or not to accept the Technical Panels' 

recommendations? What is the process for determining which of the Technical 

Panel's recommendations to follow? Specifically, why have the Trustees not adopted 

the Technical Panel's life expectancy recommendations? 
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Page 3 - The Honorable Sam Johnson 

Our recommendations to the Board of Trustees and their selections re flect careful 

consideration of information from all sources at our disposal. Technical Panels appointed 

by quadrennial Advisory Councils through 1996 and more recently by the Social Security 

Advisory Board are one of these som ces. In the area of mortality analysis and projection, 

we work closely with medical professionals, biologists, medical researchers, and 

demographers. Recent Technical Panels have included demographers who model past 

trends and tend to assume that future trends will be similar to those in the past. Medical 

clinicians and researchers, as well as biologists, tend to take a different approach, by 

considering what advances have led to mortality improvement in the past and 

contemplating what advances are currently in process or are expected for the future. 

In addition, biological considerations suggest that increases in life expectancy cannot 

continue at the pace that they did in the 20th century, because human beings are 

inherently subj ect to certain physiological limitations. For example, with all the advances 

in medicine, public health and safety, nutrition, and understanding of healthy human 

behavior, there is still no record of any person living beyond age 122 . We believe that 

progress will continue and more people will approach this very high age, but it is unlikely 

that a significant number of people will live beyond that point. In the absence of dramatic 

breakthroughs that could stop or reverse the aging process, we agree with many biologists 

that the rate of decline in mortality will slow in the future. 

The 201 5 Technical Panel reconunended retaining use of different rates of decline in 

mortality by age, and proj ecting by cause of death, as has been used for the Trustees 

Reports for many years. However, the panel did recommend a faster overall rate of 

decline than assumed in the Trustees Reports, suggesting a rate equivalent to the average 

rate experienced since about 1950. We believe that over the long run it is unlikely that 

such a rate will be sustained. Recent experience since 2009 has shown a marked 

reduction in mortality decline , and many who have suggested we will maintain the rate of 

the last 60 years are reassessing. In fact, the chairperson of the 201 5 Technical Panel, 

upon publication of the 2016 Trustees Report showing continued slow improvement, 

stated that she was glad that the Trustees did not adopt the assumption for faster ultimate 

decline in mortality (see http:i/crr.bc.edu/wp-content/uploads/2016/06/IB 16-lO.pdO. 

It is infonnative to look at how actual experience compares to what we were projecting in 

the 1982 Trustees Report, which was the basis for the 1983 Social Security Amendments, 

where the normal retirement age was increased for the first time . At that time, we 

proj ected that the average of life expectancy at age 65 for men and women in 201 3 would 

be 19.0 years, or 2.8 years higher than in 1978 (the last year for which final data were 

available). In fact, this life expectancy actually rose by 2.9 years over this period, to 19. 1 

years for 201 3 (the last year for which final data were available for the 201 6 Trustees 

Report). 

4. Similarly, the Technical Panel has consistently called for lower expectations for 

interest rates, but the Trustees have not followed this recommendation. Why have 

the Trustees not adopted the Technical Panel's recommendation to reduce 

expectations for interest rates? 
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Page 4- The Honorable Sam Johnson 

The ultimate real interest rate was reduced from 3.0 to 2.9 percent for the 2006 Trustees 

Report, and was reduced further to 2.7 percent for the 2016 Trustees Report. While the 

2015 Technical Panel recommended assuming a long-term ultimate real interest rate on 

Trust Fund reserves of 2.5 percent, the 2011 panel recommended 2. 7 percent and the 

average recommendation of the last five technical panels is 2. 7 percent. Real interest 

rates have been low since about 2000, reflecting several disruptions in the domestic and 

international economies, as well as the "great recession," from which we are still 

gradually recovering. Given current economic conditions, it is too early to conclude 

whether the recent low interest rates represent a true and permanent reduction in the 

return to capital, or whether they are temporary. The gradual changes in ultimate interest 

rates made in Trustees Reports reflect the very long-term focus of analysis for assessing 

the actuarial status of the OASDI program. The federal budget traditionally focuses on 

much shorter periods, and it tends to reflect the very recent experience to a much greater 

degree. 

5. In your testimony you allude to the role of the Trustees' Working Group. Can you 

please specify who participates in the Trustees' Working Group? Are the members 

of the Working Group political appointees or civil servants? What role does the 

Trustees' Working Group play in developing the Trustees Report? 

The Trustees Working Group includes the Trustees themselves, to the degree they are 

able to participate. The Public Trustees traditionally participate directly. with some staff 

assistance provided by the Social Security Administration (SSA). The four ex-officio 

Trustees are generally represented in working group discussions by high-ranking political 

appointees in their agencies. Additionally. the Chief Actuaries of SSA and CMS, both 

civil servants, are members of the working group. Additional individuals from the four 

agencies and the actuarial offices participate in working group discussions. 

In development of the Trustees Reports, the SSA Chief Actuary recommends 

assumptions related to demographic and economic factors, as well as OASDI program 

specific factors such as disability rates. The CMS Chief Actuary recommends 

assumptions related to Medicare utilization and reimbursement rates. The working group 

as a whole discusses these recommendation and then works directly with the Trustees to 

gain consensus. The actuarial offices draft the reports with review and input from the 

Trustees and the working group. Finally. the Chief Actuaries provide the actuarial 

opinions for each report as required by law. 

6. At the beginning of an Administration, new appointees across the government must 

be confirmed, including the four positions that serve as Trustees in addition to their 

agency duties. This process can end after the statutory deadline for the Trustees 

Report, as was the case for President Obama's first Secretary of Health and Human 

Services. In absence of a confirmed Administration Trustee, who makes decisions 

about the assumptions and methods that are used in the Trustees Report? 
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Page 5- The Honorable Sam Johnson 

Generally, the first Trustees Report issued in a new administration reflects little or no 

significant changes in ultimate assumptions. For reasons indicated in this question, there 

may not be time for careful consideration by the new administration without delaying the 

issuance of the reports. In some instances, one or more of the Trustees have been acting 

in their position at the time of report release (for example, in 200 I). Following this 

conservative approach has generally avoided the need for decisions on any assumption or 

method changes in the absence of confirmed appointees from the new administration. Of 

course, additional data are reflected even when no changes in ultimate assumptions are 

made. 

7. The Office of the Chief Actuary has been making demographic and economic 

assumptions for years. Based on data from the past 10 years, please provide a table 

comparing yonr projected values for each assumption to what actually happened 

over that time period. 

The enclosed tables provide actual and projected values for calendar years 2005 through 

2015 used for the 2007 through 2016 Trustees Reports. Tables are provided for the 

principal demographic and economic assumptions, and related summary measures that 

are defined in the Trustees Report. Note that in some cases "actual" values for historical 

years available at the time of one Trustees Report are later revised for use in subsequent 

reports. Values for many of these measures were heavily influenced by the recession that 

began in 2008, which was not anticipated, has been unusually severe, and from which 

recovery has been unusually slow. 

I hope this further information will be helpful. If you have any additional questions or need 

assistance in any way, please let me know. 

Enclosures 

cc: Amy Shuart 

Sincerely, 

Stephen C. Goss, ASA, MAAA 

Chief Actuary 
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Actual vs. Projected Trustees Report Total Fertility Rates 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2007 2008 2011 2012 2013 2014 2015 2016 

2005 2.04 2.05 2.06 2.06 2.06 2.06 2.06 2.06 

2006 2.04 2.06 2.11 2.11 2.11 2.11 

2007 2.04 2.06 2.12 2.12 2.12 2.12 

2008 2.04 2.06 2.07 2.07 2.07 

2009 2.04 2.06 2.08 2.09 2.00 2.00 

2010 2.03 2.06 2.08 2.08 1.93 1.93 

2011 2.03 2.05 2.07 2.08 2.07 1.89 

2012 2.03 2.05 2.07 2.08 2.07 2.04 

2013 2.03 2.05 2.07 2.07 2.07 2.05 1.91 

2014 2.03 2.05 2.06 2.07 2.06 2.05 1.93 1.91 

2015 2.03 2.04 2.06 2.07 2.06 2.06 1.95 1.94 

Page 1 of 20 

Actual vs. Projected Trustees Report Life Expectancy at Birth 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2007 2008 2011 2012 2013 2014 2015 2016 

2005 77.2 77.3 77.3 77.3 77.3 77.3 77.3 77.3 

2006 77.3 77.4 77.6 77.6 77.6 

2007 77.4 77.5 77.9 77.9 77.9 

2008 77.5 77.6 77.6 77.9 77.9 

2009 77.6 77.7 77.7 78.3 78.3 

2010 77.7 77.8 77.8 78.1 78.1 78.5 

2011 77.8 77.9 77.9 78.1 78.2 78.2 

2012 77.9 78.0 78.0 78.2 78.3 78.3 78.6 

2013 78.0 78.1 78.1 78.3 78.4 78.4 78.8 

2014 78.1 78.2 78.3 78.5 78.5 78.5 78.9 79.0 79.0 78.9 

2015 78.2 78.3 78.4 78.6 78.6 78.6 79.0 79.2 79.2 79.1 

Page 2 of 20 
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Actual vs. Projecte d Trustees Report Life Expectancy at Age 65 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Re port 

Ye ar 2007 2008 2011 2012 2013 2014 2015 2016 

2005 17.8 17.9 18.1 18.1 18.1 18.1 18.1 18.1 

2006 17.8 17.9 18.4 18.4 18.4 

2007 17.8 18.0 18.6 18.6 18.6 

2008 17.9 18.0 18.1 18.6 18.6 18.6 

2009 17.9 18.1 18.2 18.9 18.9 

2010 18.0 18.1 18.2 18.5 18.7 18.7 18.9 

2011 18.0 18.2 18.3 18.6 18.8 18.8 19.0 

2012 18.1 18.2 18.3 18.6 18.9 18.9 

2013 18.1 18.3 18.4 18.7 19.0 19.0 19.3 19.3 

2014 18.2 18.3 18.4 18.7 19.1 19.1 19.4 19.4 19.4 

2015 18.2 18.4 18.5 18.8 19.2 19.2 19.5 19.5 19.5 19.4 

Page 3 of 20 

Actual vs. Projected Trustees Re port Net Immigration (in thousands) 

(Estimated actual at time of report above the line, estimated/projected be low the line) 

Year of Issuance of Trustees Report 

Year 2007 2010 2011 2012 2013 2014 2015 2016 

2005 1,242 1,310 1,885 1,915 2,010 2,010 2,015 2,010 

2006 1,075 1,585 1,620 1,710 1,710 1,715 1,710 

2007 1,075 810 870 870 875 872 

2008 1,000 1,255 75 75 80 81 

2009 1,000 1,230 1,215 935 935 935 938 

2010 1,000 1,195 1,190 1,215 835 835 840 838 

2011 1,000 1,185 1,180 1,175 895 870 870 725 725 

2012 1,000 1,180 1,175 1,170 960 960 1,075 1,165 1,010 1,011 

2013 1,000 1,170 1,165 1,165 1,060 1,060 1,155 1,280 960 1,094 

2014 1,000 1,165 1,160 1,160 1,160 1,160 1,225 1,345 1,150 1,316 

2015 1,000 1,160 1,155 1,150 1,250 1,250 1,215 1,325 1,465 1,557 

Page 4 of 20 
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Actual vs. Projected Trustees Report Age-Sex Adjusted Disabled-Worker Incidence Rates 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2008 2009a 2010 2011 2012 2013 2014 2015 2016 

2005 5.4 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 

2006 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 

2007 5.2 5.2 5.2 5.2 5.2 5.2 

2008 5.5 5.5 5.5 5.5 5.5 5.5 

2009 5.1 6.1 6.0 6.0 6.0 6.0 

2010 5.2 5.2 6.4 6.4 6.4 6.4 

2011 5.1 5.1 6.1 6.1 6.1 

2012 5.2 5.2 5.6 6.2 5.8 5.8 

2013 5.2 5.2 5.1 5.6 5.7 5.2 

2014 5.2 5.2 5.1 5.4 5.5 5.7 4.7 

2015 5.2 5.2 5.1 5.2 5.3 5.6 4.4 

a Revised method for estimating disability-exposed population resulted in an increase in incidence rates. 

