Reforming Programs For The Elderly

In a New York Times opinion posted on October 26, Glenn Kramon and I discussed some of the reforms needed for programs for the elderly and near-elderly. (Note: when allowed in a few weeks, it will be reposted here on Substack). The article suggests that in addition to tax increases, some reductions in the rate of growth of benefits promised to future cohorts of retirees will be required to deal with such pressures as a decline in workers to retirees, benefit increases scheduled to grow forever faster than national economic growth, and the federal debt problem. We worried about the rising relative needs of the often-poorer young and working class and the increased burdens being placed on them. We paid special focus on ways to encourage more work as people live longer. Though modest in the short run, improvements in Social Security and overall government fiscal balances can be quite substantial over a long period. Additional work brings in more revenues and allows benefits to be concentrated more in older old age, even when average lifetime benefits remain the same.

The response, as we anticipated, was often negative. Interestingly, it often misrepresented or ignored what we said.

· Some stated incorrectly that we oppose and want to eliminate Social Security and Medicare when we think these programs have been great successes.

· Almost all ignored our suggestions to increase benefits for the poor and near-poor elderly and the disabled under age 62, effectively creating a more progressive system.

· Almost none admitted that the continually increasing number of retirement years provided to retirees has been quite regressive. Many people die before age 62 or receive Social Security Disability Insurance before age 62 and, therefore, are not affected by retirement age changes. That leaves most of the gains for the richer and, on average, longer living among the elderly.

· Some indicated that we merely need to raise taxes substantially on those with higher incomes. Indeed, an analysis by the Congressional Budget Office and the Joint Committee on Taxation indicated that subjecting all earnings over $250,000 to the payroll tax—that is, imposing an additional 12.4 percent tax rate on those earnings—would delay the date of exhaustion of the Social Security trust fund from 2033 to 2046. But the real issue is whether major tax increases should be devoted almost entirely to retirees when the needs of other age groups and other public goods deserve equal or greater attention.

· None indicated what level of future benefits they thought appropriate or why more years of benefits should be provided to anyone who already can retire in what is essentially late middle age. We questioned the priority of raising lifetime Social Security and Medicare benefits, as currently scheduled, to well over $2 million (in today’s dollars in present value terms) for a typical millennial couple.

The one type of response to which we are quite sympathetic comes from those who lose the capacity to work or work at their current job or face age discrimination. We will try to address this issue more fully in another column, as it deserves more extensive treatment. For now, just recognize that continually increasing benefits for everyone does not target this population.

We invite you to come to your own conclusions on how you would allocate future government resources and tax burdens among different generations. This isn’t generational warfare. All budgets allocate benefits and burdens one way or the other. It’s helpful to have some criteria for making that decision.