A matter of perspective

Robert Samuelson writes an opinion piece in the Washington Post each week. The latest was titled “The fat cats vs. the facts.” That was the print edition title. The digital edition was titled “Government is not beholden to the rich.” In it he seems to launch an attack on the elderly and on the poor making a case that government taxes the rich and gives to the elderly and to the poor. He uses data from the recent Congressional Budget Office report: “The Distribution of Federal Spending and Taxes in 2006.” That report looks as data from 2006, the most recently available data, on the taxes and benefits split by elderly and non-elderly and then for the non-elderly looks at the same numbers by the quintiles of the income distribution.

Not surprisingly the report finds that money flows toward the elderly and the poor. Samuelson quotes numbers from the report showing that the elderly, those over 65 receive, a net of about $13,000 from the government the poorest fifth of households receive about $12,600 while the richest fifth pay about $66,000.

But should we really be looking at elderly vs. the non-elderly. Certainly it shows the current state of affairs. However a historical perspective is need in this discussion. Over the past 100 years or so, and certainly since Roosevelt was president back in the 1930’s the US and the much of the world has moved from an culture where families took care of the elderly both in terms of health care and in terms of income to a culture where the government provides a sizable portion of that help. We have done that by taxing people when they are younger and paying them when they are older via Social Security, Medicare, and other programs.

It is this cultural shift which makes inappropriate comparisons and arguments about the differences in government taxes and payments for a 75 year old vs. those for a 50 year old. This is not a cross-sectional issue. It is rather a longitudinal issue. The question is did the current elderly beneficiary pay sufficient tax in his younger years to justify the benefits received today? The social security system and the Medicare system are in many ways an insurance policy. Everyone pays into the system. Those who survive long enough receive the benefits. So the real questions need to be: Are the taxes high enough during the working years to justify the benefits received? Is the retirement age set at a level that provides solvency to the system given the level of taxes and benefits? And are the benefits set at a level commensurate the taxing rate, the retirement age and the life expectancy of the survivors.

These questions do not pit the elderly against the non-elderly. Rather they recognize the life cycle of the individual within the system.

Some key observation need to be made. The first is that life expectancy has been increasing over time. Thus no one should expect benefits to remain constant and be paid for a longer period of time while keeping the tax rates the same. Something has to change. It can be the tax rate, the retirement age or the level of benefits. Choose your poison. With continual increase in life spans a 40 year old today can expect to collect from the system more than a current 60 year old. Adjustments for that change need to be considered. Commensurate with that and in line with Samuelson’s discussion of tax rate differences by income level it is well documented that the wealthy have a longer life expectancy than do the poor. So while the wealthy pay more in taxes they can also expect to collect benefits longer.

And finally a couple of specific comments on Samuelson’s writing are in order. I really wish he had done a better job of reading what he wrote.

He notes early in the piece:

The CBO divides the population into elderly (65 and over) and non-elderly households. They’re respectively 15 percent and 85 percent of the population.

But later he writes as if there is a problem”

The non-elderly paid almost 85 percent of taxes,…

Where is the problem? The elderly are 15 percent of the population and they pay 15 percent of the taxes?

By Samuelson’s logic that the elderly get undue benefits, I wonder what he thinks of our children as they pay essentially no taxes yet reap the lifetime benefits of the education they receive at the expense of the government.

But the one that really has me puzzled is when he writes:

Democracy’s problem is not the influence of money. It’s the influence of people.

I thought we called our democracy a government of the people, by the people, and for the people. I must assume that Samuelson does not believe in that kind of government. I wonder what kind he does believe in.