The Congressional Budget Office has released this year’s long-term budget outlook, which shows that if the nation’s spending habits and balance sheet remain unchanged, total U.S. debt will exceed 100 percent of GDP by 2040.
In a development that should surprise few, Social Security obligations are a primary culprit in the country’s bleak debt outlook.
That ballooning debt trajectory is in spite of this year’s reduced annual deficit, which the CBO projects to be 2.7 percent of GDP, down from 2009’s peak deficit spending of 10 percent of the economy.
As is, Social Security is the largest drain on the budget, as 59 million beneficiaries are expected to receive $833 billion in checks in 2015, accounting for one-quarter of all federal spending, according to the CBO.
And baby boomers are just starting to collect benefits. If the benefits under current law continue to be paid, Social Security spending is expected to reach 6.2 percent of GDP by 2040.
The average annual benefit was $19,800 for those who retired in 2014, which the CBO says replaced an average of 44 percent of career-average earnings.
Average benefits are projected to increase, as the earnings on which the benefits are based also grow.
Then there are those baby boomers, punching out of the workforce to the tune of 10,000 per day, most of whom are expected to live well into their 80s, and for many, beyond.
This year, about 25 percent of the population is age 65 or older. By 2025 that number will be 33 percent, and by 2040 it will be close to 40 percent.
In other words, 78 million Americans are expected to receive Social Security in 2025, and nearly 100 million by 2040.
That will mean the total amount of benefits scheduled to be paid will grow faster than the economy.
Meanwhile, revenues coming into the program are expected to shrink relative to the economy, as the existing maximum taxable amount of earnings becomes less of a proportion to rising wages, and proportionately fewer Americans pay into Social Security.
That of course assumes the taxable maximum is not raised.
In 2010, Social Security outlays exceeded revenues for the first time. By 2014, the payments exceeded revenues by 9 percent.
Outlays will exceed revenues by nearly 30 percent in 2025 and more than 40 percent by 2040, assuming current laws remain unchanged.