"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Friday, November 16, 2012

Old People–Do Your Share!

I am past the current retirement age, and while I do not rely on Medicare and Social Security them for much of my income, I am still happy that these federally-administered systems are in place.  I know that there are millions of Americans who are very dependent on these programs.  At the same time, I look forward to entitlement reform as an important way to reduce or deficit and debt.

There has been a lot of talk recently about raising the age requirements on both. The retirement age, currently at 66 and slated to go up to 67 under existing law could increase by a year. This seems a reasonable solution to the entitlement problem.  It will not slash these programs, nor will the Republican idea of transforming Medicare into a private voucher system become reality anytime soon.  Raising eligibility by a year will not only be the kind of small, progressive step needed towards fiscal solubility; it will be equitable because it will ask seniors to pay their fare share. 

Younger Americans will certainly suffer if the mortgage deductions are removed.  They are in the their most productive years, forming families, saving, and investing for the future; and can profitably use the money now going to the Government. More well off Americans – and not just the very rich -  now benefit from tax provisions which allow them to shelter much of their income in the lower-rate capital gains category.  Farmers benefit from generous subsidies which protect them from foreign competition.  The list of endangered tax, subsidy, and other benefits which are coming under scrutiny and may be eliminated is a long one.  Why should seniors’ benefits not be included on that list?

Paul Krugman writes in the New York Times (11.16.12) that raising the retirement age and the eligibility requirements for Medicare and Social Security is wrong, and would put an undue burden on seniors.  In a now familiar liberal screed, Krugman writes:

And right now the most dangerous zombie idea is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains.

Krugman’s argument is that it is not life expectancy per se that is the problem; it is life expectancy at age 65.

Any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security.

I don’t understand the logic.  According to a recent (2010) study done by the Center for Economic and Policy Research (Dean Baker and David Rosnik) the life expectancy for the bottom half of income distribution is approximately 16 years at age 65, or 81.  It is an estimated three years higher for those in the top half.  This means that Krugman’s statement that the bottom half “aren’t living much longer” is not true.  Even if their entitlement benefits start at age 68, they will have thirteen years of federal income support.

It is true that top half-bottom half are gross categories of income; and that some people at the very bottom of the distribution will die sooner because of abject poverty, family and community dysfunction, etc.; but there are already government welfare programs to provide for them.  The current poverty level is 15 percent; and if the proportion of people aged 65 and older is15 percent (latest census), then only a little over two percent of poor people will be old.

Perhaps the most important question regarding raising entitlement ages is not whom will it hurt the most, but whom will it benefit? Most economists agree that the entitlement system needs reform.  We are hemorrhaging money that we don’t have.  If we do not do something about entitlements which are taking an ever-increasing portion of our tax dollars, we will continue to be indebted, economically weak, and less competitive. Those who stand the most to gain from reforming our fiscal system and the entitlements which depend on it, are young people, not old.  Raising the entitlement age will offer some hope for a sound economic future for those Americans with a long future; and while for some a youth-oriented strategy may conjure up a harsh, cruel, Dickensian vision where the aged are tossed out and left to die, this is as much of a ‘zombie’ idea as any that Krugman has ever put forth.

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