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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