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1 1 (October 2017)

handle is hein.congrec/cbo3872 and id is 1 raw text is: Changes to CBO's Long-Term Social Security Projections Since 2016 Projections of Social Security's long-term financial out- look depend critically on estimates of key demographic and economic variables. Each year, the Congressional Budget Office updates its projections of the Social Security system's finances to incorporate newly available data and information from the research community. The agency also updates its models to incorporate improvements in methods and feedback on its analytical approach. Compared with the long-term budget projections CBO made last year, the agency's latest projections, published in March, indicate a slight improvement in the financial outlook for the Social Security system.1 The projected 75-year actuarial balance, a commonly used measure of the system's financial condition, has improved from -1.6 percent of gross domestic product (GDP) to -1.5 percent of GDP (see Table 1).2 As a percentage of taxable payroll, the projected 75-year actuarial balance has improved from -4.7 percent to -4.5 percent. 1. For the 2016 projections and additional information, see Congressional Budget Office, The 2016 Long- Term Budget Outlook (July 2016), www.cbo.gov/publication/51580, and Congressional Budget Office, CBO's 2016 Long- Term Projections for Social Security: Additional Information (December 2016), www.cbo.gov/publication/52298. For the current projections and additional information, see Congressional Budget Office, The 2017 Long- Term Budget Outlook (March 2017), www.cbo.gov/publication/52480, and CBO's 2017 Long- Term Projections for Social Security: Additional Information (October 2017), www.cbo.gov/publication/53245. 2. The actuarial balance is the sum of the present value of projected tax revenues and the current trust fund balance minus the sum of the present value of projected outlays and a year's worth of benefits at the end of a given period, 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. When the discount rate is positive, dollars in the future are worth less than dollars today. Since last year, CBO has made changes to its projections of five key inputs: productivity in the economy, interest rates, the population, the labor force participation rate, and the share of earnings that is subject to Social Security payroll taxes.3 The changes to the first three of those inputs worsen the Social Security system's projected finances, whereas the changes to the last two improve them. Moreover, an additional year of deficit-2091-is now included in the calculation of the actuarial balance, which worsens the 75-year outlook. CBO projects larger deficits in Social Security's finances than do the Social Security Trustees. That difference is largely explained by CBO's and the trustees' different projections of several major inputs into estimates of the system's finances: earnings subject to the Social Security payroll tax, components of GDP growth, the population, and real interest rates (that is, interest rates adjusted to remove the effects of inflation). What Is the Effect of Changes in Projected Productivity? CBO's estimate of total factor productivity (TFP) growth is lower in this year's long-term projections than last year's, which worsens the projected actuarial bal- ance. TFP growth is one component of real growth in the nation's economic output-the residual growth that reflects all economic development that is not attributable to the growth of capital services or labor. That develop- ment can include technological progress, changes in the rate at which capital is utilized (which are not captured in CBO's measure of capital input), changes in the quality of labor (for example, the overall level of workers' educational attainment and experience), institutional change, spillovers from investments in capital, and 3. For more details about changes to CBO's long-term projections, see Congressional Budget Office, The 2017 Long- Term Budget Outlook (March 2017), Appendix A, www.cbo.gov/ publication/52480.

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