Retirement realities
We cannot afford higher Social Security benefits
One great challenge of our time is to keep Social Security and other programs for the elderly from taking over the national government. It may be too late. Recently, the Congressional Budget Office reported that federal spending on the 65-plus population now amounts to 40 percent of non-interest outlays, up from 35 percent in 2005. By 2029, the CBO projects it to be 50 percent:
“Over the next decade, as members of the baby-boom generation age and life expectancy increases, the number of people age 65 or older is expected to continue to rise — by about one-third, from 16 percent of the population in 2018 to 20 percent in 2029 . ... Federal spending for older people is anticipated to … [take] up a greater share of federal resources.”
By the CBO’s math, two-thirds of projected growth in federal spending over the next decade will stem from programs for the elderly — mostly Social Security and Medicare, but also long-term nursing-home care under Medicaid and civil-service retirement.
Against that backdrop, raising Social Security benefits would seem a non-starter. Guess again.
Congressional Democrats have proposed higher spending with (1) an across-the-board benefit increase of about 2 percent; (2) a cost-of-living adjustment that would raise future benefits faster; (3) a larger minimum benefit for the poor; and (4) tax cuts.
Rep. John B. Larson, D-Conn, a main sponsor, believes the U.S. faces a retirement crisis. Actually, we don’t, as recent testimony before the House by Andrew Biggs, a former deputy commissioner of the Social Security Administration, made clear.
The most convincing evidence is what retirees say about themselves. According to Gallup, more than three-quarters of retirees (78 percent) say they “have enough money to live comfortably.” The Federal Reserve’s Survey of Consumer Finances finds that 75 percent of Americans 65 and over have “at least enough to maintain [their] standard of living.” That is up from 61 percent in 1992.
According to the polling organization NORC at the University of Chicago, “In all recent years, those 65plus have shown the least financial dissatisfaction.”
By contrast, only 21 percent of the 35-to-49 group were satisfied with their financial situations, 50 percent were “more or less satisfied” and 30 percent were “not at all satisfied.”
True, most people’s incomes drop when they retire. But their expenses also typically drop. The stereotype of most old people tumbling into poverty is wrong, in part because their incomes are significantly underreported. Economists Adam Bee of the Census Bureau and Joshua Mitchell of Welch Consulting recently estimated that, after correcting for the missing money, the median income of elderly households in 2012 jumped almost a third, to $44,400 from $33,800. The poverty rate among the elderly, already much lower than in the general population, also fell by a quarter. The main sources of underreporting involve income from IRAs, 401(k) plans and traditional pensions.
Roughly 50 million Americans are 65 and over. In a population so large, there are bound to be some who are in dire straits. There may be targeted remedies that can help them. But the notion that there is pervasive poverty among older Americans is a political fantasy that is used to justify spending that, as a society, we cannot afford.
One way that the Democrats would pay for their new benefit is by imposing payroll taxes on wages above $400,000. Another way is to increase gradually the payroll tax on all workers. By 2050, the added taxes would equal an estimated 4.9 percent of current law payroll. Budget deficits might, it seems, be contained. Isn’t that responsible? Well, no. Under existing policies, the CBO projects deficits of nearly $12 trillion over a decade. Higher taxes are needed to trim these deficits. That will be harder if they’re committed to paying more for Social Security.
It is conventional wisdom in Washington that the Republican addiction to tax cuts is mainly responsible for the huge budget deficits. This is, at best, a half-truth. Democrats are equally responsible, because they refuse to come to grips with the massive spending on retirement and health care. Expanding Social Security is mostly a political bribe that comes at the expense of other programs and workers, who must pay the resulting taxes.