You may have seen the headlines earlier this month: “CBO sees US deficits rising over 30 years, economic growth slowing.” That’s because the Congressional Budget Office recently published its annual long-term budget outlook.
One specific aspect of this analysis was already done in January, evoking some worried headlines: “Will Social Security run out? Here’s what could happen to your benefits.”
Here’s what the CBO says about Social Security: “CBO projects that, under current law, the balance of the [old-age retirement] trust fund would be exhausted in 2033 … benefits would need to be reduced … by an amount that rises from 24 percent that year to 28 percent in 2055.”
A brief explanation: Social Security is already spending more every year than it takes in — about $1.35 trillion in revenues in 2024 compared to $1.39 trillion in expenditures. That excess spending is covered, in effect, by the federal government’s borrowing. However, in government books, the annual deficit is covered by money from the Social Security Trust Fund.
The Social Security Trust Fund has been “filled” by decades of surplus. That surplus, which could be considered a figment of accounting, is calculated to run out in 2033, at which point Social Security will be able to pay out only what it takes in. That means benefits will be about 24% lower than they should be starting in 2033. That gap will grow as the deficit increases between revenues and the benefits that retirees might expect based on today’s benefits.
The “good news” is that the shortfall is projected not to expand very fast — from 24% in 2033 to 28% in 2055.
The bad news is that this “good news” is probably fake because the federal government is almost certainly wrong about baby-making and family formation.
After 2033, Social Security’s annual deficits will increase more rapidly than Uncle Sam predicts today because Uncle Sam’s predictions are based on an unrealistic prediction about future workers. That is, the Social Security Administration thinks our birth rate has hit rock bottom. If CBO is wrong, and it likely is, then our workforce in the 2040s and 2050s will be smaller than CBO predicts, and the Social Security benefits to retirees in the 2040s and 2050s will be smaller, too.
Here are the CBO’s birth rate projections that underlie its budgetary projections.
Look at that top black line. Our birth rate has been steadily falling since its 2007 peak, and for some reason, the CBO predicts it’s done falling and that we will have 1.6 babies per woman for the next few decades.
But all evidence suggests otherwise. Low and falling birth rates beget low and falling birth rates.
One thing that causes people to have babies is the presence of other people’s babies. Fewer 6-month-olds in strollers on Main Street means fewer conceptions. It’s a feedback loop.
Fewer children in a town means fewer places built for children and fewer events planned for children. Soon, children leave the public imagination. Soon, young adults start thinking about their future only in terms of career and personal recreation rather than marriage and parenthood.
There’s no reason to believe birth rates in the United States are done falling. There’s every reason to believe that we will have a birth rate closer to 1.0 a decade from now than its current level of 1.62.
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Because the CBO is overestimating the number of births in the years 2025 to 2035, it is overestimating the number of workers in the years 2043 to 2053. That means Social Security’s shortfall will be worse in those years than the CBO now predicts.
It turns out that having fewer babies today makes us all worse off in the future.