The Economist profiles the real welfare queens in our society: baby boomers.
Those aged 65 in 2010 may receive $333 billion more in benefits than they pay in taxes (see chart), an obligation 17 times larger than that likely to be left by those aged 25.
How did they manage to receive so much government support and yet pay so little in taxes? Good old fashioned power politics.
More worrying is that this generation seems to be able to leverage its size into favourable policy. Governments slashed tax rates in the 1980s to revitalise lagging economies, just as boomers approached their prime earning years. The average federal tax rate for a median American household, including income and payroll taxes, dropped from more than 18% in 1981 to just over 11% in 2011. Yet sensible tax reforms left less revenue for the generous benefits boomers have continued to vote themselves, such as a prescription-drug benefit paired with inadequate premiums. Deficits exploded. Erick Eschker, an economist at Humboldt State University, reckons that each American born in 1945 can expect nearly $2.2m in lifetime net transfers from the state—more than any previous cohort.
The cognitive dissonance of older voters is stunning. The mentality of the elderly seems seems to be “Other people who get money from the government are simply moochers. The welfare they receive discourages work and keeps them down. My benefits (welfare in the form of social security, medicare, subsidized higher education, etc) aren’t welfare at all. I earned them.”
They adopt a right wing mentality when it comes to “other people’s” benefits, advcating nebulous “spending cuts” but aggressively protect the welfare levels they themselves receive. When someone like a Paul Ryan points out the truth: that medicare and social security need restructuring because they are bankrupting America, they rail against that idea.
Restructuring welfare for the elderly is the single most important fiscal issue facing America right now. There just are not enough young people to subsidize these benefits in the form of taxes. Wages for those young people have been stagnant for 30 years, but the elderly have still demanded their yearly increases in welfare benefits, creating unsustainable deficits and debt, a trend in nearly all advanced countries.
Delivering welfare to the elderly without bankrupting the government or overtaxing working people is a challenge that our political system seems unable or unwilling to deal with. The Economist goes on to point out:
The generational divide makes this plan a hard sell. Younger workers are typically debtors, who benefit from inflation reducing real interest rates. Older cohorts with large savings dislike it for the same reason. A recent paper by the Federal Reserve Bank of St Louis suggests that as a country ages, its tolerance for inflation falls. Its authors theorise that a central bank could use inflation to achieve some generational redistribution. Yet pressure on the Fed to cease its expansionary actions has been intense, and led by a Republican Party increasingly driven by boomer preferences.
The political power of the boomers is formidable. But sooner or later, it cannot escape the maths.
This issue is not even left vs right at its core. Nearly everyone agrees restructuring must take place. The real challenge starts with getting seniors to acknowledge the truth: what they call “benefits” is really state welfare. They collect a government check, just like the “moochers” or “takers” they rail against. Once the boomers set aside their pride and realize they too are welfare queens, the real work can begin.