A few weeks ago, I suggested a better cause for the Occupy Wall Street protesters. My theory is that while they are right that some groups have more political power than others and right to think in terms of class warfare, they are mistaken to construe the lines only in stark economic terms (the 1 Percent vs. the 99 Percent.) There’s another war — much more important in my view — that pits one class against another and is fully the result of specific government policies: the systematic transfer of wealth from the relatively young and poor to the relatively old and wealthy.
This week’s chart illustrates this point.
As you can see, in 1970, spending on Social Security and Medicare was one-fifth percent of the budget (blue portion). This portion has since grown to nearly 37 percent of the budget in 2010. By 2030, half of the entire budget will be consumed by payments for senior citizens. Other spending (red portion) — which includes a variety of mandatory programs (such as federal civilian and military retirement, veterans’ programs, and unemployment compensations) and discretionary programs (such as defense spending) — makes up a decreasing share of the budget in the future. And this data actually underestimates the amount of federal spending for the elderly. According to the Centers for Medicare and Medicaid Services, some 28 percent of Medicaid spending also goes to older Americans living in poverty.
According to combined data from 15 federal agencies, older Americans are in remarkably good financial shape compared with those of previous generations. And older Americans are doing well relative to younger Americans, too. According to the Pew Research Center, “In 2009, the typical household headed by an adult 65 or older had $170,494 in net worth, compared with just $3,662 for the typical household headed by an adult younger than 35,” and “the current gap is by far the largest since the Census Bureau began collecting these data in 1984. Back then, the age-based wealth gap was 10:1. By 2009, it had ballooned to 47:1.”
This data is evidence that economist Scott Sumner is right (again) about the fact that income often is a misleading measure, which results in the adoption of inefficient policy measures. In this case, the focus on income data leads one to conclude that the elderly are in need of assistance. A focus on consumption data shows that some are but most aren’t.
Sumner also argues that “income inequality data is nonsense, and wealth inequality data is nonsense on stilts. It’s all about consumption.” As such, he advocates the abolition of all income taxes (personal and corporate) in exchange for a progressive consumption tax.
I hate graphs that lay Social Security on top of Medicare because they make Social Security look like a larger drain on the economy than it is. I could live forever and, unless interest rates decrease more than they have already, not use what I contributed plus the going interest rate for the treasuries in what I contributed were placed.
Reply to this commentLinkReport AbuseHowever, unless I want to live with 1960s medicine, I will more than use up what I have contributed to Medicare. And I think all of us that wouldn't be poverty stricken by doing so should contribute the full cost of what our Medicare contributions did not cover.
And actually, the projections essentially bear that out. The projection keeps social security pretty level in terms of percent of government expendatures.
It's difficult to tell on this graph because it projects too far into the future relative to the actually past spending (and is therefor small). But it does appear that SS spending has increased by a decent amount, as a percent of the budget, since 1970, but not a drastic amount. However, I would guess that if deficits (and hence budget) hadn't ballooned, in general, SS expendatures would have increased quite a bit as a percent. Or to put it another way, I would wager that social security payments as a percent of GDP have increased fairly substantially.
But, like I said, it's difficult to say with the graph being so small.
Reply to this commentLinkReport AbuseStill, the combined graph is an accurate representation of the tax burden on future workers to support older retirees. The fact is the money Fran contributed to Social Security has been shovelled out the door already, and it's her children and grandchildren who will be weighed down with taxes to fund the return of her "contribution".
Reply to this commentLinkReport Abuse"the going interest rate for the treasuries in what I contributed were placed."
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Reply to this commentLinkReport AbuseThe money you "contributed" to Social Security was not placed in any treasury.
I didn't even catch that part. +1 vote.
Reply to this commentLinkReport AbuseTreasury should have been capitalized, because U.S. Treasury bonds are exactly what the Congressional thieves replaced the money with when they "borrowed" it for other vote-buying.
Reply to this commentLinkReport AbuseMoney taken from the relatively poor youngsters and given to the relatively rich oldsters pulls money that could be invested in human or financial capital for decades, and instead spends it largely on consumption. The young have a vested interest in small government. Hopefully they will realize that both it is too late.
