The great untold story of this year's budget debate is that it represents yet another step in turning the national government into a gigantic machine for taxing workers to support retirees. The White House and Congress almost unconsciously agreed to this from the start. The elderly are considered a group that deserves to be pampered and whose political power requires them to be pampered.
The result is a budget package that, however it turns out, will hardly touch them. The initial plan of the White House and congressional leadership contained some small increases in Medicare fees, but even these have been reduced. More important, it is virtually certain that the new budget agreement will remove Social Security from the Gramm-Rudman-Hollings budget law. This sounds technical, but it creates a budget process that is automatically biased toward raising taxes on the nonelderly to protect the elderly's benefits.
Almost everything about being old in America has changed -- except politics. We now see retirement as a rewarding part of life, not (as 40 years ago) an interlude before death. Unlike 40 years ago, the over-65 population is now at least as well off as the nonelderly. Their per capita incomes are roughly equal. The elderly's poverty rate is lower (11.4 percent versus 13 percent). The elderly are better housed (75 percent are homeowners versus 61 percent for the nonelderly). And the elderly have better health-insurance coverage.
But the elderly are still seen -- by virtue of age alone -- as "needy." "Social security is a political third rail," goes a current congressional cliche'. "Touch it, and you die." This reflects more than the power of the elderly's lobbies. They could not succeed "without the enthusiastic support of the rest of the population," as budget analysts Alan Abramson and Rudolph Penner write in The American Enterprise magazine. In recent opinion polls, "over 50 percent of respondents said that government was spending too little, or should spend more, on Social Security."
We have the proverbial standoff between the immovable object and irresistible force. The immovable object is the bipartisan unwillingness to discuss the elderly. The irresistible force is the inexorable rise in spending for the elderly: Social Security, Medicare and other programs.
In fiscal 1965 (the year Medicare was enacted), spending on the elderly accounted for 16 percent of federal outlays. In 1990 this spending totals an estimated $354 billion, or 29 percent. Unless you think the United States will disarm or repudiate its debt, a more relevant comparison is to nondefense and noninterest spending. In 1990, the elderly's share is 47 percent, up from 32 percent in 1965. Rapidly rising medical costs, declining defense spending and (in the 21st century) an explosion of baby-boom retirees will make programs for the elderly even more dominant.
But, you say, Social Security is different. It's not like ordinary spending, because it involves a trust fund. Okay. There are at least 169 other federal trust funds covering everything from highway construction to the cleanup of toxic wastes. In 1990 spending from these trust funds exceeds $200 billion. Let's cut them from the budget, too. On second thought, why have a budget at all? The whole point of a budget is to create a vehicle that forces choices between competing claims. The more items that are excluded, the less useful it becomes.
Because the Social Security trust fund is now running a "surplus," some of today's Social Security payroll taxes are being used to cover the non-Social Security "deficit." This is bad, because the payroll tax is regressive: that is, it hits lower-income workers hardest. But this situation is better than what will happen under the new budget law. The Social Security surpluses (possibly modified by a few accounting technicalities) won't be counted at all, so that the other "deficit" will rise. Further reductions in this deficit will then require raising other taxes or cutting other -- mostly nonelderly -- programs.
What we ought to do, but won't, is to cut the Social Security tax and substitute some other tax for it. This would prevent the accumulation of misleading Social Security surpluses. One justification for these surpluses is that they're being "saved" to pay the retirement benefits of the baby-boom generation. The claim is a cross between a pious wish and a deliberate deception.
Moral obligation: Congress can't guarantee benefits decades from now. Nor should it try to. No one knows society's true needs in 2030, just as no one in 1950 could know today's needs. The burden of an aging society involves Social Security, higher health-care costs and, in general, the rise of the ratio of retirees to workers. In 1989 there were roughly 3.5 workers for every person over 65; by 2030, that ratio is expected to drop to about 2 to 1. Congress might someday trim Social Security to pay for health costs. Or it might require people to work longer, which would cut benefits. Nothing prevents Congress from taking either step; both might be desirable.
Protecting the well-being of the elderly is a major obligation of national government. This won't -- and shouldn't -- change. But we should discard the outdated notion of favoring people just because they're older. Most Social Security, for example, remains exempt from income taxes. A middle-income elderly family pays about 8 percent of its income in federal taxes compared with 22 percent for a nonelderly family in a similar income bracket. This sort of age discrimination is no longer justified. Likewise, most elderly are sufficiently well off to afford a slightly higher share of the costs of their own programs.
There are plenty of elderly, especially single women, who are poor. But there are also plenty of nonelderly poor. Our policies ought to focus more on the genuine needs of circumstances and less on the pseudo-need of age. We also should recognize that spending too much on the elderly will inevitably shortchange other important national goals -- everything from improving schools to fighting crime to cleaning up the environment. A budget process that discriminates in favor of the elderly discriminates against the future. There are conflicts and choices that sooner or later will have to be faced. Right now, it looks like later.