Note: The disability incidence rate is the ratio of the number of new beneficiaries awarded benefits each year to the disabilityexposed population, the number of individuals who meet insured requirements but are not yet receiving benefits. The 

historical disability-exposed population changes to reflect data updates. 

Actual vs. Projected Trustees Report Age-Sex Adjusted Di sabled-Worker Death Rates 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 

2005 29.5 29.5 29.5 29.5 29.5 29.5 29.5 29.5 29.5 

2006 28.8 28.8 28.8 28.8 28.8 28.8 28.8 28.8 

2007 27.9 27.9 27.9 27.9 27.9 27.9 27.9 

2008 27.7 27.7 27.7 27.7 27.7 27.7 

2009 26.4 27.2 27.2 27.2 27.2 

2010 26.0 26.4 26.3 26.3 26.3 26.3 

2011 25.6 26.0 26.0 26.0 26.0 

2012 25.1 25.6 25.5 25.6 26.5 26.5 

2013 24.7 25.2 25.2 25.1 24.4 25.7 

2014 24.3 24.9 24.8 24.7 23.9 24.2 25.6 

2015 23.8 24.5 24.5 24.2 23.3 23.8 24.8 25.7 

Page 5 of 20 

Page 6 of 20 
87 


ralbany on LAP520R082 with HEARINGS23191.066 23191.067

Actual vs. Projected Trustees Report Age-Sex Adjusted Disabled-Worker Recovery Rates 

(Estimated act ual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 

2005 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 

2006 11.4 11.4 11.4 11.4 11.4 11.4 11.4 11.4 

2007 10.1 10.1 10.1 10.1 10.1 10.1 10.1 

2008 10.5 10.5 10.5 10.5 10.5 

2009 16.2 9.4 9.4 9.4 9.4 9.4 

2010 17.6 13.2 10.5 10.5 10.5 

2011 14.8 11.0 9.9 9.9 9.9 

2012 15.1 12.0 12.3 11.4 9.7 9.7 

2013 15.2 12.1 13.1 11.9 12.8 8.5 

2014 15.2 12.3 13.2 12.6 13.4 11.9 11.3 

2015 15.1 12.6 11.8 13.0 13.0 11.1 13.4 

Page 7 of 20 

Actual vs. Projected Trustees Report Annual Percent Change in Total-Economy Labor Productivity 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 1.50 1.50 1.51 1.51 1.84 1.83 1.83 

2006 0.80 0.80 0.82 0.82 0.84 0.84 0.84 

2007 1.20 1.21 1.22 1.06 1.04 1.04 

2008 2.10 0.74 0.77 0.75 0.75 

2009 1.90 1.90 2.88 2.87 2.87 

2010 1.90 1.80 2.80 2.55 2.55 

2011 1.80 1.80 2.30 1.60 0.05 0.07 

2012 1.80 1.80 1.90 1.50 0.47 

2013 1.70 1.80 1.90 1.50 2.00 2.07 

2014 1.70 1.70 1.80 1.40 1.90 2.10 1.96 

2015 1.70 1.70 1.70 1.40 1.70 2.06 2.06 

Page 8 of 20 
88 


ralbany on LAP520R082 with HEARINGS23191.068 23191.069

Actual vs. Projected Trustees Report Annual Percent Change in Earnings as Percent of Compensation 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 ·0.40 ·0.40 ·0.40 -0.43 -0.43 -0.22 -0.22 -0.22 

2006 0.50 0.50 0.50 0.50 0.49 0.49 0.49 

2007 0.40 0.39 0.39 -0.05 -0.05 -0.05 

2008 ·0.62 ·0.62 -0.06 -0.06 -0.06 

2009 ·0.10 ·0.10 -0.66 -0.66 -0.66 

2010 ·0.10 ·0.10 -0.50 ·0.10 ·0.1 

2011 ·0.20 ·0.20 ·0.20 0.10 0.28 0.28 

2012 ·0.20 -0.20 -0.20 0.20 0.20 0.4 

2013 ·0.20 -0.20 -0.30 0.10 0.00 ·0.02 

2014 ·0.20 ·0.20 -0.30 ·0.20 -0.30 ·0.17 ·0.04 

2015 -0.20 -0.20 -0.10 -0.20 -0.30 -0.12 -0.01 ·0.17 

Page 9 of 20 

Actual vs. Projected Trustees Report Annual Percent Change in Average Hours Worked per Week 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 -0.20 -0.20 -0.20 -0.18 -0.18 -0.23 -0.23 -0.23 

2006 0.00 0.00 ·0.02 ·0.02 ·0.04 -0.03 -0.03 

2007 ·0.40 ·0.41 ·0.42 -0.38 -0.38 -0.38 

2008 -0.64 -0.63 -0.62 -0.60 -0.6 

2009 0.00 -1.90 -1.89 -1.85 -1.85 

2010 0.00 0.00 0.56 0.56 

2011 0.00 0.00 0.00 0.40 0.98 0.97 

2012 0.00 0.00 0.00 0.40 0.00 -0.05 

2013 0.00 0.00 0.00 0.20 0.00 0.00 

2014 0.00 0.00 0.00 0.10 0.00 0.06 0.09 

2015 0.00 0.00 0.00 0.00 0.00 0.10 0.17 0.08 

Page 10 of 20 
89 


ralbany on LAP520R082 with HEARINGS23191.070 23191.071

Actual vs. Projected Trustees Report Percent Change in Annual GOP Price Index 

(Estimated act ual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 3.30 3.30 3.30 3.32 3.32 3.21 3.22 3.22 

2006 3.30 3.30 3.24 3.24 3.07 3.07 3.07 

2007 2.90 2.90 2.90 2.66 2.67 2.67 

2008 2.00 2.20 1.92 1.93 1.93 

2009 2.30 2.10 0.89 0.80 0.79 0.79 

2010 2.40 2.40 1.10 1.23 1.23 

2011 2.40 2.40 1.50 1.40 2.06 2.06 

2012 2.40 2.40 1.90 1.90 

2013 2.40 2.40 2.20 2.30 1.50 1.43 

2014 2.40 2.40 2.50 2.40 1.60 1.63 1.71 

2015 2.40 2.40 2.40 2.40 1.60 1.72 2.02 1.55 

Page 11 of 20 

Actual vs. Projected Trustees Report Annual Percent Change in Average Wage in Covered Employment 

(Estimated actual at time of report above the line, estimated/ projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 3.60 3.60 3.70 3.72 3.72 3.70 3.69 3.71 

2006 4.70 4.60 4.76 4.74 4.72 4.71 4.74 

2007 4.47 4.48 4.50 4.52 4.49 

2008 4.60 2.23 2.23 2.47 2.34 2.41 

2009 4.30 4.20 · 1.47 · 1.52 · 1.43 -1.59 

2010 4.20 4.00 2.69 2.62 2.58 

2011 4.10 3.90 4.10 3.13 3.12 

2012 4.20 4.00 4.10 4.70 4.50 3.35 

2013 4.00 4.00 4.20 4.80 4.60 3.93 

2014 3.80 3.90 4.10 4.60 4.20 4.59 4.60 

2015 3.90 3.90 4.20 4.30 3.90 4.79 5.52 4.92 

Page 12 of 20 
90 


ralbany on LAP520R082 with HEARINGS23191.072 23191.073

Actual vs. Projected Trustees Report Percent Change in Annual CPI-W 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 3.50 3.50 3.50 3.52 3.52 3.52 3.52 3.52 

2006 3.20 3.20 3.19 3.19 3.19 3.19 3.19 

2007 2.90 2.88 2.88 2.88 2.88 2.88 

2008 2.40 4.09 4.09 4.09 4.09 4.09 

2009 2.70 2.50 -0.67 -0.67 -0.67 4 0.67 

2010 2.80 2.80 1.70 2.07 2.07 

2011 2.80 2.80 2.30 1.70 3.56 3.56 

2012 2.80 2.80 2.70 2.30 1.70 2.10 

2013 2.80 2.80 3.10 2.70 1.90 

2014 2.80 2.80 3.10 2.80 2.00 2.03 2.21 

2015 2.80 2.80 2.80 2.80 2.00 2.12 2.42 

Page 13 of 20 

Actual vs. Projected Trustees Report Real Wage Differential 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 0.10 0.10 0.20 0.20 0.20 0.18 0.17 0.19 

2006 1.40 1.57 1.55 1.53 1.52 1.54 

2007 1.80 1.59 1.61 1.62 1.64 1.62 

2008 2.20 -1.85 -1.85 -1.62 4 1.74 -1.68 

2009 1.70 1.70 -0.79 -0.85 4 0.76 -0.91 

2010 1.40 1.30 1.80 0.62 0.55 0.51 

2011 1.30 1.10 1.80 2.20 4 0.42 -0.43 

2012 1.40 1.20 1.40 2.40 2.90 1.25 

2013 1.20 1.20 1.10 2.20 2.70 2.00 

2014 1.00 1.10 1.00 1.80 2.20 2.56 2.40 

2015 1.10 1.10 1.40 1.50 1.90 2.67 3.10 2.97 

Page 14 of 20 
91 


ralbany on LAP520R082 with HEARINGS23191.074 23191.075

Actual vs. Projected Trustees Report Real Annual Unemployment Rate 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 

2006 4.6 4.6 4.6 4.6 4.6 4.6 4.6 

2007 4.6 4.6 4.6 4.6 4.6 

2008 4.9 5.8 5.8 5.8 5.8 5.8 

2009 5.0 5.0 9.3 9.3 9.3 9.3 

2010 5.1 5.2 9.6 9.6 

2011 5.2 5.3 7.9 8.9 8.9 

2012 5.3 5.4 6.8 8.6 8.1 

2013 5.4 5.5 6.2 7.7 8.0 8.7 

2014 5.5 5.5 5.8 7.0 7.2 8.2 7.8 

2015 5.5 5.5 5.6 6.3 6.5 7.4 7.2 6.7 

Page 15 of 20 

Actual vs. Projected Trustees Report Annual Percent Change in Labor Force 

(Estimated actual at time of report above the line, estimated/ projected below the line) 

