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The Deck is Stacked
Entitlements Offer America’s Poor a Raw Deal

Social Security and Medicare, the two most established and popular parts of the American welfare state, are increasingly stacked in favor of the already well-off, according to NBER paper from some of America’s leading economists. That’s because the rich have experienced large life expectancy gains over the last few decades, meaning they are eligible for the programs for a longer and longer period of time. Meanwhile, life expectancies at the bottom of the income distribution have stagnated. An excerpt:

We find that there is a growing gap by lifetime income in projected lifetime benefits from programs such as Social Security and Medicare. For the 1930 cohort, the present value of lifetime benefits at age 50 is roughly equal for those in the highest and lowest quintile of lifetime income, as those at the top receive more from Social Security while those at the bottom receive more from Disability Insurance, Supplemental Security Income, and Medicaid. For the 1960 cohort, by contrast, there is a $130,000 gap in benefits between the highest and lowest quintiles, as those in the top quintile are increasingly likely to receive benefits over longer periods of time, relative to those at the bottom.

Both New Deal and Great Society reformers designed these programs to offer security in retirement to Americans of modest means, but the large demographic shifts in the intervening decades have gradually tilted the benefit distributions in favor of the affluent.

Restoring progressivity to entitlement programs should be a high priority for politicians in both parties. But the politics surrounding this issue are fraught, to say the least. Many Democrats are opposed to any changes to entitlements whatsoever because they see this as the start of a slippery slope toward undermining them. Meanwhile, many traditional Republicans aren’t interested in talking about inequality at all. This is once again an area when Donald Trump’s unorthodox populist impulses might be a productive force, if only he were more imaginative and policy-savvy.

But as the authors point out, changes in life expectancy have been so dramatic that even the most aggressive adjustments to the payout schedule would not make the program as progressive as it was in years past. One reform they don’t mention is a payroll tax cut: Reducing the regressive tax that funds the program, and making up the difference out of general revenues, could ease the lifetime burden on low-earners. And, of course, we should not take our focus off of broadly-shared economic growth: Increasing incomes and workforce participation at the bottom would raise life expectancies and reduce the salience of this problem.

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  • Ofer Imanuel

    It looks to me that the author ignores the facts that the well-to-do pay significantly more for social security (if you make 50,000$, and I make 100,000$, I pay double of what you do), up to the current social security ceiling (~120K), and even more for medicare (no medicare ceiling, and the added 0.9% medicare surtax for incomes above 200K.
    Bottom line: this article is biased.

    • Jeff77450

      Valid points but it’s also possible that the author had a finite amount of space to make his point and couldn’t address every aspect of the issue.

    • Makaden

      Your response is biased. The only way to make an assessment is to read the cited study and a) assess the author’s summary of the study’s conclusions, and b) assess the methodology and conclusions of the study itself.

  • Jeff77450

    I’d like to reach back through time and *strangle* FDR for creating SS. If instead he’d created the various IRA/401(k) type retirement accounts we’d be better off, on average. People would’ve been trained from the beginning of their working-lives to think in terms of saving instead of being dependent on the federal government. How many people work their entire lives and pay into the system and then “drop dead” right around the time that they retire? What an injustice.

    My wife & I come from humble beginnings and partly as a result of that we’ve known some low-income people. They tend to “live in the moment” and not be very future-oriented in their thinking. I’m reminded of the saying, “The rich plan for the next three generations and the poor plan for Saturday night.” I have difficulty understanding it. I’m 58 and I grew up on my parents’, aunts’ & uncles’ stories of life during the Great Depression. It was drilled into me almost from birth to studiously avoid unnecessary debt and to “squeeze a nickel until the buffalo screams.” You’d think that the so-called poor (in the developed world)–who are actually rich beyond the wildest dreams of 99.99% of all people who have ever lived–would consciously choose to live like that, i.e. practice thrift, but my wife & I have known so many who spend $500 or more a month on cigarettes, alcohol, cable, lottery-tickets, etc. And then curse the rich.

    By the way, I’m not claiming to have managed my life perfectly and never blown some money; far from it. My own personal salvation, besides having been raised right, was serving in the army for three years and earning the GI Bill. Like so many of my generation I was the first in my family to go to college.

    No doubt changes are coming to SS. They’re needed, I know, but they also make me nervous. The government’s definition of “you’ve got enough money, you don’t need SS” is going to be *very* *different* from that of the average middle-class American.
    There is something regarding SS that I’d like to know and might make for a good follow-up article. At what level of income & net-worth, two separate issues, do the rich not take SS? For example, I’m reasonably sure that Warren Buffet & Bill Gates aren’t drawing SS despite having paid into the system their entire working lives. This is germane to the whole “additional means-testing is needed” argument. Food for thought.

    • FriendlyGoat

      I would be surprised if Warren Buffet does not receive Social Security. Maybe with Gates, not “yet”. Why shouldn’t they? It would just become another drop in the ocean of funds they will be (properly) sending to world-wide charity and do-gooder-ism in part to avoid a (proper) Estate Tax, no?

