2020 OASDI Trustees Report

F. INFINITE HORIZON PROJECTIONS

Another measure of trust fund financial status is the infinite horizon unfunded obligation, which takes account of all past and future annual balances, even those after the next 75 years. The extension of the time period past 75 years assumes that the current law for the OASDI program and the demographic and economic trends used for the 75‑year projection continue indefinitely.

Table VI.F1 shows that the OASDI open-group unfunded obligation over the infinite horizon is $53.0 trillion in present value, which is $36.2 trillion larger than for the 75‑year period. The $36.2 trillion increment reflects a significant financing gap projected for OASDI for years after 2094 into perpetuity. Of course, the degree of uncertainty associated with estimates increases substantially for years further in the future.

The $53.0 trillion infinite horizon open-group unfunded obligation is equivalent to 4.6 percent of taxable payroll or 1.4 percent of GDP. These relative measures of the unfunded obligation over the infinite horizon express its magnitude in relation to the resources potentially available to finance the shortfall.

The summarized shortfalls for the 75-year period and through the infinite horizon both reflect annual cash-flow shortfalls for all years after trust fund reserve depletion. The annual shortfalls after trust fund reserve depletion rise slowly and reflect increases in life expectancy. The summarized shortfalls over the infinite horizon, as percentages of taxable payroll and GDP, are larger than the shortfalls for the 75-year period.

To illustrate the magnitude of the projected infinite horizon shortfall, consider that it could be eliminated with additional revenue equivalent to an immediate increase in the combined payroll tax rate from 12.4 percent to about 17.1 percent,¹ or with cost reductions equivalent to an immediate and permanent reduction in benefits for all current and future beneficiaries by about 27 percent.

Table VI.F1.—Unfunded OASDI Obligations Through the Infinite Horizon and
the 75-Year Projection Period, Based on Intermediate Assumptions

[Present values as of January 1, 2020; dollar amounts in trillions]

	Present value		Expressed as a percentage of future payroll and GDP
			Taxable payroll	GDP
Unfunded obligation through the infinite horizon a	$53.0		4.6	1.4
Unfunded obligation through 2094 b	16.8		3.0	1.0

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a

Present value of future cost less future non-interest income, reduced by the amount of trust fund asset reserves at the beginning of 2020. Expressed as a percentage of payroll and GDP for the period 2020 through the infinite horizon.

b

Present value of future cost less future non-interest income through 2094, reduced by the amount of trust fund reserves at the beginning of 2020. Expressed as a percentage of payroll and GDP for the period 2020 through 2094.

Notes:
1. The present values of future taxable payroll for 2020-94 and for 2020 through the infinite horizon are $554.6 trillion and $1,161.1 trillion, respectively.
2. The present values of GDP for 2020-94 and for 2020 through the infinite horizon are $1,614.2 trillion and $3,845.6 trillion, respectively. Present values of GDP shown in the Medicare Trustees Report differ slightly due to the use of discount rates that are specific to each program’s trust fund holdings.

Last year, the Trustees projected that the infinite horizon unfunded obligation was $43.2 trillion in present value. If the assumptions, methods, and starting values had not changed, moving the valuation date forward by 1 year would have increased the unfunded obligation by about $1.2 trillion, to $44.4 trillion. The net effects of changes in assumptions, methods, law, and starting values increased the infinite horizon unfunded obligation by $8.6 trillion. One major change affecting the infinite horizon unfunded obligation for this report is the reduction in the ultimate real interest rate from 2.5 percent to 2.3 percent, which provides less discounting of annual shortfalls in the future. Other significant reasons for the increase in the infinite horizon unfunded obligation include a change in law repealing the excise tax on employer-sponsored group health insurance premiums and a reduction in the ultimate total fertility rate.

The infinite horizon unfunded obligation expressed as a share of taxable payroll is higher than in last year’s report by 0.5 percentage point, but it is higher than in last year’s report by less than 0.05 percentage point when expressed as a share of GDP. The increase as a share of taxable payroll is much larger primarily because the repeal of the ACA excise tax is projected to reduce wages and taxable payroll significantly but to have no effect on total employee compensation or on GDP. See section IV.B.6 for details regarding changes in law, data, methods, and assumptions.

a. Unfunded Obligations for Past, Current, and Future Participants

Table VI.F2 separates the components of the infinite horizon unfunded obligation (with the exception of General Fund reimbursements) among past, current, and future participants. The table does not separate past General Fund reimbursements among participants because there is no clear basis for attributing the reimbursements across generations.

Past participants are defined as those no longer alive as of the valuation date. Current participants are those age 15 and older as of 2020. Future participants are those under age 15 or not yet born.

The excess of the present value of cost for past and current participants over the present value of dedicated tax income for past and current participants produces an unfunded obligation for past and current participants of $39.6 trillion. Table VI.F2 also shows an unfunded obligation of $38.9 trillion for past and current participants, including past and future General Fund reimbursements. Future participants are scheduled to pay dedicated taxes of $14.1 trillion less into the system than the cost of their scheduled benefits ($119.0 trillion of dedicated tax income as compared to $133.1 trillion of cost). The unfunded obligation for all participants through the infinite horizon thus equals $53.0 trillion.

Making Social Security solvent over the infinite horizon requires some combination of increased revenue or reduced benefits for current and future participants amounting to $53.0 trillion in present value, 4.6 percent of future taxable payroll, or 1.4 percent of future GDP.

Table VI.F2.—Present Values Through the Infinite Horizon
for Various Categories of Program Participants, Based on Intermediate Assumptions

[Present values as of January 1, 2020; dollar amounts in trillions]

	Present value	Expressed as a percentage of future payroll and GDP
		Taxable payroll	GDP
Present value of past cost	$67.6	5.8	1.8
Less present value of past dedicated tax income	69.8	6.0	1.8
Plus present value of future cost for current participants	78.8	6.8	2.0
Less present value of future dedicated tax income for current participants	37.0	3.2	1.0
Equals unfunded obligation for past and current participants excluding General Fund reimbursements	39.6	3.4	1.0
Less present value of past General Fund reimbursementsa	.7	.1	b
Less present value of future General Fund reimbursements through the infinite horizon a	c	d	b
Equals unfunded obligation for past and current participants including General Fund reimbursements	38.9	3.3	1.0
Plus present value of cost for future participants through the infinite horizon	133.1	11.5	3.5
Less present value of dedicated tax income for future participants through the infinite horizon	119.0	10.2	3.1
Equals unfunded obligation for all participants through the infinite horizon	53.0	4.6	1.4

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a

Distribution of General Fund reimbursements among past, current, and future participants cannot be determined.

b

Less than 0.05 percent of GDP.

c

Less than $50 billion.

d

Less than 0.05 percent of taxable payroll.

Notes:
1. The present value of future taxable payroll for 2020 through the infinite horizon is $1,161.1 trillion.
2. The present value of GDP for 2020 through the infinite horizon is $3,845.6 trillion.
3. Totals do not necessarily equal the sums of rounded components.

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1

The indicated increase in the payroll tax rate of 4.7 percent is somewhat larger than the 4.6 percent infinite horizon actuarial deficit because the indicated increase reflects a behavioral response to tax rate changes. In particular, the calculation assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.