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Home Publications Blogs Beat the Press Dumb Comments on CBS Money Watch: The Ratio of Government Payments to the Elderly Compared to Payments to the Young

Dumb Comments on CBS Money Watch: The Ratio of Government Payments to the Elderly Compared to Payments to the Young

Tuesday, 19 October 2010 12:39

Eric Schurenberg is upset about Social Security and Medicare benefits because the federal government spends 7 times as much on each senior as it does on each child. This is taken from a paper that came out from the Brookings Institution. 

Let's use the Schurenberg-Brookings methodology to see the ratio of average federal spending on the country's 400 billionaires to spending per child. For convenience let's say that federal spending averages $5,000 per child.

How much does the federal government spend on each billionaire? Most wealthy people hold some amount of their wealth in government bonds. Let's conservatively assume that our 400 billionaires hold an average of $1 billion worth of government bonds. Let's assume that these bonds pay an average interest rate of 4 percent. This means that the government is paying our billionaires an average of $40 million a year in interest. This is about 8,000 times what we spend on children on average. How's that for fairness?

Okay, everyone is jumping up and down saying that our billionaires paid for these bonds and this interest is just a return on that payment. This is true, but guess what? Our seniors paid Social Security and Medicare taxes to cover their benefits. In other words, they paid for these benefits much like the billionaires paid for their bonds, except of course that the seniors had no choice in the matter.

Ignoring the fact that Social Security and Medicare were paid for with designated taxes is dishonest, just as it would be dishonest to comment on the interest payments going to the billionaires without noting that they had paid for their bonds. But hey, this is the state of public debate in Washington.

Comments (16)Add Comment
taxes and payouts
written by pete, October 19, 2010 2:06
"Our seniors paid Social Security and Medicare taxes to cover their benefits. In other words, they paid for these benefits much like the billionaires paid for their bonds, except of course that the seniors had no choice in the matter."

Legally and morally wrong to continue to link taxes and payouts. It certainly won't work for someone who is 30 today. And the courts have delinked taxes and payouts. Otherwise we would be fair and let those with shorter life expectancies draw down faster or take a lump sum....most unfair to African Americans according to the latest life expectancy tables.

Anyway, better to pay for retirement security (and all other government liabilities) out of a broader tax, say on all income, not just wages. Most don't realize that the fix in the 80s, with a higher flat rate and longer time to retirement while keeping payouts constant was simply a sneaky way to reduce the progressivity of income taxes. And it worked throughout the 90s. Budget sort of balanced one year. Should raise the flat rate it again.
written by skeptonomist, October 19, 2010 2:44
The way the system works is that the federal government pays for a minimal retirement through SS with payroll taxes, and local government pays for schools through sales and property taxes. Does Schurenberg want the federal government to take over funding of the public schools, or does he want local governments to handle retirement? Without one or the other of these changes, his argument is idiotic, though many supposedly intelligent pundits have raised it before.
written by Peter T, October 19, 2010 4:32
Schurenberg's argument is not idiotic, regardless which government entity spends on children or sensiors, it reflects just the political reality: seniors can vote and they do, and children can't and won't. As a consequence, seniors vote down property taxes with which schools would be paid or they move altogether into an over-55 community where they don't have to pay for any schools. Another consequence is that any party in federal elections exempts seniors from sacrifices, at least before the election, because they know who votes. We will need rationing of Medicare, but the best ways to do it can't be discussed openly, because the other party immediately cries "death panels". Cutting aid to schools on the other hand is a frequent way to close gaps in state budgets.
No, I don't want the federal government to pay for schools directly, that should be a state function, but the states need financial support from the federal government to fulfill their obligations.
written by Arista, October 19, 2010 6:28
_The Washington Post_ reports the following from President Obama: "When I look at what our big budget-busters are, they tend to be things that most Americans think are really important, like Social Security, Medicare, defense, veterans affairs."

With a friend like Mr. Obama, liberals do not need an enemy.

Social Security has built up a huge surplus since the trust fund approach was initiated in the '80s by rightist Allen Greenspan & Co. Now reactionaries want to say there is no trust fund, that Social Security taxes are part of general revenue.

"Democrat" Obama adds credibility to the fraud with his words. Can't wait to see what he does when--AFTER the election, as planned--his deficit commission calls for cuts in the program.

P.S. Notice that our "Change you can believe in" leader does not mention the wars his Administration continues. Apparently these are not "budget-busters."
written by izzatzo, October 19, 2010 8:14
The Schurenberg-Brookings methodolodgy is correct as corroborated by the Pentagon over many years, which never spends more on senior weapons systems than junior ones, certainly nowhere near a 7/1 ratio.

As stewards of defense spending for its beneficiaries, the Penatagon holds the ratio steady at 1/1 between senior and junior weapons systems, which prevents any socialist cross subsidies between young and old factors as occurs with SS and Medicare.

If seniors and children were defense products, they'd cost the same per copy beyond the billion dollar per copy start-up cost which only takes 65 years for the scale economies to kick in. This was the great insight gleaned from the Brookings paper.

Seniors should be required to stand on their own and pay their way like weapons systems do for the Pentagon, be fully depreciated and rendered obsolete, required to step aside and make room for those who are pulling the wagon instead of riding in it to pull everyone else down with them.
written by John Smith, October 19, 2010 9:40
Why the heck should the government pay anything for children? Unlike seniors they have things called PARENTS who are supposed to look after and pay for them. If you want to fool around, you should have to pay for the consequences.
written by PeonInChief, October 19, 2010 11:27
There's no question that the US provides stunningly little support for children, but that doesn't mean that we should cut support for elders--just that we need to give more support (housing, childcare assistance etc.) to young families. I expect though that the goal is to cut support for elders without providing any more support for kids.
Pay in/Pay out
written by shai, October 20, 2010 9:15
Wouldn't it have been more relevant to look at the amount of real dollars that have been paid into medicare and social security vs. the benefits that are provided?

I'm 23, and say health costs increase at the rate they have been increasing, if I were to put on my legitimate fiscal hawk hat, I should be paying much much more money into medicare than I currently am.
if it were fair....
written by pete, October 20, 2010 11:57
If it made actuarial sense then the government would not have to be involved...same thing with social security. So the fact that it does not make actuarial sense means 1) government steps in, if it is a real public good, and 2) it is going to require transfers or taxes from other sources. Ergo, there are future liabilities, which we have committed too, and we have tried to fund these from payroll taxes, but that is obviously a no go, and not really fair. Either alter the liabilities (change the ages, change income tax on ss or needs basing, etc) , or alter the funding, or some combination.
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y in/Pay out
written by shai, October 20, 2010 10:15 AM
Wouldn't it have been more relevant to look at the amount of real dollars that have been paid into medicare and social s

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.