      • Jeff77450

        I’m vehemently opposed to estate taxes. Income should be taxed once, at most, and after that you should be free to do with it as you please. I’m vehemently opposed to all wealth redistribution schemes.

        • FriendlyGoat

          I’ll bet you’re not against wealth being systematically re-distributed upward which is what happens in the absence of robust income and estate taxes. One soon-coming question is whether the Trump supporters are crazy enough to brag on him for donating his $400,000 salary to the Park Service WHILE he seeks to sign the complete elimination of literally BILLIONS of his own tax liability under current AMT and Estate law. Before the year is out, perhaps we’ll get a reading on how willing they are for their president to pull the biggest personal-enrichment heist in public office history—-right under their noses.

          • Tom

            “I’ll bet you’re not against wealth being systematically re-distributed upward which is what happens in the absence of robust income and estate taxes.”

            Citation needed.

          • Jeff77450

            I should’ve said that I’m opposed to all *involuntary* wealth redistribution schemes. Bill Gates has recruited something like ~147 billionaires to join him in voluntarily giving away 90% of their wealth to worthy causes. Does that make you happy? Fortunes tend to not last; it all gets recycled into the economy one way or another. I’m reminded of the saying, “From shirtsleeves to shirtsleeves in three generations.”

            My wife, pictured, is a democrat and we agree on very little. We were talking one day and I said, “Y’know, hon, the rich don’t keep their money in the form of ‘cash stuffed in a mattress’ where it’s not doing society or the economy any good. They have it in various investments that create economic activity, which creates jobs, which creates taxpayers, a certain number of whom are lifted out of poverty. And it’s not just the rich. The money in our 401(k), IRA and savings account isn’t just sitting there. It’s invested in different ways.”

            It was in one ear and out the other. She has too many basket-case relatives who grossly mismanaged their lives with substance-abuse and resulting DWI/DUIs, unplanned pregnancies, blowing off school, other run-ins with the law, being spendthrifts, etc. and they “need” the rest of us who have managed our lives at least somewhat better to bail them out. They can always come up with the money for their next pack of cigarettes but they can never manage to save any. Go figure.

            25+ years ago I read an article in The Economist about a British think-tank that had come to America to study poverty. They concluded that, in America, an individual’s chances of escaping poverty were virtually guaranteed if they’d do three things: complete high school; have no children out-of-wedlock; not fall into the welfare-trap, work at *something* no matter how little it paid in the beginning. Completing high school is no longer all the education that most people need but it’s the springboard to bigger-and-better things like two- and four-year colleges, trade-schools & apprenticeships and any number of entry level jobs to include enlisting in the armed forces.

          • FriendlyGoat

            Thanks for sharing all this. I looked at your open profile because you mentioned your wife (“pictured”) and also mentioned she had some left-side views. You’re a conservative, but she is obviously not your enemy and neither am I (even though I am known on this site as the village idiot for mostly left-side views.) So, here are some things on which you and I would agree.

            1) I too was raised Christian and trust in Jesus. I like Him much better than I like church or “religion” (though I have life experience in several denominations). He found Leviticus 19:18 in the old scriptures and elevated it to the top when Judaism had not seen fit to do so. He changed the world for the better by doing that. He can and does change hearts for the better with the simplicity of “ask, seek, knock.” (Your fifth-time-through reading is impressive—–because it’s an insight to you, not necessarily your church. I like that.)

            2) We would agree, I think, on my opinion that Islam is simply a colossal fib—-start to finish. I do not believe Muhammad is any prophet, much less the final prophet. We are sharing the world with a billion to a billion and a half Muslims. That’s a problem. We are called to love them, yet we CANNOT agree with them on matters of religion or governance of people (because, if they have their druthers, they tend to insist on the sayings of Mohammad literally controlling all aspects faith AND civic life. You have seen the messes that makes more than I have, but I agree with you about the “mess” nature of it.

            3) The main reason I turned left in mid-life after being immersed in conservatism (by family, early work life and church) is that I did not believe Republicans of the Reagan era were telling “the truth, the whole truth and nothing but the truth” about either economic or social matters in the USA. This, to my way of thinking, is seriously and disappointingly WORSE in the Trump era. Our evangelicals were the driving force which tipped us into the Trump era, and I believe it is a very unfortunate development for both society—-and even more so for church itself.

            4) I do not believe that high-end taxes are evil or that they ruined America. I grew up as 60’s teenager and a 70’s young adult as the inside accountant for a manufacturing company in a higher-tax environment. Because of that experience, I do not believe that “tax cuts create (living-wage) jobs” is a true statement. In fact, I believe the actual effect of high-end tax cuts is the destruction of living-wage jobs. We have private sector AND we have public sector and they BOTH matter. I do not believe the church should be out electing the opposite of this reality while mostly being seduced by the Chamber of Commerce on abortion, guns, racial stuff and aversion to LGBT. It strikes me that the Trump era is going to hurt the entire lower half of America for a long, long, long time forward, just as Reaganism did.
            Sure, the people in flyover country are mad about their short end of the stick in the economy. They thought they didn’t get enough conservatism. I think they got to much and it has “screwed” them for 35 years.