Reply to this commentLinkReport AbuseThere are several other graphs that show that 2/3 of the current deficit is directly due to the Bush tax cuts and the Bush wars - the other 1/2 is due to the Bush economic downturn. If the economy continues to recover, if the wars and war spending ends, and if the Bush tax cuts end, the deficit will be largely eliminated! You don't see any of these graphs here though. Yes, Medicare is a big problem, but also is the fact that millionaires and billionaires pay only 15% in taxes and only on the income that can't be hidden in one of the numerous tax shelters and loopholes, while 15 years ago they paid 30%, and 30 years ago - they paid 50%.
Reply to this commentLinkReport AbuseAlan -
Reply to this commentLinkReport AbuseI was going to point out your error by showing you how a DOUBLING of taxes in EVERY bracket would be required to close the deficit.
Then I noticed that you said 2/3 or the deficit is caused by "A" and the other 1/2 caused by "B", which adds up to 7/6 and I realized that you are mathematically challenged and it would be pointless to attempt to reason with you on the subject of numbers.
The Occupy crowd started to wise up to the fact that their interests don't coincide with those of unions.
It would be Interesting if they were to wise up that their interests do not coincide with that another big Dem constituency group, the wealth transfer seniors.
I'm not optimistic though. Most of the Occupy kids are just knee-jerk Libs.
Reply to this commentLinkReport Abuse"Occupy AARP"
Of course, we know that won't happen, because "there are no enemies on the left."
Reply to this commentLinkReport AbuseWhile you can argue that Social Security benefits have been pre-paid, retirees also enjoy the benefit of a largely unfunded medical plan. When I did a calculation of the value of this benefit a couple of years ago, the gap between the present value of benefits (less future Part B premiums) and the accumulated employer/employee contributions was about $200,000 per retiree at 65. That is additive to the $170,000 of retiree net worth, and represents solely a transfer from young to old.
On a related note, this amount is about the price of a median home. If a politician were to propose to provide each retiring senior with a free house, he would be laughed out of D.C. How did we get to the point where we provide this much in unfunded medical benefits?
(consulting actuary).
Reply to this commentLinkReport AbuseThe "relatively old and wealthy" are statistically so because the boomer generation is still basically flush from it's peak earning years. Once those earning years cease, that wealth will dissipate in pretty short order. A net worth of $170,494 will not stand up for long in retirement.
Reply to this commentLinkReport Abusealan borrows
: 12/20/11 16:33
That damned Bush and his responsibility for 7/6 of the deficit!! (does this have something to do with the 58 states?)
Reply to this commentLinkReport AbuseWhen I'm old I plan on transferring wealth to the young by paying them to do things I can no longer do for myself, treat my medical conditions, and eventually give what is left to my heirs.
Reply to this commentLinkReport AbuseSocial Security and Medicare are what I and others who are using these programs paid into all of our working lives. The fact that Congress and our presidents squandered these funds on welfare and affirmative action programs is not our fault. These programs are not charity, they are a return on our forced contributions.
It never gets mentioned, but hordes of fairly recently immigrated folks are getting Social Security and Medicare and they did NOT pay into the systems all of their working lives. That is part of the reason the systems are going broke. As Rush would say, "Don't doubt me." If you do not believe my contention, take trip to the SS Administration office in your area and see the people lined up at the windows with their childen there to translate for them.
Reply to this commentLinkReport AbuseWhile I believe the general point to be true -- that is, there is a big wealth transfer from the young to the old -- this data doesn't really tell us anything. Of course older people will have more wealth accumulated than younger people: they've been working longer! More importantly, the comparison with 1984 data is pretty misleading, because, no doubt, such data did not count as "wealth" the value of defined benefit pension plans supporting retirees. 28 years later, far fewer "retired" people are covered by such plans; and far more are going to have to live on Social Security payments and the income from their savings. Just to illustrate the significance of this, at the recommended 4% withdrawal rate, a $1M nest egg yields a $40,000/yr. pension -- hardly a princely sum. I believe you can buy an annuity, which mimics a pension plan in being transferable to a surviving spouse, but is not inflation-adjusted, that will give you $60,000/ yr. for your and your surviving spouse's life. So 2009's "typical 65-year old" with a net worth of $170,500 is in a world of hurt unless he/she is a government worker or a union worker. That 65-year old is basically going to live on his/her Social Security payment and the $170,000 is a rainy day fund.
Reply to this commentLinkReport AbuseSadly, the biggest wealth transfer to the elderly is in Medicare payments . . . and my sense is that much of that money is not well-spent, in terms of either prolonging life or improving the quality of life, as compared to what one person characterized as "1960s medicine."