We borrow to fund the elderly while neglecting everyone else

The latest battle over a government shutdown has passed, with Congress electing to keep funding flat. The Moody’s threat to downgrade U.S. sovereign debt has faded from the headlines. Even the elevated 10-year Treasury yield, with its threat of sending U.S. interest costs spiraling out of control, has cooled off a bit.

It might be tempting to assume these developments mean we’ve made some progress on the country’s long-term fiscal challenges. That’s unfortunately not the case. If you want to know what ails us, just look to a recent report from the Urban Institute, which each year quantifies how much Americans are paying into the so-called entitlement system versus how much they can expect to receive back.

This year, as in years past, the report exemplifies the country’s seemingly bottomless commitment to add debt on behalf of retirees. The researchers calculate that a single man who earned the average wage every year of his adult life before retiring in 2020 at age 65, for instance, paid roughly $470,000 in taxes into the Social Security and Medicare systems. But he can expect to receive benefits equal to $640,000 over the course of his retirement.

Or consider a couple with one average earner and one low-wage earner. Their taxes reached $680,000 if they retired in 2020; their benefits are expected to total nearly double that, at $1.24 million. Most other marital and wage combinations show similar results.

If you were wondering, the figures here take a lot into account. They account for inflation; the typical life expectancies for men vs. women; and the alternative ways that workers could have invested all those years’ worth of tax payments if the U.S. government had not collected the money.

The totals for payments into the system include both the workers’ and employers’ shares of payroll taxes, and the benefits received subtract out the cost of Medicare premiums.

In other words, even under relatively generous assumptions, the typical elderly American has not fully “paid for” their benefits, despite widespread perceptions to the contrary. (At best, they paid for their parents’ benefits, which were much less generous.) Going forward, the gap between what Americans are scheduled to put into the system versus draw out will only widen, a consequence of rising health care costs and new health services (in the case of Medicare), as well as rising real wages (in the case of Social Security).

That may be great for these lucky individuals, assuming the programs continue as currently structured. But it’s also the fundamental challenge that clouds our long-term fiscal outlook. Medicare and Social Security alone have already accounted for the majority of domestic spending growth in recent decades, according to calculations from Eugene Steuerle, one of the co-authors of the Urban Institute report.

It will continue to crowd out future spending obligations in years ahead as the country ages and birthrates fall.

It doesn’t take a genius to figure out the kinds of solutions needed to address this fiscal problem. The answer is some combination of raising taxes, reducing benefits, and/or increasing the number of working-age people who pay into the system (i.e., immigration). But politicians have effectively ruled out all these options.

In fact, perhaps the only area of bipartisan agreement in Washington these days is that none of these fixes are worth pursuing. Each, after all, might inflame voters — especially older voters, to whom these unsustainable benefits were promised, and who don’t even seem to realize a fix is needed. Many are unaware of the enormous wedge between what they will receive and the taxes they’ve personally paid — which is perhaps understandable given the opacity of our tax and benefits system.

Politicians could enlighten voters, of course. Members of Congress and presidents have access to this Urban Institute report, too, not to mention reams of other data and resources on the causes of U.S. fiscal problems and possible solutions. But instead of explaining to their older constituents that this fiscal wedge exists, let alone trying to narrow it with higher taxes or benefit changes, politicians choose the path of least resistance and just keep borrowing.

This is a key reason why two out of three ratings agencies have downgraded U.S. debt, and the third is now threatening to join them. The cause is not “only” that House Republicans occasionally throw temper tantrums and threaten to default on our debt obligations or shutter the government. Even when everyone’s on their best behavior, both parties are loath to acknowledge that any arithmetic problem with entitlements exists.

This is a choice. So, too, are the consequences for other, younger constituents. Politicians can’t find “room” in the budget for investments in pre-k, or child care, or paid parental leave, or a more generous child tax credit. But they’re perfectly happy to leave the entitlement system on autopilot, with programs for seniors gobbling up an ever-growing share of our future spending obligations.

American society long ago committed to ensuring minimum living standards for the elderly — whatever the cost. What, I wonder, would it take to secure the same sort of commitment to the young?