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The Social Security Fantasy: Robert Samuelson

One of the great challenges of our time is to prevent Social Security and other programs for the elderly from taking over the national government. It may already be too late. Recently, the Congressional Budget Office reported that federal spending on the 65-plus population now amounts to 40% of non-interest outlays, up from 35% in 2005. By 2029, the CBO projects it to be 50%.




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Here is how the CBO describes the outlook:

“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% of the population in 2018 to 20% 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 the projected growth in federal spending over the next decade, after adjustment for inflation, 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 legislation to increase spending. There are four main provisions: (1) an across-the-board benefit increase of about 2%; (2) a cost-of-living adjustment that would raise future benefits faster; (3) a larger minimum benefit for the poor; and (4) tax cuts (Social Security benefits are taxed if non-Social Security income exceeds $25,000 for singles and $32,000 for couples; these thresholds would be raised to $50,000 and $100,000.).

Rep. John B. Larson, D-Conn, a main sponsor of the bill, believes the U.S. faces a retirement crisis.

Actually, we don’t, as recent testimony before the House Ways and Means Committee by Andrew Biggs of the American Enterprise Institute makes clear. (Biggs was deputy commissioner of the Social Security Administration in 2007 and 2008.)

The most convincing evidence is what retirees say about themselves, Biggs notes. According to Gallup, more than three-quarters of retirees (78%) say they “have enough money to live comfortably.” The Federal Reserve’s Survey of Consumer Finances finds that 75% of Americans 65 and over have “at least enough to maintain (their) standard of living.” That is up from 61% in 1992.

The polling organization NORC at the University of Chicago regularly asks respondents about their financial situation. “In all recent years,” says NORC, “those 65-plus have shown the least financial dissatisfaction.”

In 2014, 45% of 65-plus respondents were “satisfied” with their finances and 37% were “more or less satisfied.” Only 18% were “not at all satisfied.” By contrast, 21% of the 35-to-49 group were dissatisfied, 50% were “more or less satisfied” and only 30% were “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. An important recent paper by economists Adam Bee of the Census Bureau and Joshua Mitchell of Welch Consulting estimated that, after correcting for the missing money, the median income of elderly households in 2012 jumped almost a third, from $33,800 to $44,400. 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.


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There are roughly 50 million Americans 65 and over. In a population so large, there are bound to be some Americans who are in dire straits because they don’t have retirement savings or have retirement plans that are tragically underfunded. 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% 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.

  • Samuelson has written about business and economic issues for the Washington Post since 1977.

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