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Home Publications Blogs Beat the Press The Amount of Government Money Going to the Old, the Young, and the Rich

The Amount of Government Money Going to the Old, the Young, and the Rich

Friday, 08 August 2014 04:18

Catherine Rampell used her column to give readers a short quiz on government spending. There are a couple of questions that could use a bit further examination.

The first question asks readers:

"An elderly person receives about how much in federal spending for every $1 received by a child?"

The correct answer is $7 according to Rampell. There are two problems with this question. First, the most important government program for the young is education, which is prmarily a state and local expense. So it is wrong to simply focus on federal spending as a measure of public priorities.

More importantly, the main reason for this ratio is that we have a retirement program (Social Security) and a senior health insurance program (Medicare) that are run through the government. These are benefits that people have paid for during their working lifetime.

In the logic of the Rampell quiz we could say that something like $100 in federal spending goes to the very rich (the top 0.1 percent) for every $1 received by a child. This would be based on the assumption that 10 percent of their $6.4 million annual income comes from interest on government bonds. Of course the rich paid to buy these bonds, but the elderly also paid for their Social Security and Medicare. If we're ignoring that fact in talking about benefits from Social Security and Medicare, then we should also ignore it when talking about interest on government bonds. (According to the Urban Institute, the discounted value of Social Security benefits received by current and future retirees is slightly less than the taxes they paid into the program.)

The possibility of a privatized Social Security system demonstrates the illogic of Rampell's quiz. Suppose we required that workers pay an amount equal to their current Social Security taxes into a private account which would then pay them a benefit comparable to their currently scheduled benefit. The situation of the elderly will not have been changed (ignoring the problems of a privatized system), but now we would not have the same inequality between federal payments to the elderly and the young.  

There is also a serious problem with question 5 in which readers are supposed to answer there is a $127,000 difference, "between what you paid in Medicare taxes and what you can expect to receive in Medicare benefits." The problem with this description is that the gap is due to the fact that we pay health care providers about twice as much as they receive in other wealthy countries. In other words, people get back more in Medicare benefits than what they pay in Medicare taxes because are doctors are very rich (average earnings @ $250,000, net of malpractice insurance), drug companies are very rich, and medical supply companies are very rich. If we paid our providers the same as providers in Canada or West Europe then the value of benefits would be close to what people pay into Medicare in taxes. By the logic of question 5, every time we up what we pay doctors and drug companies, the elderly are better off.

Comments (8)Add Comment
Catherine Rampell Channels the Rush Limbaugh Dog Whistle
written by Last Mover, August 08, 2014 6:24

More big commie lies from Dean Baker. As Rush Limbaugh has proven repeatedly with well documented evidence, the rich pay most of the taxes to fund government welfare benefits spent on the rest.

Catherine Rampell merely explores the rock solid evidence of Limbaugh in more detail to bring the dog whistle message home. Tossing in some red meat economic bait intergenerational warfare is perfectly acceptable in such discussions.

God save the children from the true economic predators, the ultra rich their greedy grandparents.
In the same edition
written by Kat, August 08, 2014 8:57
We learn For many people, particularly those working part time or earning low wages, the biggest obstacle to a steady retirement savings plan is access. About three-fourths of private sector workers with full-time jobs have access to a retirement plan, but that number drops to 37 percent for part-time workers, according to the Bureau of Labor Statistics.
Gee, I would think it is lack of access to money rather than a retirement plan that would be the big stumbling block for low wage earners.
I'd recommend skipping the article, and definitely the comments. Lots of ant and grasshopper going on there. If you rely on the Post for your info about SS, this is totally expected.
written by skeptonomist, August 08, 2014 10:03
Parents pay directly for all of their children's expenses - room, board, medical care and insurance, entertainment, etc., with the major exception of education, whereas retirees (people who like children do not earn enough to support themselves) nowadays are not expected to be supported by their offspring directly. However, they are supported indirectly, through SS, which for the most part simply collects money in payroll taxes and gives it to retirees. Medicare is similar although it draws more on general revenues, which is why people receive more than they pay in dedicated taxes.

Assuming that Rampell's comparison includes SS and Medicare it is absurd - the federal government just doesn't intervene in the support of children the way it does for the elderly, and no one expects that it ever will. Most of Rampell's questions are actually informative - this one distorts the true situation.
written by john, August 08, 2014 12:07
Physicians' fees are about 12% of healthcare spending. Physicians' office visit and procedure fees on an inflation adjusted basis are down about 15% since the year 2000. Pick your procedure, Dean: total hip replacement, cataract extraction, or coronary bypass grafting- fees for each of these has gone down in real and nominal terms since the year 2000. Practice expenses are up considerably over the same time span.

I live in a middle class town in California. Median income is about $70,000/yr. My son's junior high PE teacher makes $110,000/ yr in total comp for 9 months work. (you can look up public salaries on: http://transparentcalifornia.c...districts/ He can retire at age 60 with guaranteed pension and retirement healthcare benefits (the later of which has no funding put aside and is not included in total comp figures).

My partner's wife is a pediatrician and makes $165,000/ yr for 12 months work at 55 plus hours a week and also is on call every 4th night and every 4th weekend. She fields over 50 calls a weekend. She had $250,000 in medical school debt and did not start work until age 30 (4 years of med school) and 3 years of residency.

I know several physicians in Germany and Switzerland. They had no medical school or college debt. They work far fewer hours per week than comparable US physicians. And somehow they are at the top of the income strata in their locale; much closer to the top than the physicians in my town.
written by djb, August 08, 2014 1:27
yes Canada

There may be some underpaid physicians, but who gives a damn?
written by Dean, August 08, 2014 3:51
I always love when I post data on physicians' earnings that I get posting from people who tell me about their friend, sibling, parent or child who work as a doctor for 80 hours a week, have $300k in debt, and are paid $80k a year. I have no idea whether these stories are true or not, but really can't see why anyone would care.

We have good data sources on what physicians earn as a national average. It is around $250k a year. If someone has reason to question these numbers (which come from different sources), then it is something we should care about. But the individual story indicates that someone has quite deliberately chose to work in area where they will get low pay or alternatively are so incompetent that this is the only job they could get.

In the first case, they have my admiration (I have a very good friend who is in this camp). In the second case -- well, maybe they should consider another line of work.

btw, $250k in debt (which is far more than the average) over a 35 year working career comes to around $10k a year adding in interest. Knock that off their $250k average earnings and they won't get any tears out of me.
written by Larry Signor, August 09, 2014 10:09
I been a carpenter all my life. My mom was a carpenters wife [as was my grandmother]. The mean annual wage for carpenters in May 2013 was $40,500 [although I don't know any carpenters presently earning that wage] or 16.2% of the average physicians salary. What Dean said,"There may be some underpaid physicians, but who gives a damn?".
written by djb, August 11, 2014 6:07
At 250000 debt over 35 years 10000 per year would require an unrealistic 2 % interest

A more realistic 6 to 7 percent would give a 20000 per year expense

Also during residency debt increases as interest on loans you arent yet paying back collect....

250000 debt is not far from average ofthose whose parents arent rich (parents also incur debt no one is counting in co s t of education)

The 20000 is after taxes not deductible....so at a marginal total tax (fed.. state...local..medicare etc) its really 36000 off the gross

Also average family practice salary is far less than high priced specialists...dean keeps using average lumping them in

So take 36 to 40 off a 185 per year and yes student loan debt is significant

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About Beat the Press

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.