Those (Us) Greedy Boomers

July 30th, 2012 at 2:41 pm

In this AM’s NYT, Bill Keller goes after baby boomers for not getting behind entitlement reform.   As his many links confirm, this is a common argument and while I can’t speak to the anti-boomer part (I was born smack in the middle of the boom, so one must recuse oneself), the economics of this debate are as often muddled as not.

The issue of sustainably of Social Security and Medicare—I fear that the word “entitlement” feeds into the frenzy–actually has little to do with greed and is largely a function of our uniquely inefficient system of health care delivery, as that’s from where our real long-term fiscal problems derive.  And this goes well beyond the public sector—private sector health spending is also unsustainable and, unless we slow it down to a rate closer to overall economic growth, will eventually crowd out too much of the other things we want and need.

We can and should achieve solvency in Social Security, but sacrifices by baby boomers don’t get you very far, as I’ll show in a moment.

Keller’s main point seems to be that boomers, particularly affluent ones, should stop being so self-centered and accept lower benefits in Social Security and Medicare.  But if that’s your view, you shouldn’t write a piece like this without pointing out the following:

The median income of both Social Security and Medicare beneficiaries is about $25,000.

That tells you two things relevant to Keller’s argument. First, most recipients really need the pension and health protection of Social Security and Medicare.  Second, if you want to protect low and middle-income elderlies, as Keller does, you’re not going to find the revenue you need to make a difference by just lowering the benefits of high income households.

My colleague Kathy Ruffing cites a CEPR report on this:

…a new analysis…confirms that means-testing would yield very little in savings…unless we took benefits away not only from rich retirees, but also from many who are solidly middle-class.

The reason…is that there aren’t enough rich retirees — and they don’t collect enough in Social Security — to make much of a difference.  Only 2 percent of Social Security benefits go to retirees with other (non-Social Security) income of $100,000 or more each year.  [See first chart below.]  Only about 10 percent of benefits go to people with outside income of $40,000 or more a year — a figure that most of us would regard as middle class.

Paul Van de Water, in a piece that acknowledges that Medicare should contribute to deficit reduction, offers a similar analysis (see second figure below on the share of Mcare beneficiaries by income; note that this is not the same as the share of benefits by income level, but conveys the same message re the importance of considering income levels).  And not only do these beneficiaries have relatively low incomes, they spend a lot more of it out-of-pocket on health care than higher income folks with more comprehensive coverage.

If you fail to grasp the reality of the economic conditions of most elderly families and the critical role that social insurance plays in their lives, you will be drawn towards reasonable-sounding “reforms,” like those proposal by Bowles-Simpson, which Keller endorses.  But as Kathy and Paul explain here, that plan fails to protect vulnerable families from economic harm.

So how do we achieve sustainability in our social insurance programs?  I offer some ideas re Social Security here that call for both higher revenues (raise the salary cap) and benefit cuts (shifting to the chained CPI), so maybe I’m not such a greedy boomer after all!

But regarding health care, we’ve got to give the cost-saving mechanisms in the ACA a chance to work.  If they don’t, then it’s back to the drawing board, but every other advanced economy is spending a lot less per capita and insuring their full populations with health outcomes that are as good or better than ours.

Of course, it’s actually a lot harder to achieve efficiencies in our health care system–where powerful people’s salaries depend on the status quo–than to moralize about those annoying boomers with their sense of entitlement.  But only the former will work.

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9 comments in reply to "Those (Us) Greedy Boomers"

  1. George Kaplan says:

    Pls define income. AGI?, Taxable income? other? Makes a difference in understanding the data or graphs.

    • Jared Bernstein says:

      Pretax, pre-social security income in the first graph, and pretax household income in the 2nd (I believe). Not AGI.

  2. Myrna Gottlieb says:

    The COLA, as it exists now, does not give enough weight to the actual expenses of seniors as distinct from the expenses of the general population. Seniors pay out a higher portion of their income for medical expenses- insurance premiums and co-pays, prescription drug premiums and copays, property taxes and heating bills. All of the above expenses have been increasing every year. The current way of calculating the cost of living increase is already unfair to senior citizens. Shifting to the chained CPI will further reduce payments to seniors on fixed incomes, many of whom are struggling to keep their heads above water.

  3. rjs says:

    just raising the minimum wage to $10 goes a long way towards achieving solvency in those programs…

  4. SteveinCH says:

    It is interesting that you choose to focus on income and not wealth.

    Can you tell me what the federal government’s interest is in subsidizing intergenerational wealth transfer? In a world where the median senior HH has net worth in the $750,000 range, is it not reasonable to ask them to liquidate some of that wealth rather than pass it to their heirs?

    Or is your argument that it is more efficient to tax the heirs, tax the estate and pay the benefits? If that is your argument, could you elaborate on how such a complex approach could improve either efficiency or effectiveness, relative to the more simple approach of having people with means pay their own way?

    • Fred Donaldson says:

      $750,000 median wealth? That’s an insanely wrong number. Try $185,000, including home and life insurance. Of course, they could life in carboard boxes.

  5. Dave Thomas says:

    No, of course not. Let’s just enslave future generations with enormous debt so that baby boomers can have everything in retirement that they voted to increase before they were retired. I especially like how baby boomers voted themselves Medicare prescription coverage just a few years before they began to retire.

    No, let’s mortgage the countries entire future to make sure every single baby boomer gets absolutely every single thing they feel they are entitled too.

    • Fred Donaldson says:

      Baby boomers didn’t voter for presciption drug coverage – the GOP did, and it was a boon to drug companies, since Medicare can’t negotiate prices with them under the present “deal.” Try paying $4,000 plus before you get catastrophic drug coverage under the Repub plan of today, and you may not see it as a boon for boomers, but a boom for the people who own drug companies.