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Home Publications Blogs Beat the Press The Myth of "Wealthier Seniors" and Cutting Social Security and Medicare

The Myth of "Wealthier Seniors" and Cutting Social Security and Medicare

Thursday, 24 June 2010 06:40

One of the important untrue items circulating in policy debates in Washington is that we can have substantial budget savings if we cut Social Security and Medicare benefits for "wealthier seniors." Peter Peterson, the billionaire Wall Street investment banker regularly announces that he doesn't need his Social Security when highlighting his efforts to reduce the budget deficit.

In fact, everyone in the policy debate knows that there are very few people like Peter Peterson among Social Security and Medicare beneficiaries and it would not matter one iota if we took away their benefits completely. The billionaires or even millionaires are such a small share of the senior population, that it would barely affect the finances of these programs even if we could find a simple way to take back all their benefits (we can't).

This is why it is incredibly dishonest when the Washington Post puts forth its case in an editorial for cutting Social Security and Medicare benefits for "wealthier seniors," a change that the paper describes as making the programs "more progressive." Invariably what the Post and others mean when they use this line is cutting benefits for people with incomes of $50,000 or $60,000 a year. While these incomes would put a senior household way above the $29,700 median for the over 65 population, these incomes would not fit anyone's definition of wealthy. By contrast, President Obama put the cutoff at $250,000 when setting an income floor on people for raising taxes.

While income distribution is highly unequal, there is not much inequality in the distribution of Social Security and Medicare benefits. This means that very little money can be obtained by cutting benefits for the small number of genuinely wealthy elderly. The only way to save large amounts of money from these programs is by cutting benefits for large numbers of people, including people who are not wealthy.

Everyone in the debate knows this, but since cutting benefits for middle-income families who paid for these benefits with their taxes is not popular, we get nonsense lines about cutting benefits for "wealthier seniors" to make the program "more progressive."

Of course, the Post has never felt the need to be constrained by the truth in pushing its agenda. In arguing the case for NAFTA a few years ago, the lead editorial told readers that Mexico's GDP had quadrupled between 1988 and 2006. According to the IMF its GDP had risen by 83 percent. Oh well.

Comments (13)Add Comment
mark to marxist
written by frankenduf, June 24, 2010 8:55
nevertheless, benefits should be cut for the wealthy- reminds me of buffet's point that he pays less taxes than his secretary (granting his secretary probably makes a fortune!?)- right is right- just sayin'
written by Nathanael Snow, June 24, 2010 9:07
What if we likewise cut Medicare spending for wealthy individuals?
Also: the fact that you see $60,000 as anything other than wealthy identifies you as out of touch with that portion of the American population living somewhere other than the East Coast.
written by skeptonomist, June 24, 2010 9:25
According to the Post, Hoyer said "that lawmakers should consider raising the retirement age and making Social Security and Medicare more progressive" and the Post supplied the "translation" that this means cutting benefits, which as Dean says is nonsense. But whatever Hoyer meant, SS can easily be made progressive (and income redistributative) by raising the tax limit or eliminating it entirely, and/or including capital gains and dividend income. Obama (and others) proposed this a long time ago and there has been no action. SS taxes and benefits are both regressive at present.

On the whole the Post editorial has good advice, but they had to slip in one sentence of nonsense about SS.
written by PeonInChief, June 24, 2010 10:51
I thought this idea had been trashed two rounds ago, when someone did the arithmetic and discovered that means-testing Social Security would cost far more than giving the benefits to the small number of "wealthy" recipients.

I guess being the press means that you can keep raising the same silly, stupid idea over and over again, in the hope that people will accede just to get you to shut up.
written by izzatzo, June 24, 2010 10:54
This means that very little money can be obtained by cutting benefits for the small number of genuinely wealthy elderly.

Yet small numbers of the very wealthy at all ages own and control very large amounts of wealth and income.

Yet when confronted with this evidence, Peterson et al typically deny it on grounds that it's "too small to matter".

For example, bring up the total compensation package for some CEOs of large corporations than can amount to an obscene hourly rate of $150k/hour for an 8-hour day (not a typo), and one is likely to be reminded that it makes not one iota of difference to the company's bottom line because in relative terms it's too small to matter.