Yea r of Issuance of Trustees Report 

Year 2009 2010 2011 20 12 2013 2014 2015 2016 

2005 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 

2006 1.4 1.4 1.4 1.4 1.4 1.4 1.4 

2007 1.1 1.1 1.1 1.1 1.1 

2008 1.0 0.8 0.8 0.8 0.8 0.8 

2009 0.9 1.1 4 0.1 4 0.1 ·0.1 ·0.1 

2010 0.9 1.1 0.3 4 0.2 ·0.2 -0.2 

2011 0.9 0.9 1.0 0.7 ·0.2 

2012 0.7 0.8 1.1 1.1 0.7 0.9 

2013 0.6 0.7 1.0 1.1 0.9 0.7 

2014 0.5 0.7 0.9 1.1 1.0 0.8 1.1 

2015 0.5 0.6 0.7 0.9 0.9 0.9 0.6 1.1 

Page 16 of 20 
92 


ralbany on LAP520R082 with HEARINGS23191.076 23191.077

Actual vs. Projected Trustees Report Annual Percent Change in Employment 

(Estimated actual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 1.7 1.7 1.7 1.7 1.7 1.7 1.7 

2006 1.8 1.8 1.8 1.8 1.8 1.8 1.8 

2007 1.1 1.1 1.1 1.1 1.1 1.1 

2008 4 0.4 4 0.4 -0.4 -0.4 

2009 0.9 -3.7 4 3.7 ·3.7 -3.7 

2010 0.8 0.9 -0.4 -0.6 -0.6 -0.6 

2011 0.8 0.7 2.0 1.2 0.6 0.6 

2012 0.6 0.7 2.2 2.0 1.4 1.8 

2013 0.5 0.6 1.7 2.1 1.7 

2014 0.4 0.7 1.2 1.9 1.9 1.3 1.3 

2015 0.5 0.6 0.9 1.6 1.7 1.8 1.7 1.3 

Page 17 of 20 

Actual vs. Projected Trustees Report Annual Percent Change in Real GOP 

(Estimated actual at time of report above the line, estimated/ projected below the line) 

Yea r of Issuance of Trustees Report 

Year 2009 2010 2011 20 12 2013 2014 2015 2016 

2005 2.9 3.1 3.1 3.1 3.1 3.4 3.3 3.3 

2006 2.7 2.7 2.7 2.7 2.7 2.7 2.7 

2007 1.9 1.9 1.9 1.8 1.8 1.8 

2008 3.0 -0.3 -0.3 -0.3 -0.3 -0.3 

2009 2.8 2.8 -3.1 -2.8 -2.8 -2.8 

2010 2.6 2.7 1.2 2.5 2.5 

2011 2.6 2.5 2.0 3.3 1.6 1.6 

2012 2.4 2.5 2.1 4.0 3.4 2.2 

2013 2.2 2.5 1.9 3.9 3.8 

2014 2.1 2.4 1.6 3.5 3.8 3.5 

2015 2.2 2.3 1.4 3.1 3.5 4.0 4.0 

Page 18 of 20 
93 


ralbany on LAP520R082 with HEARINGS23191.078 23191.079

Actual vs. Projected Trustees Report Real Interest Rates for First Year after Issue 

(Estimated act ual at time of report above the line, estimated/projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 

2006 1.1 1.1 1.1 1.1 1.1 1.1 

2007 1.9 1.9 1.9 1.9 1.9 1.9 

2008 2.2 0.6 0.6 0.6 0.6 0.6 

2009 2.5 1.9 4.4 4.4 4.4 

2010 2.8 2.3 1.3 0.9 0.9 0.9 

2011 2.9 2.8 1.6 1.7 -0.7 

2012 2.9 2.9 2.3 2.2 1.4 0.3 

2013 3.0 3.0 2.6 2.9 2.5 

2014 3.0 3.0 3.0 3.2 3.1 1.4 -0.6 

2015 3.0 3.0 3.2 3.3 3.2 2.3 0.4 

Page 19 of 20 

Actual vs. Projected Trustees Report Taxable Ratio a 

(Estimated actual at time of report above the line, estimated/ projected below the line) 

Year of Issuance of Trustees Report 

Year 2009 2010 2011 2012 2013 2014 2015 2016 

2005 83.6 83.4 83.3 83.4 83.3 83.3 83.4 83.5 

2006 83.0 83.1 83.0 82.9 83.0 83.0 83.1 

2007 82.2 82.2 82.3 82.3 82.4 

2008 82.8 83.4 83.3 83.2 83.3 83.4 

2009 82.7 82.9 85.0 85.0 85.0 85.2 

2010 82.8 82.9 84.2 83.7 83.8 84.0 

2011 82.7 82.9 83.3 83.6 83.0 83.3 

2012 82.8 82.8 83.5 83.6 83.1 82.5 

2013 82.7 82.8 83.2 83.2 82.8 82.5 

2014 82.8 82.7 83.0 82.9 82.7 82.3 83.0 

2015 82.7 82.7 82.8 82.8 82.6 82. 1 82.4 82.2 

a Ratio of effective taxable payroll to total OASDI covered earni ngs. 

b Revised estimate for 2015 based on data available after t he 2016 Trustees Report is 82.7. 

Page 20 of 20 
94 


ralbany on LAP520R082 with HEARINGS23191.080

COMMITTEE ON WAYS AND MEANS 

Steph~::n C. Goss 

Clticf Actuary 

Social Security Administration 

6401 Seeurity Boulevard 

Room 700 Altmeyer Building 

H;~ltimon:. MD 21235 

Dear ~lr. Goss. 

U.S. HOUSE OF REPRESENT AlMS 

WASHINGTON. DC 20515 

October 5, 2016 

ank you for your testimo•ty be fort the Committee on Ways und Means Subcommittee on 

Soci::tl Security at 1he September 2 1, 2016 hearing on "'Undcrsumding Social Security's Solvency 

Challenge ... In order to complete our hearing record, we would appreciate your rt:$ponscs to the 

following questions: 

I. ln your testimony you mention that the ·rcustecs make gradual changes to assumptions 

and do so only alier there's "compelling evidence" for the change. What docs it take for 

something to be '·compelling evidence?"' 

2. The Trustees and the Congrossional Budget Office (CBO) are looking at the same, or at 

ltitSt very similar, historical dnta on camin&S gro\\1h, bu1 come to very different 

conclusions about the share of eamings that will be: subject to payroll taxes. Can you 

please explain why this is? Please also provide the dollar Ynlue:t equiV$Icnt to 900/o of 

covered earnings for each of the nextlO years. 

3. The Socia) Security Advisory Board periodically convene$ a Technical l.,ane-lto e.xnmine 

the Trustees' assump1ions and methods. The Te<:hnical Pru1cl then publishes a report 

with d!!tailed n:commendation.s for changes. These panels have consistently called for 

the Trustet:~ 10 itu:rease ass.umption:s about life expectancy. Howe,·er. tbe Trustees have 

1101 fol lowt:d hi~ n:c(unmcndntion. In gencr.1l, how is the dt."Cision made about whe1her 

or not to aoceptthc T ech.nical Panels' recomnu:ndations? What is h~! process lOr 

dctcnnini11S which of the Teclu1ical Panels' r<.-commcndations to follow? SP'o-cifically. 

why have the Trustees nol adopted the 'fec-hnicaJ Prult l'slife expectancy 

recommendations? 

4. Similarly. the Tech.nical l)anel has consistently called for lo\\er expectations for interest 

n'Ucs. butt he TniStctS have 11.01 followed this rt.'~ommcnda ion. Why have the 'J'n.1stees 

not adopted the Tcc-1mica1 Panel's recommendation to reduce cxpcctmions for interest 

rates? 
95 

f 


ralbany on LAP520R082 with HEARINGS23191.081

S. In )'our testinwny you ullude to the role oft he Trustc..-es" Working Group. Can you plc::tse 

specify ,vho patt.icipates in the Trustees• Working Group? Are the members olthe 

Working Group political appointees or civil servants? What role does the Trustees' 

Working Group play in developing the Trustees Report? 

6. At the beginning of an Administration. new appointees across the go,·emmc:nt must be: 

confirmed. including the four positions that scn•e as Trustees in addition to their agency 

duties. This process can end after the sunutory deadline for the Trustees Report. as was 

the c.asc tOr President Obama•s ftrst Seerctnry of Health and Human Services. In abse-nce 

of a con finned Administmtion 1'rustee. who makes decisions aboul the assumptions and 

melh<XL~ that are u.<;ed in the Trustees Report'! 

7. The Office oftl1c Chicr Actuary has been maki1tg demographic and. economic 

assumptions for years. Based on data from the past 10 years .. please provide a table 

comparing your projected values for each assumption co what actually happened over that 

time period. 

We would appreciate your responses to these questions by October 19. 2016. Please send your 

n.:sponsc to the attcntjon of Amy Shuart. StatT Director. Subcommittee on Social Security, 

Committee on Ways an<! Means, U.S. I louse of Representatives, B-317 Rayburn I louse Office 

Building. \Va.-;hington, OC 20515. In addition 10 a hard copy. piC".tSe submit an electronic c:opy 

of your response in Microson Word ronnat to mm.ru.'>sdl@mail.house.gov. 

Titank you for laking the time to answer these questjons for the record. If you have any 

quesdons concerning this re<tucst. you mny reath 1\my al (202) 225·9263. 

6~~~ Sam Johnson 

Chairman 

Subconunitlcc on Social Sccurily 
96 


ralbany on LAP520R082 with HEARINGS23191.082

Congressional Budget Office 

NOVF.MI)~R 16. 2016 

Answers to Questions for the Record From Cbaim1an Johnson 

Following a Hearing by the House Ways and Means Subcommittee on 

Social Security on Understanding Social Security"s Solvency Challenge 

On Si>pmnkr 21. 2016. 1lx Home \Vap mul Mram Sulxommitt« on &dAI !Kruriry con&-Ym•J a 

hr11r'i''t nr whkh K~i1b Hall, Dir«tor ofth(' Co11grmlonal Budg" O§ir~. ustifird abo111 COO's 

lrmg·tmlf proj«thms (wu•w.dJo.got.fpublkntWn/51 988). Afl~r tJ~ IJ~flring. Chairman jolmstm 

ruhmittrd qumiMS for tiN I'«Qrd. D1is docummt proviJn CBO S nnsw~n. 

Qut"Sdon: The O:mg ~ion:al 6udgc:r Offi~ h:l$ made changes ro as.sumprions rh:u have 

go fie~ntl y chang<."<! rhc: projected acruarial l»lancc from one yto4r ro rhc ncn This .s«m$ ro 

bC' difTI!'rtnt than tbc Trusrees' approach where ic's more about gradual changes. Can you 

please discuss why CBO takt-s this approach? 

Answer: CBO producd indeptndenc and impanial anaJytes of budgetary and economic issues 

and consider$ it a priorify co ensure that che agt"nc.y'$ current·law budgecary and «<>nomic 

projeaion:t reflect rhe middle of rhe di.s1ribmion Qf possible outC(Imt$. The :tgcnq' reviews 

his:roric-JI dau, th~ for«ascs of other go"emment ag< et. and the aC:ldtmic literature, and 

ir consulu with its pands of advisers and th~r experr.s in dle prcx-ess: of d~eloping its 

pro;t:o:ions. 

CBO srrivt1 to upd:ue irs prQjecriQn.s as new inform:uion b(CC)me.s av-.ail:tble. Such updates 

somerimcs can lead to substanti:al changes f'rQm one ye.u to rhc next in COO's projcc:rions of 

rhe 75~y~r acn.•:arial balance f'Qr Social Security's rrus1 funds. but CBO believes ir.s <"~p roach 

pro~·ides the Congr& with projections: that incorporate the most current dJjnking. \'(l'h n the 

agen<:ydecidn that rdarivcly larg~ evi..s sa e warrautt:d by new infonnation and anai)'S:is, it 

explains the basis fo r those revisions. 

