ROMINA BOCCIA, HERITAGE FOUNDATION
If budgets are about priorities, the U.S. Congress favors the elderly. About two-thirds of federal spending goes to transfer payments, and of that amount, more than half goes to the elderly.
The United States is increasingly becoming a gerontocracy—a political system run for the benefit of the elderly. Why? Because they carry the greatest clout at the voting booth. Nationwide, 61 percent of people age 65 and older voted in the 2010 election, and in several states more than three-quarters of retirees cast their ballot.
The second largest voting group was those 55 and older, a small majority of which participate in the electoral process. In contrast, merely 37 percent of 25- to 44-year-olds voted in 2010, and only about 21 percent of those even younger.
The 2014 election likely won’t differ much. The elderly are becoming even more powerful as a voting bloc as roughly 10,000 Americans reach age 65 every day.
The U.S. budget reflects seniors’ strength in numbers. About 15 percent of heads of households are 65 or older, but they receive a disproportionate share of federal support payments. Of the $1.3 trillion spent on cash, near-cash (food stamps, housing assistance, etc.), and health care transfers in 2006, more than half went to the elderly, according to the Congressional Budget Office. This should come as no surprise as two of the federal government’s largest programs – Social Security and Medicare – specifically target the elderly. Social Security made up 95 percent of elderly cash transfers.
Nearly two-thirds of healthcare transfers also went to elderly households – largely in the form of Medicare (85 percent) and Medicaid. And even these numbers don’t paint the full picture. They exclude spending for residents of long-term care institutions, which made up 10 percent of Medicare spending and 20 percent of Medicaid spending.
After subtracting taxes and Medicare premiums paid by elderly households, the elderly received a net transfer from their fellow Americans of nearly $14,000 per household in 2006, according to the CBO.
Now, many Americans who receive Social Security and Medicare today will argue they paid for those benefits and it is unfair to characterize them as transfers or entitlements. And who can blame older Americans for buying into the narrative the originators of these programs sold so well? As even the left-leaning economist Paul Krugman explained:
Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: What you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi-game aspect, in which each generation takes more out than it put in.
Misleading perceptions about entitlement programs are making reform nearly impossible. The reality is that past and current retirees received much more in benefits from Social Security and Medicare than they paid into the systems. Moreover, it is current and future workers who pay for Social Security and Medicare benefits because both programs are structured on a pay-as-you-go basis. And program costs are becoming even more unsustainable as many more Americans begin to draw from them.
Americans can get behind the idea of providing a strong safety net to protect against poverty in retirement. But this is not what current transfers to the elderly are about. More than 47,000 millionaires get Social Security benefits, including some wealthy lawmakers’ children.
In fact, older Americans are faring much better as a group than younger Americans. A 2009 Pew study revealed that the typical household headed by someone 65 or older had 47 times as much net wealth as the typical household headed by someone below the age of 35.
Entitlement programs are the biggest drivers of deficits and debt. Together with rising interest costs on the debt, health care and retirement programs could consume all projected tax revenues within fewer than 20 years. Absent entitlement reform, younger generations will get stuck with an unfair burden and less financial security.
To deal with the budgetary and economic challenges that arise with the aging of the population, policymakers would be wise to refocus universal entitlement programs towards providing insurance to all Americans in times of need. Congress can strengthen the safety net for the most vulnerable Americans, and protect younger generations from an unsustainable and unfair fiscal burden.
Politically powerful older constituencies might get behind the idea of creating a legacy of providing for the future once they begin to understand how these programs truly work and what’s at stake.
Romina Boccia is the Grover M. Hermann Fellow in Federal Budgetary Affairs at The Heritage Foundation.
This article was originally published at Heritage.org. Used with permission.