So the concentration of wealth and power is "too small to matter" in terms of overall wealth and income inequality, but conveniently becomes a target priority for means tested criteria when it comes to the undeserving wealthy collecting SS.

As Paul Krugman would say, that's why they're called "zombie lies", because they keep coming back from the dead after repeatedly being put out of their misery.
written by liberal, June 24, 2010 11:19
"Invariably what the Post and others mean when they use this line is cutting benefits for people with incomes of $50,000 or $60,000 a year."

While I imagine that most elderly with those incomes are not wealthy, can we PLEASE stop talking about wealth in terms of income? Wealth, almost by definition, is a measure of assets.

Furthermore, defining wealth by income makes people who work for a living, and whose ratio of income to assets is relatively high, appear wealthier than they really are.
income IS a form of wealth
written by bhatman, June 24, 2010 2:47
And annuities like SS which are government-guaranteed and inflated-adjusted (with no downward adjustment for deflation) and protected from lawsuits and bankruptcy are especially valuable. Such annuities should be discounted at 4-5% for someone 65 years old. So a measily $1000/month SS pension is equivalent to something like $240,000 to $300,000 of wealth.

The fact is, retirees with incomes of $60,000 to $80,000 are fabulously wealthy compared to young working people and it is perfectly reasonable to target them for some cuts. The right way to do it is simple. Increase inflation to 4% and make SS and pension income fully taxable. Those people who have nothing but $20,000 or less of SS plus pension (the vast majority of the elderly) will be mostly unaffected, since tax rates are low at these levels. Those people with incomes of $60,000 and up will be slammed hard, as they should be. Incidentally, it is precisely this crowd of selfish "f*ck-the-rest-of-America-I'm fully-vested" upper-middle-class seniors who constitutes the core Washington Post readership.
written by Ann, June 24, 2010 3:11
bhatman writes: "The fact is, retirees with incomes of $60,000 to $80,000 are fabulously wealthy compared to young working people and it is perfectly reasonable to target them for some cuts.


Oh get a grip on reality! Deduct medicare costs and see how much is left.

These premiums are PER PERSON PER MONTH:

Medicare B = $96.40

Medigap (Plan A which only covers copays on hospitalization Part A and test, office visits ets Part B) = $165.00

Medicare D (prescriptions and a pan which acutally covers a wide selection of drugs without wasting physician time with 'prior authorization' nonsense) = $58

So the premiums PER PERSON are $319 a month or $3828 a year. That is $7656 in PREMIUMS for a couple.

Now lets add up the deductibles. $1100 for Part A and $155 for Part B and $250 for Part D = $1505 PER PERSON or $3010 for a couple. And oh yes, don't forget the doughnut hole on Part D of around $2800 PER PERSON or $5600 for a couple. (and you hit the doughnut hole really fast if you actually need medications.)

So for one person, Medicare can cost up to $8,133 a year and for a couple it can hit $16,266.

And then add on all dental and vision expenses. Medicare doesn''t cover any of them unless it is a vision problem caused by glaucoma or something similar.

Now take that $50/60 K and deduct that $8100 - 16,200. Aw gee, there is only $33,800/42,000 - 43,800/52,800 a left. (And keep in mind that 80% of all over-65 households with income over $50K are COUPLES.)

And then take of prescription copays which go from $10 (if lucky and can get generic) to $60-80 for brand to $3000, 5000 or more for canceer drugs.

So you think having $33,800 -43,800 (for usualy a couple) is 'rich' and 'better off'" ? ROFLOL!

And then deduct stuff like having to have someone mow the lawn or plow the drive because you can't or paying for a home health aide (which Medicare only pays if bedridden....)

IF you and your girlfriend/boyfriend can't manage to make $33 -43K a year together, I suggest you go back to school!!! And health insurance for a 20-30 something is around $150 a month or $250 for a couple. And $1800 - 3000 is a LOT less than $3800 -7600 in premiums!