Question: CBO and the T n.•sr«s are lo<>king :u 1he same, or ar le:tST very similar. hisrorical 

d:tfl'l Qn e~rni gs g.rowrh, but come ro very ditferem oondusiQn.s a))Qtu rhe sho:.re of ~rni gs 

lhat wiU beM1bject to payroll t.u:es. Can you pl(';l.st.t'Xplain why this is? Ple-.as<: also provid~ the 

dollar \'aluts equivale-nt to 90 pert:ent of covered n mings for each of the next I 0 years. 

Answer: 1l1e difference-s betw«-n C BO's and the Social S«uricy TrunC'd• projec:tions of the 

share of e-arnin&$ that will be .st1bject to payroll taxes ~ found in the two agencies' projections 

of growth in ornings for higher·income pe-ople. CBO's projections of the share of earnin&$ 

below (he muimum r.axab1e amount ($11 8.500 in 20 16) are made on the basis of its 

pro;eaions Qflhe entire di.stribution of compensation; 1hose projec.rions underlie rhe 
97 


ralbany on LAP520R082 with HEARINGS23191.083

2 A~TOQl!~110:\SroRT ER£CORD NO\'F.MBFJt 16,1016 

agcncy•s revenue projeaions. (CBO revi$ir.s irs projoctions as 1x.n of l.he d~~lopmenr of e.1ch 

b:l$dinc forccau; the nexr rev-ision will ooct•r in J:tnu:try 20 17.) 

In cso·s a •rrem-l:tw projections. lhe portion of earnings SILbjcct tO the Scx::ial Sec riry 

p:tyroll rax f:tlls from 82 ptorccnr in 2015 to bdow 78 percent by 2026 and remains ne.'lr that 

ltvd rhere"~fter. Those projecrion$ reflect an cxp«r:ltion th:n earnin.gs wiJI grow f:"tSrcr for 

higher-income people th:tn for others during rhe next dcc.1de. Specifically, CBO expecl$ that 

rhe e.1rnings share of rhe top I pcrcem will continue tO rise, :;~;s suggtned by r~:~po rin g the 

30-yeou uend from 1978 tO 2008 for the nc r few rears ::and then projec1ing dl.'lt trend for 

the" rtmaindn- of the upcoming decade.• CBO's proj«tlons also reflect trends in the COS( of 

he-alth insurance and incorporate expi!Cted rtsponsts (0 future t:u~ on health insmance. 

In comra~r. the Trustee; cstimare dur the porrion of t:trnings covered b)• Social Stcuriry on 

which payro!lt:t<tes arc collected will inert:.~$ slighrly bcrwttn 2016 and 2025 before senling 

a( 82.5 perl.'t-nt :and rem:ainingconsfJnt thereafter. The Trustt:tS' projections SUr.h'tSI dtat the 

growth nue they :anticip:i(~ for people's earning~ will ~ simiJa.r, whedter those e-.unings are 

above or below the t~~~xable maximum. 

CBO ntimaft"$ tbat iflawmakC"n wish~ to r.tise dte amount of cover«l c-~ ngs subj«t to 

the JXI)'I'OIJ nx from the rurrent 82 percent to 90 pt·rGent, the taxable maximum would ~ 

robe str" $316.400 ;, 2017 and 10 ,;,. to S56~.000 by 2026 (S<e Table 1). lhsked to 

tsrimarc the eArns of a propos.1l rh::n incre.a.scd the ra.xabl.e maximum in rh:n way. rhe srnff of 

rhe Joinr Comminec on Tax:nion wo,~ld provide dte even~ e C$1'inure. 11\t')' project rhat ro 

subject 90 percenr of CO\'ercd earni ~ to rhe JX1iyro11 mx. the taxable m~imu m would need 

to be srt to$245,000 in 20J7. 

Question: Dots CBO look at che rerommendations put forth b)' the SociaJ Security Advisory 

Soard's Technic.'ll Panels? 

Answer: 'nte rq>OrtS of dte Social Security Advisory Board's T edmical ~1eb on Assumptions 

aod MeLhods are among Lhe many soure-d CBO consulcs in developing: its SociaJ Security 

projections. CBO's analy.sts attrnd P'J.nd meetings and ri!'Vicw reports, and CBO h;u 

incorpor.ncd \':IJiOIIS recommendations of thos.e p:ancls and of the T ru$lee$ inro itSll 'l ~. 

including projections of rot:ll fertility r•ues, monaliry rnrcs, and r:ttes of di$ability incidence 

Totlll hrtiliry &rn. Jn 2016. CBO loweTed its projeccjon of d1e (Ot<ll fertlli()' rate for the 

2016-2090 ptriod from 2.0 to 1.9 c-hildren per woman. CBO's projection is consistent wirh 

that recommended by the te<-hnieaJ p<utd.l 'nuough 201 S. CBO used the tocal fertility rate :as 

proj«tt:d by the Social Security T ru.sr~. (That rare ls tht!: :werage numl>4!r of 'hildrcn that<:~ 

wom:tn would h:tvt in her lifetime if, at each age of her life, she experienced the binhrate 

o~ or :u$umed for rh:a( ye:tr and if she survived her entire: childbearing period.) Feniliry 

I. Set tocimony or Keith Hill, Dim:tor, ~~on.&! Bud~ OBi«. bc-fo~ t~ Subcommitt« on Sod~ 

Sccurily of die Hou$C Com min« on W2ys and Mt-Ans. C•mpsrri»g C80i IA»tf• Tnmi'HjmliMS w,/, '11JOU 

1{1NSHUJ StvwriiJ T~W~vn(St-ptcmbct l l. 2016), pp. 7-8. -w.<bo.gov/publiwion/~193$.. 

2. Set 2015 T«hnia.l Pmd on A.mtutpti,om and MnhodJ. Rrp.rt '" tl~ SM.rl S«•11i'1 Alft.iJ""l &,.t,J 

{Scptcmba 2015). p. 9, bup://go.lmilt0vi<JYR5 (PDF, :JAMB). 
98 


ralbany on LAP520R082 with HEARINGS23191.084

Tobie t. 

CBO's Estimate of the Taxable Maximum Required to Subject 90 Percent of 

Covered Eamings to the Social Security Payroll Tax, by Year 

Not!INI DolafS 

Year Tauble Maximum 

2017 316,400 

2018 338.200 

2019 359.200 

2020 382.200 

202 1 407.200 

2022 -434,100 

2023 -463.700 

2024 495,400 

2025 529,100 

2026 565,000 

rates often decline during r«t'$sions and rebound during r<'«<vCTies. However. after the 

2007-2009 r«ession, the U.S. frniliry r.ue (which in 2007 was 2.1) dropped. and it bas 

rentained bdow 1.9 $ince: tbtn. f-or that reason-alo ng widt id ce rhat women a.re 

ddaying childbearing to Jatcor agc:s-CBO JowtTed iu proj«tion dti.s yeu. 

Morrafiry Ra111. C60 :also h:t$ followed rhe tcchnic:tl p.1.nd's rccommcnd:nions on momaliry 

rates. Since: 1995. the technical panels (and many demogrnphers) have argued fhat morrolil)' 

rates will probably decline more rapidly than the TnJ.St«$ proj«f." ln 2013. CBO firsl 

projecc«<that mortality rAtts would imprO\'t more quicldy than the Trustrts proj«ftd . 

Specifically, CBO projcxtcd rh:n mon-:J.Iiry r.ui!S would improve :u rhc avc~ge p:t<:c observed 

sina: 1950 and rh:tr rhr r.ne ofimpro,•cmcm would be rhe same at ;~ II ages and for bolh .SCXC$." 

In 2016, C BO began to follow the r«.ommendation of tbe 2015 tt-Ghnical pand and 

pro jeered that nlOrrality rates art likely ro impro"e more qu.iday for younger pt<Ople chan for 

oldtt p«>pie.' 

RatN ofDis.,/JiliiJ /nridmrr. C BO'scurrem proj«tions for disabilil)' incidence match those of 

the T n a.uee-sand thC' most re«nt t« hnical p.'lnd.6 ln 2016, CBO reduttd its prOjt"Ction of the 

rmc of' diS<tbiliry incidcnct from ).6 per 1,000 tO 5.4 per l.OOO people b«ausc recent do:a1:t 

show th:tr the r:trc has bcd1 lower rh;m pr .s y prQjcctcd and bcctu.sc of 1he t«hnk..-.1 

pand's rCCQmmend:ttion. 

). 5«- 201 ~ i«hniul nd on AHl.•mprior\$ and Methods. ~ w tiN $«WI Smi'*J M~-, &#rJ 

(Septembtt 2015), p. J}-.20, hup:Jigoo.uu.gov/cjYR.) (l10F. )..4 M$) . 

.C. Sec C.O.W~nal Bud£'" Offi«, Tk 2013 I.."t' Tmn &Jtn 0..-l(- (~ptcu1bcr 20 Jl). pp. I~ 107. 

www.dJ.o.~v bJjeationi44S21 : and 201 I TcduUeal Pand on ~umpc~ U and Methods. &,., u ,~,r 

S«MIS«wr#]kiPiw} &o!m'(Scptcmbu 2011), PP- ~>-64. hn,.Jiso- pld.cl2e (PDF. 6...4 MB). 

j. ~Conge'l4ioM B4 ¥0ffiu, 17N¥)16/Aifi Tm~t&ttltn0..-s1M<Ju y20 6) p. 104. 

www,.d,.o.p l publ.ication/51580; and 2015 T ttJmical Paod 011 Mu.mption.s ll!d Mc:tbods. &p#Ff Ul 1/x 

S«MI~rit]~J']&o!m' Scptcmbu2015). p. 18. hup:l/, to~.~ovlc-)YR5 (PDP, 3.4 MB). 

(;,. See Social S«urity Adm.ini:Umion. 1'ht 1:010A""II41 Rtf»" ttj'JN &unl~f'rnl#tWtt/lhtf:,Jn,fi OU-Att 

"-" s,.,.,;.WI h fiM"f(UUf llmi FtJtt>tl IJURbiliiJ IJUMNnU itw.~s FwtJJ Oulle' 20ii>). pp. 134-1)6.. 

WWW..$$<l.f~»VIC»C~/rr 201l : :and 201S Technkal :~ntl on Auumpri<ln.t :and M~hods. Jtt.tm u W S«kll 

$«rtril) Al/,.u.,&Nml sq.nn~r 201 $). pp. 29-{4. hnp:l/g:o.U$1.govlcJ'r'"R5 (f'I)F, 3.4 .\11}). 
99 


ralbany on LAP520R082 with HEARINGS23191.085

4 A~TOQl!~110:\SroRT ER£CORD 

Table2. 

