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Sunday, January 13, 2013

US already has high elder poverty rate; how can cutting Social Security even be on the table?

In the recent debate over the so-called "fiscal cliff," President Obama was reportedly at one point offering to raise the eligibility age for Medicare from 65 to 67 and cut Social Security via "chained CPI.". However, in view of the coming retirement crisis due to the decline in defined benefit plans guaranteeing a specific retirement income, this is a terrible idea. Given that proposals to cut Social Security and Medicare will be repeatedly floated in the coming debt ceiling and related budget fights, we need to understand just how bad an idea this is.

First, let's look at what Social Security and Medicare have done to elderly poverty in the U.S. over time, using the standard poverty line as our measure. Daniel R. Meyer and Geoffrey L. Wallace of the University of Wisconsin have published data on official poverty rates for those over 65:

Official poverty rate for the elderly by year

1968          25.0%
1990          12.1%
2006            9.4%

1968, of course, is just three years after the enactment of Medicare and Medicaid. We can see that elder poverty was halved between 1968 and 1994, and dropped at a slower pace through 2006. In the bad old days, one in four of the elderly lived in poverty: why would we want to go back to that when we are a much richer society today than we were in 1968?

Moreover, before we pat ourselves on the back for how well we have done, we need to consider alternative measures of poverty and the experience of other industrialized democracies. As Arthur Delaney and Ryan Grim report, the Census Bureau has developed a "Supplemental Poverty Measure" (SPM) that includes items such as out-of-pocket medical expenses, which affect seniors more than those under 65. Thus, while the SPM was only slightly higher for all individuals in 2009 than the official poverty measure (15.7% vs. 14.5%), for seniors the increase was from 8.9% to 16.1%.

As Meyer and Wallace relate, when the poverty line was first defined in the United States in 1963, it was approximately equal to 50% of median household income. Today, according to Smeeding et al., it is approximately just 30% of median household income. Meanwhile, the European Union has gone in the opposite direction, defining poverty as 60% of median income. Researchers comparing poverty cross-nationally generally use a 50% of median income standard. How does the U.S. stack up?

Here are Smeeding et al.'s figures for poverty rates in 2000 for all over 65 (figures eyeballed from Figure 1; no table provided):

Country                        Poverty rate

United States                 25%
Australia                        23%
United Kingdom            18%
Italy                              14%
Germany                       10%
Sweden                          8%
Canada                          6%

I guess we can take solace in the fact that Ireland has a substantially (20 percentage points) higher elder poverty rate for households only comprised of the elderly, as Smeeding reports in a separate paper. Otherwise, the comparison is pretty grim.

Yet what do the Very Serious People, as Paul Krugman calls them, want? At the very least, they want to cut Social Security by changing how inflation is calculated, and they want to raise the Medicare eligibility age from 65 to 67. At some points, it appeared the President would go along.

This is lunacy. As David Rosnick and Dean Baker (via David Cay Johnston) show, cuts to Medicare, such as Paul Ryan's plan, shift far more costs to beneficiaries than what government saves through the cuts. In fact, while the Ryan cuts save the government $4.9 trillion over 75 years, the elderly will pick up $34 trillion in new costs. As Johnston puts it, for every dollar in saving for the government, there will be approximately $6 in net losses to the country as a whole.

Where are seniors supposed to find $34 trillion? Fewer and fewer people will have real pensions, 401(k) plans are vulnerable to market swings, and the Very Serious People want to cut Social Security. The simple answer is that seniors will be worse off than seniors today, yet 47% of the electorate voted for people who would have cut Medicare now.

It's time to take these cruel cuts off the table permanently. What we will need in the future is an augmentation of Social Security, not cuts. We've got to make sure politicians get this through their heads.

Cross-posted at Angry Bear.


  1. how can cutting Social Security even be on the table?

    the evident long term solution is to raise the cap, which means incomes over $110,010 would see a 6.2% payroll tax increase; those are the ones lobbying for the benefit cut, and they've convinced obama & others they're needed...

  2. You can cut or eliminate SS for millionaires and billionaires. Why should Donald Trump collect?

    1. Universal programs have higher levels of political support. I oppose means testing Social Security and Medicare because I think it will make them easier to kill in the future.

    2. Means testing would save a trivial amount while increasing overhead costs. It's just not worth it. Who cares if The Donald "deserves" Social Security or not? Why should we care if he "needs" it or not? Just follow the simple rule: "you paid for it, you get it." Hey, even Ayn Rand took Medicare and Social Security payments, and she was one of those calling for its end.

    3. Means testing would save a trivial amount unless you set the cut-off point at about $40,000 a year, which doesn't seem like a good idea. It would also raise administrative costs, which are now very low. It might very well cost more than it would save. Who cares if The Donald "deserves" or "needs" Social Security (I suspect he actually does, but he's a great grifter)? We should follow the simple rule: "You paid for it, you get it."

    My personal action on this issue is to return reply to Obama and DCCC requests for money with a reasoned why I will not contribute to a Democrat of less than FDR's stature. Social Security, Medicare, etc. being foremost indicators of suitable works to judge them by. Money talks to those who worship the rich.

  4. I actually think this plan makes perfect sense once you read it this way:

    Very Serious People to Seniors: Drop Dead.

    Under this plan, I don't think the senior citizens are supposed to find $34 trillion. They're supposed to die as quickly and quietly as possible. The logic is this: keeping seniors alive is expensive and difficult, they can't work, so anything that goes towards their well-being is wasted effort.

    And yes, this is a very cruel way of looking at the world, but it wouldn't surprise me if it were the truth.

    1. I should have used this as my headline. Your comment is a nice echo of Alan Grayson's 'Republican health care plan": 1) Don't get sick; 2) If you do get sick, die quickly.

  5. Is there pre-1968 data on elderly poverty rates? It would be helpful to know the rate in 1935, when SS program began. The Meyer-Wallace report only goes back to 1968.

  6. Why are cuts to Social Security on the table, and cuts to Medicare in trade for expanded health care being made?

    Simple: TANSTAAFL

    Voters want tax cuts, tax cuts, tax cuts, tax cuts.

    Sure voters want their Social Security and Medicare, but they want tax cuts, and they want you to lose your Social Security and Medicare to pay for tax cuts.

    That is the Republican promise to voters. And voters vote Republican as long as Republicans are delivering tax cuts and passable job opportunity.

    Until voters see cuts to their Social Security and the Medicare benefits they depend on coming from Republicans, they will continue voting Republican to get the free lunch of entitlements and tax cuts, with others paying the bill.

    And I don't see anyone talking about serious tax hikes like Democrats did in the past. If you want something, pay for it.