Oh yeah, they are so much better off (sarcasm off).

written by Eric, June 24, 2010 3:34
Social security benefits are based on contributions, not on post-retirement income. If there were some reasonably fair way to adjust benefits to compensate people for different conditions which made their contributions effectively more onerous, I might be for doing so. For example, for the same contributions a couple who brought up 6 kids might get more than the childless couple. But I don't know how to design a system that wouldn't leave millions feeling aggrieved. To simply use income seems to me to unfairly target folks who made certain life decisions to the benefit of those that made other ones. I think SS has served the nation well over the years, but if we think we need to go to strong-means testing to continue with it, I would prefer that we simply end the old-age portion of the program entirely and provide very specific support for poverty.
Restricting SS Incomes
written by George Fulmore, June 24, 2010 9:56
It is totally ridiculous to suggest that some recipients of Social Security benefits ought not have the right to receive them, despite SS being a "defined benefit." This would be as ridiculous as doing the same with 401(k)s, bank CDs, and other investments.
If you don't "need" them, you don't get them? How could you ever administer that? What would be the point? It is a ridiculous idea.
Those of us who paid into SS as a defined benefit should have that benefit paid to us as long as we live.
The Camel's Nose ...
written by jm, June 25, 2010 1:33
The reason Pete Peterson et al are suggesting means-testing of SS is that if they can ever get means-testing into place, they will be able to evolve it so that eventually the poor will be getting much more from it than the Tea Party folk, who they will then be able to mobilize against it, perhaps eventually killing it altogether.

Reducing benefits for the more affluent is the first step towards making it another "poverty program" so that it can be more easily eliminated.
America Speaks...or America Freaks(?)
written by MB, June 25, 2010 1:19
Oh Dean Baker. I signed up for this America Speaks thing not realizing it might be a mind-bender, confusion-creation, propaganda experience. I learned about it from another citizen engagement event, part of a series of on-going CE forums that have been very productive and useful to this city which has its serious issues. So I didn't realize this was a Peterson event until after I signed up. Just now, at lunch the day before the meeting, they sent an email with a link to a 50 pg document (http://usabudgetdiscussion.org...rected.pdf) which is follow up to a similar size document mailed last week. Meaning, I have between now and tomorrow am to read it and check it against other sources of info. Normally I go into these events having done some research but not feeling like I should study as if it's a test, or in this case, double check their info so I can feel clear about the facts that might not be presented accurately. Oh sigh. In general, the concept of a well organized citizen engagement experience for the purpose of informing the public about complex, important issues is a good one---such forums could have greatly improved the public debate about health reform, for example. But this whole issue of who do you trust to explain things you don't normally understand, it's a shame. My first glance at the "Options" document is that the attempt to simplify the arguments may in itself be a distortion of the issues. For example, the issue of the mortgage-interest deduction is presented as keep the deduction or convert to a credit (Option 30). But I did not locate an argument for dropping it altogether (did a quick key word search for "mortgage", maybe I missed it. But how closely should the general public be expected to read through all of this less than 24 hrs before the event?) Although further down Options 36 & 37 say "Eliminate major deductions and credits" (which implies lumping in the mortgage dedux with all other types, I guess) but both options contain almost exactly the same language but with two different sets of numbers, one concluding a revenue increase of $412 billion, the other concluding an increase of $618 billion. I'd say these items are a proofreading error but that's still a lot of work for an average non-econ to parse out the good or misleading or mistaken info. Deep sigh. This thing is scheduled to run for 7 hrs. I feel like I should go because I now have more knowledge about these issues than in the past, and more than my friends for example. But this is the kind of thing I would expect to hear on Morning Edition and then arrive at the office and read the BTP clarification (it's almost like a game by now to guess the npr econ bs....but I don't have to figure it out on my own! I can read the explanation later on the econ blogs, like checking the answers in the back of a study guide :-) If this turns into a tea party rally, I'll have to leave. It's a shame. The public really does need to be more engaged and better understand complexities. But putting the blender on whirrr might not achieve those goals. However. I'll keep an open mind. I might be surprised. In other town-hall meetings here there have been heavy controversies but the face-to-face discussions turn out to be reassuring because there are a lot of very rational people here, more so than you might have guessed without actually having conversations.
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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.