U.S. Population by Age Group for 2014 as Projected by CBO In Various Years 

Age 19 Age 20 Ajje6S 

YeaJ All Ages ocUnder Thfough64 «Older 

Reported Population (Mi.llions of people•• 

2014 322.9 ... 192.3 45.7 

PopuJation Pfojected by C80 for 2014 (Millions of ~e) 

2006 323.S 35~.4 194.2 43.9 

2007 324.0 as.s 194.5 44.1 

2008 326.9 87.0 195.5 44.4 

2009 326.4 87. 1 194.7 44.6 

2010 326.4 37. 1 194.7 44.6 

2011 324.3 84.4 192,, 45.0 

2012 32S.2 36.3 193.5 45.4 

2013 314.0 85.3 193.1 45.5 

2014 324.S 85. 1 193.5 4S.9 

~rcentage DitlelenCie Bet\Wen Pfojected and Reported Populalion -.,. 2014 

2006 0.2 0.6 1.0 ·3.9 

2007 0.4 0.1 1.1 ·3.4 

2008 1.3 2.S 1.7 ·2.8 

2009 1.1 2.6 1.3 ·2.4 

2010 1.1 2.6 1.3 ·2.4 

2011 0-4 1,.8 0.3 ·1.5 

2012 0.7 1.6 0.6 .0.7 

2013 0.3 o.s 0.4 .0.4 

2014 o.s 0.2 0.6 0.4 

Sowces: Congressional Budget Ofllce: Sodal Secwlty Truswes. 

C90 aniS the Social S«l.riiy Trustees used the s.amepopulatloo projectSoM from 20061hrougll 2010. from 20n 

(I(IW;)fd, C80's projections ditsered from those of the Trustees. 

lonas oc January\, 2014. 

NO\'F.MBFJt 16,1016 

Question: CBO h:u been making demographic nd OCQnomic :~~:s:sumptio s for )'t:US. ll."lSCd 

on dara from the past 10 years. plet5e provide a table CQmparing )'Our pmj«-rcd \<:~lues ror 

t:~ch 2ssumsxion to what aau:llly happened over thou rime- period. 

Answer. When CBO first StJrtcd tO publish long-tenn Scx:i:tl S«:-.1riry proj~ ions. it 1lS«i 

popul:trion forcc.1StS pro\ided by the Social Sec~1rif)' T rlLSr«:S. More ro;cntl)•. CBO has rnade 

iu own demogl';lphic projections-for irnmigr.nion staning in 2011. mormliry in 2013. and 

reniliry in 2016. Those ro)e<:rio ar~ inpuu ro COO's population proj«tions. which 

.summ:.riu over.all demogr..tphic rr nds. 

In 2006, borh CBO :.and the Trll$teesatimatod tha1 c:he U.S. popul:trion in 2014 (the latest 

year o( hisroriC31 popubrion dam publi.shtd by rht T runecs) would !)( 323.5 million. Thar 

f'igurr was 0.2 ptrccnr higher than the TmstC(;S' most recent!)• re-poned hisroricd popularion 

for 2014 or 322.9 mill ion people (:stt T~b c 2). In 2006. the proja:ud popul:;.rion bcrwtcn the 

ages or20 :md 64 \Y':l$ 1.0 pt:rcenr b rger and the pro jeered llumberorptt;plc age GS or older 

was 3.9 pcr«nt .smaller than dtc." rep<>rred hi.stori-c.'al numbers ror those age groups. 
100 


ralbany on LAP520R082 with HEARINGS23191.086

Toble3. 

GOP for 2015 as Projected by CBO In Vartous Years 

Projertfll GOP tor 2015 

r .. , (Brtllons of dollar-s) 

Actual GOP. 201S 18.037 

2005 19.861 

2006 20.178 

2007 19.791 

2000 19,396 

2009 19,077 

2010 18,621 

2011 18.441 

2012 17.399 

2013 17.913 

2014 18,357 

2015 18.204 

Ptrc.ntage Oitterence 

From Adu.al GOP, 2015 

10 

12 

10 

10 

3 

2 

·1 

·1 

2 

Source: Coogresstona1 &Jd ~t Ol'llce. using data trom the lbNu of Economic Anatj'SIS. 

As pari o11tS Jl.ly 2013comprehens!Ve reoi!Sion to the national Income and prodtJct.accomts, the Btleau ol Ect)(ll)fflie 

AllalySis added Intellectual propor!y'prOducts to tis detinltiOn of lfNeStmenl. Prlmarlty as a resuh ol that Changt. the 

~eowcoc nomlnal GOP was raiSed lot the entte hlstOflcal peOOd. All COP valles In ltlls t.abfle retle<t 111e value or GOP thai 

CSOpro}Kted for 2015 in January of eachyNr. Values for 200S thr01J112013 twrw not ~.ad)ls~ to account fOf 

1M Jlly 2013 rM!on. 

GOP • g'OSS dotl'lltSIIC ptodUCL 

C BO's projection of nomin:al gross domesric product (GOP) i.s 01 summ:ary meJsure of its 

tconomi<: for«.au. and iC$ (Ong-tmn projections of GDI, a.re consistent with il'$ lO-yeu 

for('(;.aSr$. (fhe agency regularly evalu:ue$ the quality of its IO·year ~o omic foroauu in 

comparison to t.he eco ~s actual performanCC'. 11t~ m06t roctnt such analysis was 

publi.sh«< in February 2015.)' In 200). COO published a proj«tion of GOP for calendar 

ytar 2015 rhar rums om ro have btts1<1hout 10 ptrccm higher than che;accu:al :~mo mT 

rcpon«< by rhe Buretu of Economic An:alysi.s for th;ar )'Car (sec Table 3).• T he difference 

b«ween CBO's e:arlier projection :.and rhe actual figure c-~1 be traced mainly ro the effects of 

the 2007- 2009 recession and ro rhc slowt-r·than-:avcrage gTowrh in the CGOnomy11nd infl:ukm 

in the l«e'$$ion's aftermad1. 

Question: Uke d1eSocial SccurityTn.u.t~~ CBO pubHshe$ estimate$ ofSo<'iaJ St:CI.lrity's 

75yeu :actuarial balanCC'. Howt"Vtor, unlike rhe Trustets. CBO does not pub(jd)' rde.asc its 

e:stimau: of Social S«:urity~s 75-)'e.tr open-group unfunded obligation. Wlty dO<$ CBO not 

publidy release this informacion? Are you able to pi'Qvide rhis C$timar~ If so, ,,(C;)Se provide ir 

for the 75-year period beginning in 2016. 

7. ~ CongoWon .. l Budt;n Offi«. CBOi E«~,.,.,k hmilJting &nrtl: 2015 Upt~.n, (February 20lS). 

www,.d,.o.plpubl.icationl-49891. 

&. Sec- Uuruu ofEc.oQOmic An~ly$i,, "Cum:n .1)Q8:~r:and '!U-.1I' (irou ().3~ io: Producr, Oaobtr !a:, 2016• 

(xc:t>.sscd Novemb« 15. 1016). ••v.w.bc-J..gov/nnionall:dVtcJpkv.xli (l!xcd. 46 K6). 
101 


ralbany on LAP520R082 with HEARINGS23191.087

( 0 

ANSWERS TO QUE5TIONS FOR THE RECORD NOVEMBER 16, 20 16 

Answer: The open-gro up unfunded obligation (or open-group liability) is the difference 

between the present value of the program's expenditures and the sum of the present value of 

noninterest receipts over the next 75 years and the current balance in the combined Old-Age 

and Survivors Insurance and Disability Insurance Trust Funds. (A present value is a single 

number that expresses a flow of current and future income or payments in terms of an 

equivalent lump sum received or paid at a specific time.) If that amount is positive, the system 

has an unfunded obligation. The open-group unfunded obligation differs from the actuarial 

balance in that it does not include an end-of-period requirement of a reserve that equals one 

year of costs (which is part of the calculation for the 75-year actuarial balance). CBO's current 

estimate of the 75-year open-gro up unfunded obligation for Social Security is 1.48 percent of 

GOP. CBO does not typically publish its estimate of that measure because it is only slightly 

smaller than CBO's estimate of the actuarial deficit for the same period. 

Unlike the Trustees, CBO does not report the open-gro up unfunded liability measure in 

dollars. CBO typically does not present any long-run projections either in nominal dollars or 

in present-value dollars because those quantities are difficult to interpret our of context. 

Instead, C BO reports long-term projections, including projections of Social Security, as a 

percentage of GOP. 
102 


ralbany on LAP520R082 with HEARINGS23191.088

Congressional Budget Office 

OEC£Mll£R 9. l<ll6 

Answers to Questions for d1e Record From Ranking Member Becerra 

FoUowing a Hearing by the House Ways and Means 

Subcommittee on Social Security on 

Understanding Social Security's Solvency ChaUenge 

On s~pum/Nr 21. 2016. tl~ Hous~ \trap mut Meam SulxommilfN Oil S()('iAI ~l'urity mtwtntd n 

IKiiril1g Itt wiJi~h K~itb Hn/1. Dirr<'l#rfl[tbr Ungft'JSiOnlll Budgrt Offict, INtijitd abou1 CBOi 

kmg~urm pro.frctions (wwuu bo.govlpub/iauion/51988). Afirr siN lmrring, RPnking /11mrkr 

/JN"'a submittd qumhms for t!x JWOrd. This d«ummt provitks C80 i mmtrnT. 

Qut"Stion: Plc-2sc describe lhe model or :lJ>proach rhe Congres:sion~ l Budget Office (C60) 

USC$ f'or m:aking long·r:tngc projeaions, and whar you know of rhe model :tnd app ~ch used 

by rhe Office of rhc Chief Acn•:uy of the Social Securiry Admini.srration, compoaring and 

contrasting the cthtivc-sw:ngths and wtaknC'$$CS o( each approadt. 

Answer: 'Tltt Congress.ionaJ Budget Office'slong·ttnn proj«tions for Social Securi«y 

.spt:nding :lnd rtVC!OUe$ are bas«! on a derailed microsimiJiation mcxld thar .srarts wirh d:ara 

about indi\•iduals from a rc-prdt:ntarivc a:ample of tht population and projects demographic 

and economic outcomes for that sample dtrougb time. 

1 For eadt P'=rson in the: sample:, the 

model .simul:ncs (eniliry. death, immig.ntion :and emigr.uion. m:tricaJ srarus :tnd changes 10 ir, 

labor force p;~.nicip:.n , hours worked. eArnjng.'), a_nd p:ayroll t:t.XC$. along with Social Securiry 

rcriremMr, di.sabilil)', and dependents' and survivo11' benefits. 

