The Truth about Social Security and Medicare

Abstract

In their book Aging Nation, Schulz and Binstock (2006) identified “merchants of doom,” by whom they meant a variety of academics, political figures, and journalists who argued that the United States cannot afford “the aging of our population” (p. 12). Although these individuals are not always consistent and, at times, disagree among themselves, their underlying message is that we face a “fiscal cancer” that “could have catastrophic consequences for our country” (CBS News, 2007; see also Aaron, 2009; Eisner, 1995; Schulz & Binstock, 2006). This message is usually accompanied by recommendations that we shift the cost of social security and Medicare to beneficiaries (Kingson & Altman, 2011). In the wake of the Great Recession and in light of the growing budget deficit, this perspective has become increasingly influential (Samuelson, 2011). Although many merchants of doom are “serious, well-respected individuals,” their views are often “built on exaggerations and faulty assumptions” (Schulz & Binstock, 2006, p. 13). For example, as Gorin (2007) wrote in a previous editorial, Underlying much of the concern about population aging are projected changes in dependency ratios (Gee, 2002). One of the best known of these is the beneficiary-to-covered-worker ratio, which shows the number of social security beneficiaries supported by each 100 workers (individuals ages 20 to 64) (Reno & Lavery, 2006). This ratio is expected to rise from 29 in 2000 to 46 in 2030. Although these figures have generated much alarm, they are somewhat misleading. Specifically, they overlook that older adults are not the only dependent age group. A more sophisticated measure is the total age-dependency ratio, which includes not only older adults, but also individuals under the age of 20 (Reno & Lavery, 2006). This gives us a much different perspective. It shows that we have already experienced the worst of the demographic shifts. In 1960 each 100 working-age people supported 90 dependents (people age 65 and older plus those under age 20); in 2030, they will support only 79. The point, of course, is that although the aging population will increase, there will be many fewer young people than when the boomers were growing up (Schulz & Binstock, 2006). Now, some might argue that we cannot really compare young people with older adults. After all, older adults are supported by government programs funded with tax dollars, whereas children generally receive support from their parents. This is true, but it misses the point. The fundamental issue is our society's ability to support its dependents (Schulz & Binstock, 2006). Parents do support their children, but as taxpayers, they also finance programs that support older adults. Moreover, children are recipients of tax dollars. Public education, which primarily benefits young people, is financed by state and local governments (Reno & Lavery). This is not a negligible expense. Proportionally, the increased spending on public schools to educate the boomers was much greater than the amount that will be needed to support them in retirement. Between 1950 and 1975, the share of gross domestic product (GDP) going to public education increased by 2.8 percent; in contrast, between 2005 and 2030, the share devoted to social security spending will increase by only 1.8 percent (Reno & Lavery). Furthermore, although “the boomers came into the world with nothing” (Leone, 2005), they will leave behind tremendous financial and other resources. The total dependency ratio suggests that the future is not as bleak as the merchants of doom have argued (Schulz & Binstock, 2006). Yet, this ratio is also limited. Like the beneficiary-to-covered-worker ratio, the total age-dependency ratio is too abstract, that is, it considers older adults and young people as categories, not in terms of their actual lives. In reality, some older adults and young people are employed, and some working-age people are not (Reno & Lavery, 2006). A more useful measure is the consumer-to-worker support ratio, which considers the total number of consumers, including working people, in relation to the “number of workers of all ages” (Reno & Lavery, 2006, p. 5). By this measure, in 1960 there were 268 consumers to every 100 workers; in 2030 there will be 214 consumers to every 100 workers. Although the composition of the dependent population will change, the total support burden will be much lower when the boomers retire than it was in their youth. (pp. 165–166)