Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

CBO: Its Role, Long-Term Projections, and Use of Research

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

Presentation by Keith Hall, CBO Director, at the 19th annual meeting of the Retirement Research Consortium.

CBO: Its Role, Long-Term Projections, and Use of Research

  1. 1. Congressional Budget Office 19th Annual Meeting of the Retirement Research Consortium Washington, D.C. August 4, 2017 Keith Hall Director Formoredetails, see CongressionalBudget Office,The2017 Long-TermBudgetOutlook(March2017), www.cbo.gov/publication/52480. The Congressional Budget Office: Its Role, Long-Term Projections, and Use of Research
  2. 2. 1CONGRESSIONAL BUDGET OFFICE CBO’s Role
  3. 3. 2CONGRESSIONAL BUDGET OFFICE CBO was created by the Congressional Budget and Impoundment Control Act of 1974. It provides analysis of budgetary and economic issues that is objective and impartial. The agency is strictly nonpartisan.
  4. 4. 3CONGRESSIONAL BUDGET OFFICE The Director is appointed jointly by the Speaker of the House and president pro tempore of the Senate. CBO has about 235 employees, who are hired solely on the basis of professional competence, without regard to political affiliation. Most have advanced degrees.
  5. 5. 4CONGRESSIONAL BUDGET OFFICE A Panel of Economic Advisers improves CBO’s u dersta di g of e o o i resear h, macroeconomic developments, and economic policy. (For more information, see www.cbo.gov/ about/processes/panel-economic-advisers.)
  6. 6. 5CONGRESSIONAL BUDGET OFFICE A Panel of Health Advisers i pro es CBO’s understanding of health research and of developments in health care delivery and financing. (For more information, see www.cbo.gov/ about/processes/panel-health-advisers.)
  7. 7. 6CONGRESSIONAL BUDGET OFFICE CBO’s produ ts i lude the follo i g: • Baseline budget projections and economic forecasts covering the 10-year period used in the Congressional budget process; • Long-term budget projections covering a 30- year period and Social Security projections over a 75-year period; • Cost estimates of legislation, including analyses of federal mandates;
  8. 8. 7CONGRESSIONAL BUDGET OFFICE • Analysis of the President’s udget (including its likely economic effects and their budgetary feedback); • Scorekeeping for enacted legislation; and • Analytic reports examining specific federal programs, aspects of the tax code, and budgetary and economic challenges.
  9. 9. 8CONGRESSIONAL BUDGET OFFICE An Overview of the Long-Term Budget Outlook
  10. 10. 9CONGRESSIONAL BUDGET OFFICE If current laws governing taxes and spending did not change, the condition of the federal budget would worsen considerably over the next three decades.
  11. 11. 10CONGRESSIONAL BUDGET OFFICE Growth in federal spending would continue to outpace growth in federal revenues, leading to ever larger budget deficits.
  12. 12. 11CONGRESSIONAL BUDGET OFFICE Federal Spending and Revenues Percentage of Gross Domestic Product
  13. 13. 12CONGRESSIONAL BUDGET OFFICE Federal Debt Held by the Public Percentage of Gross Domestic Product
  14. 14. 13CONGRESSIONAL BUDGET OFFICE Federal spending is projected to rise noticeably in relation to the economy because of growth in spending on Social Security, the major health care programs, a d i terest o the go er e t’s de t.
  15. 15. 14CONGRESSIONAL BUDGET OFFICE Components of Federal Spending Percentage of Gross Domestic Product 0 5 10 15 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 Major Health Care Programs Other Noninterest Spending Social Security Net Interest Actual Extended Baseline Projection
  16. 16. 15CONGRESSIONAL BUDGET OFFICE Federal revenues would also increase if current laws remained generally unchanged, but they would increase much more slowly than federal spending.
  17. 17. 16CONGRESSIONAL BUDGET OFFICE Components of Federal Revenues Percentage of Gross Domestic Product Individual Income Taxes Payroll (Social Insurance) Taxes Corporate Income Taxes Other Revenue Sources 0 5 10 15 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 Actual Extended Baseline Projection
  18. 18. 17CONGRESSIONAL BUDGET OFFICE CBO’s Proje tions of Social Security Finances