The amount$ of Social Security CUt$ paid and benefi~s recti\·td. and the rdulting gap 

betw«:n tot l re\·enues and benefits. d..-pend on estimates oflifeexp«tancy,oonditions irl 

du: labor mari.et, and odH•r factors. CBO's microsimulation modd is d~ gntd so that, on 

:lvcr-age. the simul:trcd economic outcomes of rhe s:tmplc equ:tl rhc agcnc)•'s long·t.erm 

economic projections. ThoStcconomic projccriQtl$2re c:xtensic>tuofthe 10-year rconomic 

I. The «n individu=-l·k•d ckl;a uK'd io CBO's modd co~m from the Cor..tl.ni.IO\IJ Work HiMOf)' &.mple. an 

:.tdminiJtmi\-el.bu l('( provided byrh~$QriJI Sec"rity Adrninisturion. 1'hOfC'd.irJ.a)RUin21 hisiOI')'Of 

individual uminp f«<fds for a .wnple, bc£i.noin3 io 1951, of l pcr«•ll of aD people who h~a·~ ~n l.u('C( 

Sod~ Security numbcn. The <b-101 abo <001.Uo dcmoga.phk lofo•ol;I.Uoo ~w. Social S«;wily infWII'Iioltion fo1 

~Jet. individwl. Th~ infornution fo.r Old-Age. Survivon. tnd Oiubaity lnosursnct indud~S dti ng dtr~ 

d1in1 type' (retiree, sunWor, ()"diubiliry). primtry iiU\lNonce :am(l"ftf· mc:>nlhlyb<'nefil :a.mount. 21nd rht t eMOn 

fOI' di~lity, fwmoa detAil • .t« Jotwh.an Sc.h~bi.sh and JulieT opOk.dcl, M~/i.,g Jmlin~J &m/np ;, 

CBOi Unt·T~ J+fim,R,..,l'lfiM MUtl. World11$ P.oiper 201.$-04 (Congrm.iooal 8~ OITKit. Ju.noc ~IJ , 

-.d.>o.8CJVIpublicuion/-'-'30c:i: tnd CongrwionJJ Sud~t Office, CliOi I.Jmt•rnm MtJJ: A" Otvnit'w 

Qun< 2009). -.cbo.rlpuhlicn ioBilOSO?. 
103 


ralbany on LAP520R082 with HEARINGS23191.089

2 A'\S"l'£RSTOQIJ~110~FORTHERt:CaiD OOC£MBER9.l016 

forcc;urs rh:u underlie rhc: :agency's bt•dgc:t projoctions.llu::y refiCCt nor jusr hinoriol3ver.1gcs 

but also trc:nds that many eoonomic forceutcrs exptet will c:ontinuc.1 

CBO and the Socia.! Securify ·rrusrf'd ~ diffcr("lll valu~ fo r the projecrion.s' four ~, inpui.S: 

earnings subj('(t ro Social Sccurir)"s payroU ta:<, key cOnlpont n ts of nominal g:rowdt in gross 

domestic product. dc'll\ographiC$, and real (infl:;uion-adjUSfed) inttrC':$t ra.res. However, t.he 

approaches used by CBO and t..he T rustet'S to make es•imates differ in various wars even when 

the four major input5 are d1e same. ln C BO's modeling. payrolJ m.xes c:ollected from and 

Social Securiry benefitS roccivt'd by 2 rc:rired worker o:~rc: alc.ulartd on the basis of e1rnings 

projected for th:1r pcr:son, rhu.s ensuring oon.si.src:nq• in the: projec:rions of p:t}'toll f'.,'iXCS and 

bendirs. Tile TnLsrees proj«t be-nefiu Qn rhc b:l.Sis Qft-<lming.-> data for :1 recent cohon of 

rnirc:d-worker bcnefici:~ritS and then :adjust those data ro account for fururc: e:t.rnin&$ growth 

and for orher oj~tc:d changes in the: b bor nu.rket. 11lc T rusrc:C$ project p.1yroll rax.es 

scpar.udy. 

Quesrion: Please dabor:ne fimhc:r on your projections reg2rding ch:tngts in the t';lfe oflabor 

force Jl'lnicip:uion. ;1nd rhe re:LSQning behind the: :w~unpri u you nuke: :.bout the furure. 

compared to p:t.st experience. Also. why arc: these: rates shown in presenrntion wi1hout 

adjustment for agt or ~x. 3nd what i$ the imp-Jet of dlis on your modeling and projt'("tions? 

Answer. Since 2000. the r.ne of labor fore~ panicipation Ita$ declined by 4.6 pcrc~ ntag:e. 

pOintS. from 67.1 pen.>tnt in thac yeu to 62.5 ~en' today. CBO projC'Cts a continut'd 

dedint of7.9 ptroent'.lge pOints o"er the next 75 ytars, with labor foree partf6pation reaching 

54.6 ptn:C'ut in 2090. Tiu: s.t~ projoct a dedinc of2.2 J>~:rCCntage point$ for thC' same 

period. Wi[h an adjusune.nt for c.h:angd in the number of people' br age and SCl( ovtr tirnC' 

.since 2016 {that is, removing the cff«t of the changing agc·and·sc:x mjx of the popuJation), 

CBO projeGt·s that dte rart ofbbor forcc- participation wou.ld decline b)' O.S potrC('ntag.e pointt 

btlw«>n fodayand 2090. and the Tnu.tees projt:et an incre-ase in du.t r:.ueof 3.2 percentage 

pOints over the .same period.> 

CBO anticipate$ a deGLi.ne Ln the labor force pani(._'ipation rate as the population ages. 

espe'(ially over d1~ next cwo dec.adn.. The agency also expects that .some long· term crends 

in panicipa1ion will persiSt for particular groups of people. SpecifiClUy. it anricip.ues th:u 

parriciparion rates for y<>\mger workeN and for ICS$ educncd. workeN will conrinue to decline:. 

T he F.. !ling panicipation :among those nvo grQups is expccred to w~ a smaller dfcc1 on 

ov~ J:Jl participation. howc:\'c:r. than i.s rh~ increasing retirement of the baby boom genctJrion. 

2. cuo ttg~al.uly COn'JWd iu nt.•o- tnd fiv.:..year ooonomi.c r.,recucs wirh rhote of ~ Offi« of 

J,bn~goemcnc :~~nd Ul.ld~ :a.nd otpai~lio s in rh~ ptiv..re ~«cor. Soe <Antres.si<>rul Bud~ Offic.r, 

CSOi &.11-K F(lfti(Wti~~t R«~rd.: 20/S UJ!M~ (f.tbru;uy 20 IS), ~-wwA:bo..&ov publiCit.ion/49891. 

3. In Cl)()'s projeaioru-. the 2C(u:.J b bor fottt p.&.nicipuion rJ.T<dediM$ by0.8 p<t~:tnNgt poin o:~~nd tht rJ.f.t 

of poTttu UI bbot for« panicip~t on dedi•~a by 1.6 ptt~:rntllgc po<ints. JiHtlfrkliiHW fowt fNll'ri<iJW'ift"'e&IUtct The numbe·r of peopk who ukt bt in thr bOOr for.cr if rhr economy...-.-~~ :1 <X)ndirion of fUll 

cmploymrnr. "''M M.ljun n1rnr mad< by rhrSoci.d Security Mminisrr.arion in ·v.bor Fon:r ~llnicip.uion RJtd, 

J\r..$c:.c.Adj,1Sttd 10 2011 Poputuion: JJl exhibit in th.1r :&erncy's ~Cim(lny. *=COUnts r. •he d'f'rcc qf '"' 

d.~nging ~nd.ttX mix of 1hr popubcion sinor lOll. CUO'scbu. tccoum for c:h:Jngod i.n ch< .,..nd«X 

mi:ll of rh< popul.lrlon liinc~ 201(';. $«1ft< reuin,onyofS.uphtn C Con. C hid' ACluJI')'• $oc:; ~l Stcuricy 

1\dminis.t.r-.Won. bcfo~ thr Subootnntiu« on Soc:W ~curi ry o( the HouK Conllniu« Oil W~., ;w.d Mans. 

S«iJI &,....,,;,; SM-ry Ch.rllffl:t: .&tim.11a for-UN Am,114( Trwtn &p.m d.J by CBO, 2(1()2 tl-.gh 2016 

{Scpctt'nbcf 21. 2016), P• IS. W'll'W~.p;ovfoacc/lulirnouyl. 
104 


ralbany on LAP520R082 with HEARINGS23191.090

·n te ro:ILK'tion.s in participation will bt modestly o~t by a pair of trends w01klng in dtC' 

opposite dir('(tiOn. J~int, incr<"<Uing longe-.•ity willlnd prople to work long<'r: In the comiJtg 

d«ades. the average penon is liktly to work about du-tt months longer for c:aeh additional 

yc::ar of life C:Xp«tancy. s~'()lld. the population is becoming more educated. and workcn with 

more alucuion rend tO stay in me labor force lc>ngff than dQ people with less cducuion. 

C BO expects the f:lte oflabor force p:micipariQn for older worker$ to incrc:t$t modestly. 

C BO's projections of labor force p;trricit)ation v~ry by age and sex. (Thar variation i$ based 0 11 

obsen·cd. differt11ces in p:udciparion according to th~ arrgories.) The O\'er.:alllabor forc.:e 

panicip:uion nne em be presented as a gros:s r.ue, which shows the dfecu of changing 

dcm ograpbics over time.• Alfcrnati\•dy. that r.ue C'.Ln be adjusted to remove the dfcc.s of the 

changing age-and-$C"x compos.ition of the popularion. ln bot.lt c.·ases. the proj«tion.s vary by 

age and S('X; only tlte preM':IHation of dtc over.tll rate varie-s. C BO's projections of Soci<ll 

Srturiry's finances incorponate projccrions of labor force participation-induding Y.lriations 

over time for diffe-rent groups-and they account for the implicnionS of participation for any 

indi\•idual person's digibility for Social Security benefits and rhe amounts that pel'$0n would 

receive in benefits. 

Question: J>Jease elaborate further on your projections rq:;;arding the r.a te ofincrtast$ in 

income inequality. and the r.uionale for the assumprions you make about the future, 

compGred to past cxperit11ct. 

Answer: Although the share of t-o~mi gs for orke~ in the cop perccmiJe of the income 

distribution rose srradily in the 1980s :and 1990s, it h:as fluctuated since rhcn with conditions 

in rhc ~no . The share fell during The recession rh:ar began in 2007 and ha$ OQ( rerurned 

ro irs pretece!$Sion level. In COO's vie•w, the data for lhc period from 2008 through 201.4 

abour the top I pe.rcent of the income distribution l)re probably not inform:u·h·e about long· 

term trends bcc.1USt rhe 2007- 2009 rcce!$Sion was 11nusua1Jy s.evere, especially for J)t(lple wirh 

high income, and the substquem tttovcry was unu$ually slow. (r also is likely that n1.1ny of 

rhoscpoopleshifred earning:s from 2013 intQ 2012 to-avoid the inc.rc:lSC!$ in t2X roues d\.1r took 

dfocr in 2013. The c.1 rnin~ share ofrhe rop I percent ro~ in 2014, !though it remained 

bdow the longcr·term trend. C60 :arrribmes some of thm weaknas to rhc f.:.et thai the 

economy was stiU oper.uing appr«.iably bdow iu potentjaJ in 20l4. 

1:or ics projections of earnings shares over fhe coming decade. CBO rcJjes; on its review of 

longer-term trends. Sp«:ifically. the agt'llcy expect$ that the C"arning:s .).hare of the top l pe-rcent 

wiU rise. re-aching the IC'·cl suggc.sred by extr.tpolation of the trend from 1978 to 2008 over the 

next few ye-.us and then following that trend for the remainder of tht' eoming decade. 

A smaller nmounr of the hisroric:d ch:ange- in the income distribution h:1.s bttn caused by :m 

increase in the $h:trc of c:trning:s for workers in the 96th ro 99rh percentiles of the e;~ rnings 

di.snibmion. Their r..mings share h.-.s gi'Qwn stetdily-by abour onc·haJf of Qnt pcrcem per 

t-le<::Kie--.$ince the l:uc 1970:s. when the relevant d:na began ro be collected. l11at rrend, which 

C6Q projectS will COntintte for the n ext 10 years, is C!XpeCted 10 COntribute tO !he changing of 

the income distribution over the .s.amc period . 

