Foreward -- Senator Alan K. Simpson
Introduction-Problems with Social Insurance -- Paul Hewitt (NTU)
Budget/Economy/Elderly/Generations/Future
Table of Contents/Entitlement Report/Introduction/Foreward/I/II/III/IV/V/VI
Sources for the various graphs can be found via the chapter Title links.
Translated to hypertext by Fred Chittenden
I. . Entitlements and the Federal Budget
Entitlements now amount to over half of all federal spending. Over the postwar era, entitlements have been the fastest-growing category of federal outlays rising from under half to over double the size of defense and far outstripping the growth of the economy. Retirement and health-care programs that primarily benefit older Americans account for virtually all the expansion and today comprise over three-quarters of all federal entitlement outlays. The lion's share of federal entitlement dollars are disbursed without regard to financial need and are at the same time indexed to the CPI. Less than one sixth of entitlement spending helped raise people and families out of poverty. The middle class (many who can afford to pay their own way) are the recipient of most Entitlement spending.
Budget/Economy/Elderly/Generations/Future
Federal deficits: what happens when outlays exceed revenues. With the red ink flowing and the national debt soaring, we have been indulging in a profligacy inconceivable to earlier generations of Americans. Above and beyond our official national debt, we have accumulated a $14 trillion mountain of unfunded entitlement liabilities. Meanwhile, only a small and shrinking share of federal outlays pays for public investments. Undermined by widening federal deficits and an erosion in private thrift, the U.S. national savings rate has plummeted, requiring us to borrow abroad to prop up our flagging rate of net domestic investment. During the early 1970s, the postwar boom in living standards came to an abrupt end. As U.S. rates of savings and investment sank to the lowest among industrial nations so too did our rate of productivity growth. Stagnant productivity has inevitably meant stagnating wages and incomes. While it once took a few decades for living standards to double, it will now take a few centuries.
Budget/Economy/Elderly/Generations/Future
Although only one in eight Americans is aged sixty-five or older, the elderly receive three-fifths of all federal entitlements. Federal benefits to the elderly have grown dramatically over the past three decades and in per capita dollars now dwarf benefits going to other age groups. Even including nonbenefit outlays, per capita federal spending on the elderly towers 11-to-1 over per capita spending on children. Far from being a floor of protection for the poor, Social Security writes the biggest checks to affluent Americans. Our lavish federal pension systems also pay the most to beneficiaries who have the most: witness federal military pensions or federal civil service pensions. Altogether, in fact, the typical affluent household receives as much in federal benefits as the typical low-income household. Federal health-care spending on the elderly: an explosion that plays a central role in our national cost crisis and helps make America the most exorbitant health-care spender in the world. A troubling distinction among industrial nations: in no other country do public benefit policies so favor the old.
Budget/Economy/Elderly/Generations/Future
The widespread myth about elderly poverty to the contrary, the elderly rank about average in per capita pretax cash income. Because of the preferential tax treatment the elderly enjoy, they do relatively better after taxes. Counting in-kind benefits, the relative economic standing of the elderly is better still. Distance above the poverty line: the elderly as a group rank about average at both the lowest and highest income levels.
Social Security is a story of surging numbers of beneficiaries as well as rising average benefit levels-- in stark contrast to the very different story of "welfare" benefits for young women and children or pay scales for young workers. Among traditional male breadwinners, recent income trends by age group reveal a stunning divergence between old and young. Despite the growing share of working mothers who add a second income to the household, the divergence in income trends between old and young is still dramatic for entire households. America's post-1973 productivity slowdown has hit the young hard--while largely sparing the elderly at every income level.
Looking to the future, the incomes of today's young adults may not match their parents' at the same age. Beyond income, age confers advantages in financial assets, where the elderly do better than any younger age group, as well as in total net worth, where they do better than any age group under fifty-five. The elderly also enjoy much higher rates of homeownership -- which are declining for the young but still rising for seniors.
The same is true of health insurance, where lack of coverage declines dramatically with age, making access to medical care almost entirely a problem of the young and helping to explain why America is the healthiest place to grow old but the riskiest to be born. By the official measure, America's elderly are now just three-fifths as likely to be poor as children. Counting in-kind income, the poverty rate of the elderly is lower than that of any age group. By this measure, we can count over seven poor Americans under twenty-five for every one poor American sixty-five and over.
The great entitlement tilt: the largest share of federal benefits flows to the age group with the smallest number of poor, bypassing the young and leaving a larger share of children in poverty than any other major industrial nation tolerates. For today's retirees, Social Security "pays back" everything they paid in--and a great deal more. But the dollar windfall is already declining and in the decades to come Social Security will be a mediocre "deal." This deal, moreover, assumes away a huge financing gap that must be closed if tomorrow's promised benefits are to be paid at all.
Budget/Economy/Elderly/Generations/Future
V
:
The Forces
Driving Entitlemment's Growth
There are five factors driving future entitlement growth.
Earlier retirement, which means shrinking elderly labor force participation.
Long-term trend toward lower birth rates. By the year 2040, we may have only three worker paychecks to support every two Social Security benefit checks. While the elderly population is projected to grow very rapidly, the working-age population will grow only slowly. Along with the growth in the total number of elderly, the average age of the elderly will also climb.
"Aging of the aged" will mean rising per capita elderly health-care costs and give an added boost to the fourth force driving the coming cost explosion: health-care hyperinflation.
Slow productivity growth--and thus a slowly growing tax base.
Budget/Economy/Elderly/Generations/Future
VI : Long term Fiscal Projections
The price of leaving entitlements on autopilot: rising federal outlays and persistent deficits even over the medium-term future. The long-term cost of Social Security cash benefits: 17 to 22 percent of payroll by the year 2040. The long-term cost of Medicare Part A: 11 to 20 percent of payroll by the year 2040. The long-term cost of Medicare Part-B: 10 to 18 percent of payroll by the year 2040. The long-term cost of the total Social Security system: 37 to 60 percent of payroll by the year 2040. The long-term cost of all federal entitlements: 21 to 32 percent of GDP by the year 2040. The outlook for the total federal budget: an economically impossible spending and deficit spiral.
The Bottom Line for future generations: a massive injustice that threatens to end the American Dream.
