Any budget projection is inherently uncertain, and that uncertainty is magnified when the projection period is extended to 25 or 75 years, as the Congressional Budget Office (CBO) does in its long-term outlook. That's why CBO publishes an Alternative Fiscal Scenario (AFS), to illustrate what would happen to debt if lawmakers cut taxes and increase spending differently than projected by current law (the Appendix of our analysis explains the differences). However, policy is not the only source of uncertainty in long-term projections; the economic and technical assumptions used also greatly affect CBO's estimates. Fortunately, CBO provides a band of assumptions for mortality, productivity, interest rates, and health care cost growth, showing how they would each affect debt in 2039 (at 111 percent of GDP in the Extended Baseline, including economic feedback effects). We delve into these details below.
CBO's projections assume that population-wide mortality rates decline at 1.2 percent per year. This is somewhat higher than the 0.8 percent decline that the Social Security Trustees assume and is a main reason why CBO's Social Security projections look worse than the Trustees'. CBO evaluates what would happen to debt through 2039 if mortality rates declined 0.5 percentage points faster or slower annually. These different declines result in life expectancy for a 65 year-old being about one year longer or shorter than the default by 2039.
Different life expectancy and mortality rate assumptions affect spending on Social Security, Medicare, and Medicaid (and certain other mandatory programs), but they also can affect revenue by changing the labor supply; CBO assumes that every additional year of life expectancy would cause a worker to spend three more months in the labor force. However, these alternative assumptions make little difference for debt through 2039: it rises from 111 percent of GDP to 113 percent with the faster decline in mortality and goes to 110 percent with the slower decline. These differences would compound over time though, so greater separation would occur in later years.