          • Jeff77450

            Very well said and thank you. You’ve provide d me with food for thought. “A bird needs both a left wing and a right wing in order to fly” and “If two partners agree on everything then one of them is unnecessary.”

          • FriendlyGoat

            You and I do not have to be “best of buddies” (though it would be nice if we were). But you and your wife really do need to be best of buddies. If I’ve given you food for thought, take it to her and build a political bridge to the middle.

          • Jeff77450

            It’s almost never a problem. She’s not a far-Left Antifa loon, she’s a “blue-dog.” Within ninety days of our first date we agreed to permanently disagree. (Made for some truly phenomenal make-up sex in the beginning though!! “When life gives you lemons, make lemonade.”)

          • FriendlyGoat

            Glad to hear that. I am reading today that politics is ruining some marriages. I’m lucky that, though I debate all this stuff with people in the comment sections, my wife and I are like-minded on the political stuff. We’ve been around “the right” a lot in times past, and we are now hand-in-hand leftish. It’s a blessing.

          • Anthony

            I had no idea the link I provided you on another thread would be so timely to this exchange (pass it on).

          • ——————————

            I don’t think the comment section actually thinks you are “the village idiot”, I know that I sure don’t. Your a better man than most of us for getting on here every day, given the political nature of most here, and having at it against the intellect that this blog attracts.
            I think that those here just like scintillating, lettered, sparring with someone that has opposing views…even if it gets a bit heated at times….

          • FriendlyGoat

            Thanks for kind words.

  • FriendlyGoat

    Would it be out of line to mention that there currently are no net “general revenues” from which to “make up the difference” to Social Security after a payroll tax cut?

  • Fat_Man

    “Reducing the regressive tax that funds the program, and making up the difference out of general revenues, could ease the lifetime burden on low-earners.”

    I would criticize the woolly thinking behind that statement, but I am too late. The Earned Income Tax Credit, already does that.

  • Fat_Man

    You can’t shift more of Social Security from the payroll tax to general revenue, The system is already close to crashing.

  • MikePM

    The best way to help out the bottom half of America economically, spiritually, and health-wise is to stop destroying their local economies through onerous federal government policies.

    Even today, most Americans would still rather support themselves than spend their lives depending on others. More jobs, less welfare please.

  • Joe Eagar

    I don’t know what to make of this. A payroll tax cut sounds. . .unwise, to me. IIRC, the Simpson-Bowles plan made Social Security more progressive, but I can’t remember how they did it.

  • Andrew Allison

    Quite apart from the fact that it was ever thus, the fact that the well-off live longer doesn’t change the benefits they receive, just the length of time for which they enjoy them, and are thus NOT “increasingly stacked in favor of the already well-off”. In fact, given that the “well-off” contribute disproportionately to the benefits in question, the reverse is true.

    • Makaden

      None of your arguments stand up, since you have changed the meaning of the original critique. The author here and the study are suggesting that the total amount of benefit is larger for the wealthy BECAUSE they live longer, not that they receive bigger checks each month. So “increasingly stacked in favor of the already well-off” remains true in gross terms. And you have no way to assume that because the wealthy contribute “disproportionately” (already a misleading analysis) that the gross amount of benefit is not exceeded even by their greater contributions unless you actually do the math. Like Thomas Sowell always says, show me the data; political platitudes won’t do, from conservatives or liberals.

      Since the study is behind a paywall, we don’t have access to the truth of the matter.

      • Andrew Allison

        There was NO suggestion that the cumulative amount of benefits was the subject. The statement was that the benefits were increasingly skewed, and it’s nonsense. One could make the argument that ALL future beneficiaries of Social Security are being screwed because the Trust Fund is being depleted as a result of increased longevity and, absent changes, in ten years or so benefits will be reduced by about 25%; and that the roughly 50% who pay taxes are being screwed because Medicare is funded from general funds, but nevertheless everybody is receiving benefits for as long as they live. What you, and the authors of the post are complaining about is that there’s a correlation between longevity and wealth. As I wrote, ’twas ever thus. Get over it.

        • Makaden

          I’m sorry, but you need to read more carefully:

          “meaning they are eligible for the programs for a longer and longer period of time.”

          The word “meaning” is the clue to…the meaning of the author.

          I–and probably the author–don’t care if the wealthy live longer. Good for them. However, it matters that the wealthy, who live longer, are benefiting from a “social safety net” for longer, thus draining its capacity to function in disproportionate amounts, which is what is likely suggested by the research data we can’t access.

          You, yourself say that longevity is depleting the trust fund. The data shows that longevity is skewed toward those that don’t need the trust fund.

          • Andrew Allison

            Sorry, but it is you who have the comprehension problem. What I wrote was that it’s not the benefits (the accepted meaning of which is the present cash value) which are being skewed but the impact on ALL future beneficiaries and taxpayers. No question that increasing (across-the-board) longevity is a major problem which is not being addressed, but fuzzy thinking about it doesn’t help.

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