This section presents long-range projections of the operations of the combined Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds and of the Hospital Insurance (HI) Trust Fund expressed as a percentage of gross domestic product (GDP). While expressing these fund operations as a percentage of taxable payroll is the most useful approach for assessing the financial status of the programs (see table
IV.B1 and section .
IV.B.1), analyzing them as a percentage of GDP provides an additional perspective on these fund operations in relation to the total value of goods and services produced in the United States.
Table VI.F4 shows estimated income excluding interest, total cost, and the resulting balance of the combined OASI and DI Trust Funds, of the HI Trust Fund, and of the combined OASI, DI, and HI Trust Funds, expressed as percentages of GDP on the basis of each of the three alternative sets of assumptions. The estimated GDP on which these percentages are based is also shown in table
VI.F4. For OASDI, income excluding interest consists of payroll-tax
contributions, proceeds from
taxation of benefits, and various reimbursements from the
General Fund of the Treasury. Total cost consists of
benefit payments,
administrative expenses,
net transfers from the trust funds to the Railroad Retirement program, and payments for
vocational rehabilitation services for disabled beneficiaries. For HI, income excluding interest consists of payroll-tax contributions (including contributions from railroad employment) and proceeds from taxation of OASDI benefits. Total cost consists of outlays (benefits and administrative expenses) for insured beneficiaries. Both the HI income and cost are on an incurred basis.
The OASDI annual balance (income excluding interest, less cost) as a percentage of GDP is projected to be positive on the basis of the low-cost assumptions until 2020. After 2019, deficits increase to a peak in 2032 and decrease thereafter. By 2057, the OASDI balance becomes positive, reaching 0.20 percent of GDP in 2083. The OASDI balance is projected to be positive through 2015 on the basis of the intermediate assumptions and negative thereafter. Annual deficits increase from 2016 through 2035, decrease from 2036 through 2053, and then increase thereafter. On the basis of the high-cost assumptions, the OASDI balance is projected to be positive through 2012, after which time balances become permanently negative, with increasing deficits thereafter. The HI balance is projected to be negative in the first projection year under all three sets of assumptions, with deficits generally increasing steadily thereafter, though to different degrees, under each set of assumptions.
The combined OASDI and HI balance as a percentage of GDP is projected to be positive through 2018 under the low-cost assumptions, but negative throughout the projection period under the intermediate and high-cost assumptions. Between 2013 and about 2035, under all three sets of assumptions, the combined OASDI and HI balance as a percentage of GDP is generally projected to decline (or deficits increase) substantially because the
baby-boom generation reaches
retirement eligibility age during these years. After 2035, annual deficits increase fairly steadily under the intermediate and high-cost assumptions, but decrease through 2054 and increase thereafter under the low-cost assumptions.
By 2083, the combined OASDI and HI balances as percentages of GDP are projected to range from a deficit of 0.85 percent for the low-cost assumptions to a deficit of 12.03 percent for the high-cost assumptions. Projected balances differ by a much smaller amount for the tenth year, 2018, ranging from a positive balance of 0.06 percent for the low-cost assumptions to a deficit of 1.66 percent for the high-cost assumptions.
The summarized long-range (75-year) balance as a percentage of GDP for the combined OASDI and HI programs varies among the three alternatives, by a relatively large amount (from a deficit of 0.18 percent, based on the low-cost assumptions, to a deficit of 6.11 percent, based on the high-cost assumptions). The 25-year
summarized balance varies by a smaller amount (from a positive balance of 0.34 percent to a deficit of 2.08 percent). Summarized rates are calculated on the present-value basis including the trust fund balances on January 1, 2009, and the cost of reaching a target trust fund level equal to 100 percent of the following year’s annual cost at the end of the period. (See section
IV.B.4 for further explanation.)
The difference between trust fund operations expressed as percentages of taxable payroll and those expressed as percentages of GDP can be understood by analyzing the estimated ratios of OASDI taxable payroll to GDP, which are presented in table
VI.F5. HI taxable payroll is about 25 percent larger than the OASDI taxable payroll throughout the long-range period (see Appendix
VI.F.1 for a detailed description of the difference). The cost as a percentage of GDP is equal to the cost as a percentage of taxable payroll multiplied by the ratio of taxable payroll to GDP.
Projections of GDP are based on the projected increases in U.S. employment, labor productivity, average hours worked, and the GDP implicit price deflator. Projections of taxable payroll reflect the projected growth in GDP, along with assumed changes in the ratio of worker compensation to GDP, the ratio of
earnings to worker compensation, the ratio of OASDI
covered earnings to total earnings, and the ratio of taxable to total covered earnings.
Over the long-range period, projected growth in taxable payroll differs from projected growth in GDP primarily due to the assumed trend in the ratio of wages to total employee compensation—i.e., wages plus fringe benefits. The ratio of earnings to total worker compensation declined at an average annual rate of 0.23 percent for the 40 years from 1967 to 2007. For the 10-year periods 1967-77, 1977-87, 1987-97, and 1997-2007, the average annual rates of change were -0.63, -0.19, 0.09 and -0.16 percent, respectively. Ultimate future annual rates of decline in the ratio of wages to employee compensation are assumed to be 0.1, 0.2, and 0.3 percent for the low-cost, intermediate, and high-cost assumptions, respectively. An additional factor that has made the overall ratio of taxable payroll to GDP decline in recent years is the decline in the ratio of
taxable wages to covered wages, as a result of the relatively greater increases in wages for persons earning above the contribution and benefit base. This decline in the taxable ratio is assumed to continue at a slower pace through 2018, with no further decline thereafter.