.c. $teo !he 1dlimony or K.c:ith H~JI.l>it«IOt. Co~~orW Budte~ Offi.;e. btforc: rhe Subo(lmmin~ on 

Sod:.l $calr tyol ~ Nour;eCommin«on W2ys:and Mt-JA.$. Comp.tri"lCBOiWr-Tnw~ ~N 

Wit/, 1'h~ofJu$«i.f} $Nf.Ny ri'WIINI (SrJK~mbeJ 21, 2016), p. 11, -.cbo.gov/publicuion/)l98$. 
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4 A'\S"l'£RSTOQIJ~110~FORTHERt:CaiD 

Quesrion: Are there special cQnsider:triQns that sho11ld be taken imo :J;C(:c)unr when n\.1.king 

long·ttml (75·year) projections as <"<>mp3red co making n('aN('rm projeaions. suc ~ the 

I. 5. or 10 ye-.m that have long bttn a focus for CBO? 

OOC£MBER9.l016 

Aruwer: CBO's long·ter-m «Onomie projoctions art o aenslons of d1t' H)-year t«:onomic 

forecansthat tutderlie the agenc>·'s budget projtaions. T he «<nomic projections for tht nexc 

few rears art ba.s«J on fort'(asr5 of cyclical dtvelopmenrs. whereas proj«tions for the final 

5 years of a IO·ye.u economit for«.ast are b:t.S«t primarily on projections of underlying trends 

in key variables along wirh federal rax and spending policies. For rhe period bc)•ond a I 0·)'e.1f 

fQrcx-.ast. CRO proj«t.S a:onomic and demQg.r.aphic conditions xcording ro its a$$tlS.ment of 

long·tcrm {rends. which reAocr not just histQrictl averages bUI also trends rh;:tt many 

«onomic forcc<&Sten cxpoc1 will conrinue. 

6udg~ pi'Qjtctions are inherent!)• uncermin, and rh:ar uncerr2inty incrt-~sei as the -:m."llys.is 

prriod lengthens. E'•cn if laws did nor change, the t:eonomy, og~phi C$. and other ("l(;rors 

would undoubtedly differ from CBO's projea.ions.. as wouJd budgtGU)' outCOme'$. Those 

difTercncd oou1d be within the ranga of cx:ptrien<.'(! ol»erved in the r('lc-vant hi.stortc-.11 datawhich. for rhc factors dQt CBO analrLcs. cover roughly the pom 50 to 70 )'C'ai'S-Or they 

might dq>art from historiC'aJ expc:rienct". Moreover. sig.n.if'icant budget.l.l)' eff('(;r$ rould rt$uh 

from cham\ds that CBO has not :mcmpte!d to quantify in its 2nalysis. 

Qu« tion: J,leak discuss the notion of making inCf('menul changt'$ in assumptions from )'ear 

to yor. and how you :approath whether and to what ex1enc )"<>Ur assumptions should refltct 

«en y..o~·cd changt$ in econontic and demographic behavior. 

Answer: CBO produccs independent and impartial analyses of budgetary and «<nomie i.$$uts 

and considers i1 a priority to ensure that tht- agenC)''$ current·law budgefa.J)' and et'onomic 

proja:tions reflOCt the middle of the di.stribution of possible outcomes. T he agency reviews 

biscorical data, the fort'(:Ut$ of othn b'Overnment agtncies. and dle aC".tde.ntc literawre. and it 

consultS with ia pands of ad\•isers and other ens as it develops iu proj('(;(iOn.s. 

CBO .strives to update irs projections as new lnform:uion becomes 2\"ailable. whic:h often 

rtquirc:s the agt'n<y co e.xercis(- judgment 2bout the t:xtent to which dlat new informarion 

reprcsenu a cha.nge rh.-ar is tempol":)ry or rmanenr. Such upducs sonltrimes can lead IQ 

subsramial changes from one year tQ the next, but C60 bdieves itS ;~.pproach provides rhe 

Congress wirh projectiolt$ that inc:orpor.ue the mon currem rhinking. When the agency 

decides rhat rdarivcly l:uge revisions are w:.ummed by new in(orm::uion and :mal)'sis. it 

explains thc basis of dtose re-.•isions. 

f;or example, ln 20 16. CBO lowered irs projenion of the tot-al fertili()• rate from 2.0 to 

1.9 d1ildrm per woman. (That r.ue is rhe aver.tge numh<'r of chi1dren chat a woman would 

have in her liftrime if, at each age of her life. she e.xperiented the binhr.ateobseroedor 

a.ssumed for d1.at year and if she sun·ived her entirt chi.ldbe-.uing period.) Set.--ause hls1orical 

data indicate rh:~r fcrriliry ~res often decline during re!CC$.~ions 2nd rebound during recov4!ric:s. 

CBO did no1 immediatdy d1:mge irs projcaiQn in respon$C to rhe !.ower roral fe rtility r.ues 

that ~uhcd from rhc 2007- 2009 recession. However, the U.S. feniliry r.11e (which w.u 2.1 in 

2007) di'Qpped after thar recession, and it h:I.S remained below 1.9 $in<:c rhen. For that 

reason- along wi1h rvidcnce rh:.u women ;t,re dcla)ing cllildbe1ring ro l:ttcr ages-C130 

lowered it$ proj«:riQn this year. 
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ANSWERS TO QUfSTIONS FOR THE RECORD HOUSE WAYS AND MEANS SIJBCOMMITIEE 

Question: W hat is the oversight structure regarding yo ur projections-what other entities 

review or have input into the development of the assumptions, the methods, and the results 

produced by the staff working on the projections? 

Answer: C BO routinely consults panels of advisers that provide advice and feedback on 

C BO's macroeconomic forecasts and modeling of health-related programs. The agency also 

consults the reports of the Social Security Advisory Board's T echnical Panels on Assumptions 

and Methods. CBO's analysts attend panel meetings and review reports, and CBO has 

incorporated vario us recommendations of those panels and used some of the Trustees' 

projections in its analyses. The agency also asks outside experts to comment on the 

ass umptions and methods underlying its projections. 

C BO updates its projections annually to inco rporate the best information available from the 

research community along with feedback on the agency's analytical approach and other 

improvements in modeling. The projections are reviewed internally for analytical soundness 

in a process that involves many staff members throughout the agency. Before publication, 

C BO's long-term projections are subjected to rigorous internal fa ct-checking. 

CBO 
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Submissions for the Record 


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Comments for the Record 

United States House of Representatives 

Committee on Ways and Means 

Social Security Subcommittee 

Hearing on Understanding Social Security's 

Solvency Challenge 

Wednesday, September 21 , 2016, 10:00 AM 

By Michael G. Bindner 

Center for Fiscal Equity 

Chairman Johnson and Ranking Member Becerra, thank you for the opportunity to submit my comments 

on this topic. I will leave it to the Administration and CBO's witnesses to explain the difference between 

the future projections, except to say that both forecasts are required to be conservative. As the Economic 

Policy Institute found many years ago when attempts were being made to justify personal accounts in 

Social Security, there is truly no solvency problem if more realistic estimates are used. Of course, that 

relates to the system as a whole, not on how the Trust Fund is to be reimbursed, as I reiterate below. 

As usual, our comments are based on om four-part tax reform plan, which is as follows: 

A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary 

spending with a rate between 10% and 13%, which makes sure very American pays something. 

Personal income surtaxes on joint and widowed filers with net annual incomes of$100,000 and 

single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas 

and strategic military spending and other international spending, with graduated rates between 

5% and 25% in either 5% or 10% increments. Heirs would also pay taxes on distributions from 

estates, but not the assets themselves, with distributions from sales to a qualified ESOP 

continuing to be exempt. 

Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, 

which allows for lower payment levels to wealthier retirees without making bend points more 

progressive. 

A VAT-like Net Business Receipts Tax (NBRT), essentially a subtraction VAT with additional 

tax expenditures for family support, health care and the private delivery of governmental 

services, to fund entitlement spending and replace income tax filing for most people (including 

people who file without paying), the corporate income tax, business tax filing through individual 

income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, 

disability insurance, unemployment insurance and survivors under age sixty. 

Lessons from the Great Recession 

The 2008 Recession triggered by our continuing asset-based Depression has both temporary and 

permanent effects on the trust fund's cash flow. The temporary effect was a decline in revenue caused by 

a slower economy and the temporary cut in payroll tax rates to provide stimulus that has since been 
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repealed, although the amount was added to the Trust Fund for later withdrawal, regardless of 

contributions not made. 

The permanent effect is the early retirement of many who had planned to work longer, but because of the 

recent recession and slow recovery, this cohort has decided to leave the labor force for good when their 

extended unemployment ran out. This cohort is the older 77ers and 99ers who needed some kind of 

income to survive. The combination of age discrimination and the ability to retire has led them to the 

decision to retire before they had planned to do so, which impacts the cash flow of the trust fund, but not 

the overall payout (as lower benefit levels offset the impact of the decision to retire early on their total 

retirement cost to the system). In addition, it has been made easier for workers over 50 to retire on 

disability (as I have done), with many of us approved on the first try. 

The Reagan-Pepper Compromise 

When Social Security was saved in the early 1980s, payroll taxes were increased to build up a Trust Fund 

for the retirement of the Baby Boom generation. The building of this allowed the government to use these 

revenues to finance current operations, allowing the President and his allies in Congress to honor their 

commitment to preserving the last increment of his signature tax cut. 

This trust fund is now coming due, so it is entirely appropriate to rely on increased income tax revenue to 

redeem them. It would be entirely inappropriate to renege on these promises by further extending the 

retirement age, cutting promised Medicare benefits or by enacting an across the board increase to the 

OASI payroll tax as a way to subsidize current spending or tax cuts. 

The cash flow problem currently experienced by the trust fund is not the trust fund 's problem, but a 

problem for the Treasury to address, either through further borrowing - which will require continued 

comity on renewing the debt limit - or the preferable solution, which higher taxes for those who received 

the lion's share of the benefit's from the tax cuts of 198 1, 1986, 200 1, 2003 and 201 0. Many also 

complain that this recovery is anemic. That is likely because too many upper-middle income taxpayers 

were given a permanent tax cut from 2001 . Less savings and more taxation would boost spending on 

both transfer payments and government purchases - especially transfers to the retired and disabled. 

The cost of delaying actions to address Social Security 's fiscal challenges for workers and 

beneficiaries. 

Actions should be taken as soon as possible, especially when they must be phased in, as it is a truism that 

a little action early will have a larger impact later. 

This should not be done, however, as an excuse to use regressive Old Age and Survivors Insurance 

payroll taxes to subsidize continued tax cuts on the top 20% of wage earners who pay the majority of 

income taxes. Retirement on Social Security for those at the lowest levels is still inadequate. Any change 

to the program should, in time, allow a more comfortable standard of living in retirement. 
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The ultimate cause of the trust fund 's long term difficulties is not financial but demographic. Thus, the 

solution must also be demographic - both in terms of population size and income distribution. The largest 

demographic problem facing Social Security and the health care entitlements, Medicare and Medicaid, is 

the aging of the population. In the long term, the only solution for that aging is to provide a decent 

income for every family through more generous tax benefits. 

The free market will not provide this support without such assistance, preferring instead to hire employees 

as cheaply as possible. Only an explicit subsidy for family size overcomes this market failure, leading to a 

reverse of the aging crisis. 

We propose a $1000 per month refundable child tax credit payable with wages as part of our proposal for 

a Net Business Receipts Tax. This will take away the disincentive to have kids a slow economy provides. 

