US already has high elder poverty rate, so why are Social Security cuts even 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 Social Security. 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 Middle Class Political Economist.
It just makes you wonder, when keeping people out of poverty actually helps the economy at the level of the middle class.
But beyond the push to undo the new deal has been the more successful push to narrow the definitions of poverty. That way the existing government programs pay out less.
Defining poverty as a percentage of median income seems strange to me. Shouldn’t poverty, at least in part, be measured by the ability of a person to meet their basic needs?
Brian:
EPI does a nice job of defining “What We Need To Get By” here: http://www.epi.org/publication/bp224/ I hope you take the time to read this article from 2008.
“On average nationwide, working families with two parents and two children require an income of $48,778 to meet the family budget. In major urban areas, expenses for this four-person family range from $42,106 in Oklahoma City to $71,913 in Nassau/Suffolk, N.Y.; families in small towns and rural areas start from a low of $35,733 in Marshall County, Miss. to $73,345 in Nantucket and Dukes Counties, Mass.”
Median Household Income is ~$50,000 in 2012. Maybe defining poverty as a percentage of Median Household Income makes sense? There is a bigger story here too, Median Household Income may not be Mddle Class and may be closer to Lower Class when costs are taken into perspective.
Brian,
From Meyer and Wallace:
Even in the eighteenth century, the
man often described as the “father of economics,” Adam
Smith, pointed out that the standard of living of a society is
closely related to how we think about what is necessary: “By
necessaries I understand not only the commodities which are
indispensably necessary for the support of life, but what ever
the customs of the country renders it indecent for creditable
people, even the lowest order, to be without.”
Brian
thanks for the question.
Kenneth Thomas
Thanks for the answer. I have been trying to explain that to certain persons for years.
That’s why the “chained CPI” is a crime (as well as a cynical lie).
No doubt we could all meet our basic needs with a stout stick and a book of “how to find and eat grubs and worms.” After all, our ancestors did, (the stick is to beat off the greedy grannies who will try to steal our grub(s)). After that all price increases are “standard of living” increases and not “inflation.”
No reason old people should be allowed to live better than people did in 2 million BC.
Even if they paid for it themselves.
This is another point that escapes people who ought to know better. They think SS is welfare and that “we” pay for the old people…. because they are not smart enough to understand that pay as you go is us paying in advance for our own retirement. The fact that we are also paying, at the same time, for those who already paid for theirs is the magic of the system.
It’s an old idea discovered by Moses or somebody, when he said “Honor your father and your mother.”
Or do you suppose father and mother didn’t pay anything for the support they eventually got from their kids…. such as by supporting the kids and their own parents in their turn.
All SS does is make this work in an industrial economy.
And they write YOUR name on your SS account, not the name of the old person you “support.” And they ask how much did YOU contribute, not how much is some “young person” contributing to your support.
Well, maybe some day folks will understand this.
Coberly: Amen to that.
A new Washington Post report is relevant to this posting: “More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year.” Lots more here: http://www.washingtonpost.com/business/economy/401k-breaches-undermining-retirement-security-for-millions/2013/01/14/f54a0e90-5e70-11e2-8acb-ab5cb77e95c8_story.html?hpid=z1
well, one doesn’t like to talk about it but one of the things that Social Security insures against is the fact that most people will not save enough to see them through retirement.
this is simply a fact of human nature. present “needs” are always more compelling than “future.”
but lots and lots of people make lots and lots of money exploiting… or just benefiting… from this human nature. it is nothing to them if your “need” for a new car today leaves you broke and starving when you are sixty five.
but you can’t tell people they need Social Security to protect themselves from themselves. They will go out and find a politician who tells them they know how to spend their own money better than the government.
meanwhile
“why is SS even on the table?” when the elderly are getting poorer and SS doesn’t have a damn thing to do with the deficit?
because they went to a lot of trouble to create the deficit scare and the fiscal cliff and the threat over the debt limit exactly to stampede people into letting them cut social security so they can kill it later.
the debate has never been about financial sanity. it is all about the insane desire to kill Social Security one way or another for one made up reason or another.
Yes…….the financial-political elite will continue the colonial-mercantile wars and destruction of support systems for the elderly, of this there is no
doubt.
Perhaps we should take a page from Mr Brennan’c drone strategy and track and eliminate the threat of
the antisocial-narcissistic personality trait disorders
that stripe our country of needed assets. Imagine
having drones aloft day and night seeking out these disordered people and eliminating them in a highly humane program of the type WH consultant John Haldron would approve.
Afterall, these personalities are a form of cultural
terrorism, are they not ? We are a violent culture that
uses violence to resolve issues, are we not ?
For years we have eliminated terrorists in Pakistan,
Afghanistan, Yemen, Somalia and the Sudan using drones to ” neutralize ” the threat of terrorism. Yes,
occasionally, innocent families are collateral damage, right ? So, naturally an occasion Ivy leaguer
would end up french fried by a strike. That’s is the
cost of reedom…is it not ? Even the WH would approve of this logic, as it is in daily use around the
world.
We could look at drone strikes against bankers as
a sort of ” cost-effective ” austerity cut in the financial world..we could extend it to incompetent,
duplicitous SEC, Federal Reserve and Treasury officials……..we could really make some significant
cuts into the debt created since 2008.
All we need is a military on broad with this enlightened budget cutting….maybe we could have a
Blackwater cum X’ian type contract take bids from the public at large. I know that as a retiree, I would be willing to step up and contribute 10 percent of my annual retirement income to eliminate these
these unfortunate, genetically flawed miscreants.