CHICAGO (Reuters) – Call it the myth of the greedy geezer – an argument keeps popping up in Washington that old people have it too good, and that entitlement spending is squeezing out programs for the young and the needy. We can maintain our current spending on programs like Social Security, or we can have Head Start – but we cannot do both.
This is a frequent refrain of the deficit hawk lobby – groups like Pete Peterson’s Fix the Debt and the millennial-led advocacy organization The Can Kicks Back. One of my favorite quotes: hedge fund guru Stan Druckenmiller told a television interviewer recently that he is not “against seniors.” Rather, he said, “What I am against is current seniors stealing from future seniors.”
The generational rhetoric has been ramped up to a new level since the federal budget sequester kicked in, because it takes a meat axe to all discretionary spending programs and the defense budget – but holds Social Security harmless.
The rhetoric is driving us toward false choices. Social Security was excluded from the sequester precisely because it is not a cause of the federal debt. It is self-funded from payroll tax contributions of workers and employers, and it is an earned benefit. And in any case, Congress could cancel the sequester with a stroke of the pen whenever it likes, and move on to more sensible budget tax policy-making.
And the idea that today’s retirees are greedy and don’t really need benefits? That really needs to be taken down a notch. Here’s what’s really going on:
MANY SENIORS ARE STRUGGLING
It is true that seniors emerged from the Great Recession in somewhat better shape than younger Americans. But retirees on fixed incomes are struggling with near-zero interest rates that hurt income, sharply lower home equity and rising medical costs.
They are also carrying more debt: a recent analysis of household balance sheets by the AARP Public Policy Institute found that people over age 75 saw their net worth drop 16 percent from 2007 to 2010 – but they did suffer a large hit to portfolios and also are carrying much larger debt loads than previous generations of seniors. And pre-retirement boomers saw their debt loads rise 31 percent during the recession, and overall net worth fell 22 percent.
The risk of poverty has not been eliminated – especially for the very old, who are most likely to have exhausted savings.
What’s more, cutting benefits would turn the central achievement of Social Security on its head: the dramatic reduction in elderly poverty rates over the last five decades.
More than half of Americans over age 65 did not have enough money to live on even before Social Security was created during the Great Depression. Today, Social Security keeps 21 million seniors, children and disabled Americans out of poverty. Sounds like a success story to me – not a program crying out to be slashed.
EVEN “RICH” SENIORS NEED SOCIAL SECURITY
Fair enough – Warren Buffett doesn’t really need his Social Security check. But means-testing benefits, which would cut or slash the benefits of those over a certain income limit, really doesn’t make sense. There just aren’t enough Buffetts to make a big difference in Social Security’s finances. This is a program for average and low-income Americans – 90 percent of benefits go to people with $50,000 or less in non-Social Security income.
Also, Affluent seniors have paid their money into the system over the course of a lifetime just like everyone else. Are we really going to force these folks to start submitting IRS 1040 forms so that we can weed out the small percentage that have high income?
Means-testing also would create a perverse incentive for people to save less. If I know my Social Security will be cut if my assets to a certain figure, I’d have less incentive to keep socking money away in retirement accounts.
CUTS NOW WOULD NOT HELP LATER
Former Senator Alan Simpson, who co-chaired the Simpson-Bowles deficit reduction commission, argues frequently that he is trying to save the future of young people. The argument: cutting benefits now will leave more on the table for young people when they retire.
But the opposite is true.
The Social Security reforms proposed by the Simpson-Bowles commission included lower benefits for people with higher-than-median lifetime earnings, higher retirement ages, and smaller cost-of-living-adjustments. The cuts would be gradual and cumulative, with the largest cuts coming decades from now.
SOCIAL SECURITY IS NOT EATING THE ECONOMY ALIVE
“In general, entitlements have to be slowed down and contained, because we can’t afford them,” Goldman Sachs CEO Lloyd Blankfein told CBS News’ “60 Minutes” late last year.
It is true that outlays are rising as baby boomers retire, but Social Security remains affordable in the context of the huge U.S. economy. Spending equaled 4.9 percent of gross domestic product last year, and the Congressional Budget Office projects it will peak at 6.4 percent in 2035 before leveling off at 6 percent.
The system does face a long-term financial challenge. The trust fund reserves are on course to be exhausted in 2033- at that point, the program would have resources to pay just 75 percent of promised benefits. That’s due to declining birth rates and stagnating wage growth, both of which depress payroll tax collections. But we can avoid this highly undesirable outcome by gradually increasing (over a 20-year period) payroll tax rates and the cap on wages subject to the tax.
Social Security is an inter-generational pact. Let’s leave the geezers alone – today and in the future.
(The writer is a Reuters columnist. The opinions expressed are his own.)
(Follow us @ReutersMoney or here. Editing by Beth Pinsker and Andrew Hay)
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