Within twenty years, a larger number of children born translates into more workers, who in another 

decade will attain levels of productivity large enough to reverse the demographic time bomb faced by 

Social Security in the long term. 

Such an approach is superior to proposals to enact personal savings accounts as an addition to Social 

Security, as such accounts implicitly rely on profits from overseas labor to fund the dividends required to 

fill the hole caused by the aging crisis. This approach cannot succeed, however, as newly industrialized 

workers always develop into consumers who demand more income, leaving less for dividends to finance 

American retirements. The answer must come from solving the demographic problem at home, rather 

than relying on development abroad. 

This proposal will also reduce the need for poor families to resort to abortion services in the event of an 

unplanned pregnancy. Indeed, if state governments were to follow suit in increasing child tax benefits as 

part of coordinated tax reform, most family planning activities would be to increase, rather than prevent, 

pregnancy. It is my hope that this fact is not lost on the Pro-Life Community, who should score support 

for this plan as an essential vote in maintaining a perfect pro-life voter rating. 

This is not to say that there is no room for reform in the Social Security program. Indeed, comprehensive 

tax reform at the very least requires calculating a new tax rate for the Old Age and Survivors Insurance 

program. My projection is that a 6.5% rate on net income for employees and employers (or 13% total) 

will collect about the same revenue as currently collected for these purposes, excluding sums paid through 

the proposed enhanced child tax credit. This calculation is, of course, subj ect to revision. 

While these taxes could be merged into the net business income/revenue tax, VAT or the Fair Tax as 

others suggest, doing so makes it more complicated to enact personal retirement accounts. My proposal 

for such accounts differs from the plan offered in by either the Cato Institute or the Bush Commission 

(aka the President's Commission to Save Social Security). 

As I wrote in the January 2003 issue of Labor and Corporate Governance, I would equalize the employer 

contribution based on average income rather than personal income. I would also increase or eliminate the 

cap on contributions. The higher the income cap is raised, the more likely it is that personal retirement 

accounts are necessary. 

3 
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A major strength of Social Security is its income redistribution function. I suspect that much of the 

support for personal accounts is to subvert that function- so any proposal for such accounts must move 

redistribution to account accumulation by equalizing the employer contribution. 

I propose directing personal account investments to employer voting stock, rather than an index funds or 

any fund managed by outside brokers. There are no Index Fund billionaires (except those who operate 

them). People become rich by owning and controlling their own companies. Additionally, keeping funds 

in-house is the cheapest option administratively. I suspect it is even cheaper than the Social Security 

system- which operates at a much lower administrative cost than any defined contribution plan in 

existence. 

Safety is, of course, a concern with personal accounts. Rather than diversifying through investment, 

however, I propose diversifYing through insurance. A portion of the employer stock purchased would be 

traded to an insurance fund holding shares from all such employers. Additionally, any personal retirement 

accounts shifted from employee payroll taxes or from payroll taxes from non-corporate employers would 

go to this fund. 

The insurance fund will save as a safeguard against bad management. If a third of shares were held by the 

insurance fund than dissident employees holding 25. 1% of the employee-held shares (1 6. 7% of the total) 

could combine with the insurance fund held shares to fire management if the insurance fund agreed there 

was cause to do so. Such a fund would make sme no one loses money should their employer fail and 

would serve as a sword ofDamocles' to keep management in line. This is in contrast to the Cato/ PCSSS 

approach, which would continue the trend of management accountable to no one. The other part of my 

proposal that does so is representative voting by occupation on corporate boards, with either professional 

or union personnel providing such representation. 

The suggestions made here are much less complicated than the current mix of proposals to change bend 

points and make OASI more of a needs based program. If the personal account provisions are adopted, 

there is no need to address the question of the retirement age. Workers will retire when their dividend 

income is adequate to meet their retirement income needs, with or even without a separate Social Security 

program. 

No other proposal for personal retirement accounts is appropriate. Personal accounts should not be used to 

develop a new income stream for investment advisors and stock traders. It should certainly not result in 

more "trust fund socialism" with management that is accountable to no cause but short term gain. Such 

management often ignores the long-term interests of American workers and leaves CEOs both over-paid 

and unaccountable to anyone but themselves. 

Progressives should not run away from proposals to enact personal accounts. If the proposals above are 

used as conditions for enactment, I suspect that they won't have to. The investment sector will run away 

from them instead and will mobilize their constituency against them. Let us hope that by then workers 

become invested in the possibilities of reform. 

4 
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All of the changes proposed here work more effectively if started sooner. The sooner that the income cap 

on contributions is increased or e liminated, the higher the stock accumulation for individuals at the higher 

end of the age cohort to be covered by these changes - although conceivably a firm could be allowed to 

opt out of FICA taxes altogether provided they made all former workers and retirees whole with the 

equity they would have othernrise received if they had started their careers under a reformed system. I 

suspect, though, that most will continue to pay contributions, with a slower phase in- especially if a 

slower phase in leaves current management in place. 

One new wrinkle is that I would also put a floor in the employer contribution to OASI, ending the need 

for an EITC - the loss would be more than up by gains from an equalized employer contribution - as well 

as lowering the ceiling on benefits. Since there will be no cap on the employer contribution, we can put in 

a lower cap for the employee contribution so that benefit calculations can be lower for wealthier 

beneficiaries, again reduc ing the need for bend points. 

Thank you for the opportunity to address the committee . We are, of course, available for direct testimony 

or to answer questions by members and staff. 

5 
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Contac1 Shee1 

Michael Bindner 

Center for Fisc:tl Equi1y 

14448 Parkvale Road, Suite 6 

Rockville, MD 20853 

301-87 1-13951andline 

240-81 0-9268 cell 

No fax 

fiscalcguilyccntcr@vahoo.com 

'fhis submission is made on behalf of no elienls, persons and/or organizations on whose behalf 

the wi1ness appears. 

6 
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House Ways and Means Subconnnittee on Social Security - Hearing on Understanding Social 

Security's Solvency Challenge 

Statement for the Record 

Albert J. Downs, Economic Policy Analyst for Generation Opportunity 

September 21 , 2016 

Chairman Johnson, Ranking Member Becerra, members of the connnittee, thank you for the 

opportunity to submit a statement regarding the topic of your hearing on Understanding Social 

Security's Solvency Challenge. Generation Opportunity represents Millennia! activists across the 

country, and the single biggest threat to our personal financial futures is the federal debt crisis 

driven by Social Security. Many elected officials fear frank discussion of this topic for political 

reasons, so it is great to see this Subcommittee considering the problem seriously and taking 

steps towards much-needed reforms. 

As discussed by witnesses and Subcommittee members, our national debt is quickly approaching 

$20 trillion. 1 While economists continue to debate the exact level of debt to GDP that triggers 

instability, there is universal understanding that somewhere beyond 60 percent lies complete 

economic disaster2 While the United States is in a unique position as the largest and most 

influential economy in the world, we are not immune from the laws of economics, and my 

generation will be faced with the consequences of present inaction. 

When Social Security was created, the total cost of the program amounted to 0.3 percent3 of the 

federal budget, and less than one half of one percent of national GDP4 Today, the program costs 

24 percent' of all taxpayer dollars and makes up 5 percent6 of the entire economy. This growth 

was inevitable, as the politically motivated design of the program has never been fundamentally 

changed to provide the smart and effective safety net that was intended. Payroll taxes have been 

raised 20 times 7 since the program was created, without significantly altering the path towards 

bankruptcy. 

Fixing Social Security isn't about throwing more money at the problem. The source of the 

nation's long term fiscal health strains is not on the revenue side of the issue, but on the spending 

side. Social Security is the single largest federal program- in 2016 it will cost $929 billion8

, 

nearly one quarter of every dollar the federal government spends. 

While a case can be made for raising federal revenues to efficiently fund national priorities, 

taking more money out of the pockets of working Americans without addressing the underlying 

unsustainability of Social Security will hurt the economy and only punt the problem, leading to 

more tax hikes in the future. Ultimately, achieving a fiscally sustainable Social Security system 

1 Treasury Department "Debt to the Penny " hnps://www.treasmydirect.gov/govt/repmts/pd/pd debttothevetmy.htm 2 Center for Economic and Policy Research http://voxeu.org/debates/commentaries/there-optimal-debt-gdp-ratio 3 Author's calculations from Office of Management and Budget {Table 3.1} https:!Annt'.whitehouse.govlomblbudget/Historicals 4 Seecitation 3 

~ See citation 3 6 Social Security Tntstees' Report 2016 https://www.ssa.gov/OACTffR/2016M G2 OASDHI GDP.html#200732 7 Tar: Policy Center http://www.taxpolicycenter.org/statistics/pavroll-tax-rates 8 Social Security Tntstees' Report 2016 https://www.ssa.gov/OACTfrR/20161rv A SRest.html#382302 
114 

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must be done in a way that doesn't further burden future taxpayers with increased debt. Without 

other serious reforms, raising the taxable cap would reduce other federal tax revenues from other 

sources like personal income, corporate income, and excise taxes as workers and firms will earn 

less because it is being taxed away. Additionally, Social Security payroll tax revenue is held in 

treasury bonds that add to the national debt and have to be repaid by future generations. 

Members of my generation don't expect as much as a penny from Social Security by a margin of 

two to one9 While this expectation does not line up with the realities of current law - which is 

set to cut payouts by nearly one third in 13 years10 - it underscores the fact that young Americans 

aren't counting on government support when we make savings decisions. 

Studies show that Millennials are about half as likely to save nothing compared to older 

generations11 , with nearly four in five of us reporting to save a portion of our paychecks. 

Additionally, my generation starts saving an average of 13 years earlier than our parents - at age 

22, compared to 35. 12 Toda(s young Americans are also the most likely to use fmancial 

technology to help us save1 , set specific financial goals

14

, and consider savings benefits when 

choosing a job15. 

Social Security is on a path to bankruptcy - and may ruin the entire nation's economy along the 

way - because the program has strayed far away from its original intent of providing a safety net 

to those unable to help themselves. This universal entitlement system must be modernized and 

right-sized if we are to avoid economic disaster and Millennials are prepared to shoulder the 

transition, but action must be taken soon. The longer reforms are delayed, the less likely will it 

be to hold harmless current recipients and those nearing collection age. 

On behalf of tens of thousands of activists and many more Millennials across the country, I 

implore members of this subcommittee to work with your colleagues in a bipartisan way to 

prevent our growing federal debt from destroying the future of my generation. Saving for our 

own retirement is well within our control, but the fate of the federal budget is squarely in yours. 

Chairman Johnson, I thank you again for the opportunity to offer comments on this matter. 

9 Gallup research polling http://www.gallup.com/polV184580/americans-doubt-social-securitv-benefits.aspx 1

° Congressional Budget Office httvs://www.cbo.gov/publication/51 04 7 11 Financial Securi/)1 I11dex http://www.bankrnte.com/fmaucelconsumer-indexlmillenuials-boost-savings-but-fmancial-securirv-slips.aspx 1

' TransAmerica Center for Retirement Studies httvs://www.transamericacenter.org/docs/default-sourcelresourceslcenterresearch/tcrs2014 sr three w1ique generations.odf 

n See citation 12 14 Northwesrem Mutual Planning & Progress Study htms://www.northwestenunutual.com/news-room/122886 

Jl Seecitalion l2