  19. 19. 18CONGRESSIONAL BUDGET OFFICE Projections of Social Security Revenues and Outlays Percentage of Gross Domestic Product 0 1 2 3 4 5 6 7 1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085 Outlays Outlays with Scheduled Benefits Outlays with Payable Benefits Tax Revenues Actual Projected
  20. 20. 19CONGRESSIONAL BUDGET OFFICE CBO projects that, under current law, the combined OASDI trust funds would be exhausted in calendar year 2030. The DI trust fund would be exhausted in fiscal year 2023 and the OASI trust fund would be exhausted in calendar year 2031.
  21. 21. 20CONGRESSIONAL BUDGET OFFICE Exhaustion of the Combined Social Security Trust Funds 0 1 2 3 4 1985 1995 2005 2015 2025 2035 Actual Projected Trust Fund Ratio
  22. 22. 21CONGRESSIONAL BUDGET OFFICE Proje tions So ial Se urity’s 75-Year Actuarial Balance (2017–2091) As a Percentage of Gross Domestic Product As a Percentage of Taxable Payroll Income Rate Cost Rate Actuarial Balance (Difference) Income Rate Cost Rate Actuarial Balance (Difference) Old-Age and Survivors Insurance 4.1 5.4 -1.3 12.0 16.0 -4.0 Disability Insurance 0.6 0.8 -0.2 1.9 2.4 -0.5 Combined 4.7 6.3 -1.5 13.9 18.4 -4.5
  23. 23. 22CONGRESSIONAL BUDGET OFFICE Projections of Social Security finances have improved slightly since last year. The 75-year actuarial balance (AB) is now -1.5% of gross domestic product (GDP); last year it was -1.6%. The annual shortfall between income and cost in 2090 fell from 2.1% GDP to 1.9%.
  24. 24. 23CONGRESSIONAL BUDGET OFFICE Two changed projections improved the outlook (as measured by the actuarial balance): • Higher projection of labor force participation (+0.2% of GDP), and • Greater projection of the share of earnings that are taxable for Social Security (+0.1% of GDP).
  25. 25. 24CONGRESSIONAL BUDGET OFFICE Four factors offset some of those improvements: • Lower projected productivity (-0.1% of GDP); • Lower projected interest rates (-0.1% of GDP); • Changes to demographics—mostly lower projected immigration (a small change); and • An additional year included in the 75-year valuation period (a small change).
  26. 26. 25CONGRESSIONAL BUDGET OFFICE CBO projects larger deficits in Social Se urity’s fi a es tha do the So ial Security Trustees.
  27. 27. 26CONGRESSIONAL BUDGET OFFICE The Trustees project the 75-year actuarial balance to be -1.0% of GDP, 0.5 percentage points s aller tha CBO’s proje tio . They also project the shortfall between income and cost in 2090 to be 1.5% of GDP, 0.4 percentage points smaller than CBO projects.
  28. 28. 27CONGRESSIONAL BUDGET OFFICE The difference is largely explained by different projections of factors that influence the Social Security system.
  29. 29. 28CONGRESSIONAL BUDGET OFFICE CBO projects that a smaller share of total earnings will be taxable for Social Security. It projects lower interest rates and slower economic growth. It also projects that there will be fewer people of working age compared to the number of elderly.
  30. 30. 29CONGRESSIONAL BUDGET OFFICE CBO’s Use of Resear h and Data
  31. 31. 30CONGRESSIONAL BUDGET OFFICE CBO uses a broad range of evidence to inform its analysis. That evidence includes studies by others, historical data for federal programs, and any data available from states.
  32. 32. 31CONGRESSIONAL BUDGET OFFICE CBO also conducts original research using administrative records and survey data; Social Security, CMS, and IRS administrative data; and data from the Bureau of the Census and other household surveys.
  33. 33. 32CONGRESSIONAL BUDGET OFFICE CBO sometimes uses specialized data. For example, many of the relationships in CBO’s lo g-term model are estimated using Social Security administrative data matched with survey data.
  34. 34. 33CONGRESSIONAL BUDGET OFFICE For example, CBO has estimated the following: • Marital transitions for i di iduals i CBO’s long-term model; • Characteristics of women who have babies in a given year; and • Characteristics of workers claiming benefits at various ages.
  35. 35. 34CONGRESSIONAL BUDGET OFFICE A number of broad research areas inform CBO’s a alysis. For example, earnings inequality and labor force participation are important for long- run Social Security projections. Other research areas include estimates of employer-sponsored health insurance (ESI) and state decisions regarding the Medicaid program.

×