Just How Progressive Are Elderly Entitlements?
Not as progressive as you might think. This is from Health Affairs via Sarah Kliff:
We know that education has a big impact on earnings and the ability to find employment. It also turns out to have a huge influence on how long Americans live: White men with less than a high school diploma had a life expectancy 12.9 years shorter than those with 16 or more years of education, according to new research in the journal Health Affairs. For women, the life expectancy gap stands at 10.4 years.
The Social Security payout formula is progressive. But less educated workers can expect to receive more than a decade’s worth of fewer benefits. Ditto for Medicare. See our previous post here.
Which is yet another reason why changing it to a private savings account that has your name on it that you can transfer to heirs is a better system.
It is hard to create an entitlement that actually makes people better off. E.g., studies by Martin Feldstein years ago pointed out that Social Security benefits tend to replace private savings on a $1 to $1 basis. Thus, like trust fund kids, the tendancy of those individuals who think they are going to get the biggest check (at someone else’s expense) is to reduce their effort commensurately — less work, less saving, less healthy activity. So progressive benefits harm the most those they would help the most.
You can talk about the social benefit of helping the poor save for retirement and how Social Security cross-subsidizes benefits by transferring resources from rich to poor. The problem with this argument has to do with the difference in age cohorts. Baby Boomers were so numerous that seniors receiving benefits while Boomers are still working will get much better returns than Boomers. Boomers have to depend on GenX and Gen Y to fund our retirement. Eighty-five year-old retirees (and above) will get back something like $1.30 for each dollar paid in. People my age (last of the Baby Boomers) will get back something like $0.98 for each dollar paid. GenY will get something like $0.80. This is an average on not taking into account the cross-subsidies for income.
So why do liberals like it so much?
I thought the main purpose of these entitlements was to use the estates of short-lived people to pay for the upkeep of long-lived people. It’s like magic money– the heirs don’t even know of its existence.
Another under reported statistic.
“Entitlement” is actually a misnomer. Individuals and their employer(s) have each paid 6.2% from every paycheck to cover this program – a government forced savings program. I would never call anything I personally saved for an entitlement when I start taking my benefit.
All this proves to me is that the “rich get richer” and all the conservatives crying about socialism taking over America is just that – conservatives crying while reaping the benefits of socialism.