IT HAS ALWAYS seemed clear that as a group the elderly were among the least prosperous of Americans. But like many other things that seem clear, that turns out to be wrong. The Census Bureau has now published a detailed study of household income that shows quite a different reality. Elderly people tend to have relatively low gross incomes because, after all, they are retired. But the figures that count are after-tax income, and here the elderly rank startlingly well. The national average household income, per person after taxes, was $5,964 in 1980, the Census found. For households headed by people over 65, it was $6,299.
The explanation is that much of the income of the elderly is Social Security, and most Social Security income is not taxable. The meaning of this Census study is that the Social Security system is doing exactly what it was designed to do--and doing it somewhat more effectively than most people had realized.
These figures have implications for the debate over social entitlements, the resources to pay for them and the distribution of the benefits. It's worth noting, incidentally, that the Census figures do not include anything but cash income--that is, they do not include the very important health benefits that Medicare provides to the elderly. The Social Security tax is in effect a tax on younger people of working age to pay for the pensions of older people. But it's not quite so clear a division between the interests of the young and the old as it might seem at first.
Before the 1960s, when Social Security payments were modest by any standard and Medicare had not yet been enacted, the needs of elderly parents commonly fell on their children. In many a family, unhappily, the hospital bills of a grandparent competed for the savings that were to send grandchildren to college. One source of solid support for both Social Security and Medicare is among younger taxpayers who know that any reduction would shift onto them greater responsibilities for their own relatives--especially in case of serious illness.
The new figures do not argue that benefits to the elderly are too high, but they give weight to the argument that those benefits might be more fully taxed. Congress set the precedent earlier this year when it voted to tax some of the Social Security paid to taxpayers with incomes above $25,000 a year or, in the case of those who file jointly, above $32,000. The virtue of the income tax system is that it takes account of the differing circumstances of different households. But if the households of the elderly enjoy incomes similar to those of younger families, and in fact in some respects are a little better off than the average, it is hard to see why a substantial part of those incomes should be exempt from taxation.