Everyone in Washington is congratulating themselves on an agreement last week that will probably lead to the creation of a new $400 billion prescription drug benefit. It is part of a long-running project -- Operation Please Granny -- to turn almost the entire federal treasury over to the elderly, at the risk of bankrupting the country and dimming its economic prospects.
In the 1990s, we decided that it was a bad idea for poor young women with children to batten themselves on government subsidies. But the bipartisan consensus behind Operation Please Granny holds that it is a wonderful idea for well-off retirees living in condos off golf courses to batten themselves on government subsidies. We no longer have a Welfare State so much as a Geriatric State, at the service of the selfish whim of the elderly.
A new report from the Washington, D.C.-based Cato Institute, "War Between Generations," catalogs the scope and the senselessness of the Geriatric State. Federal spending on the old has skyrocketed and will go higher as the baby boomers begin to retire around 2008. Spending on Social Security, Medicare and Medicaid jumped from roughly 27 percent of the federal budget in 1980 to roughly 41 percent in 2000.
That's nothing. The number of the elderly is set to increase by 116 percent by 2040. That means Social Security and Medicare will, if unreformed, gobble up 30 percent of taxable wages by 2040. Together with Medicaid, Social Security and Medicare spending will be more than 15 percent of the gross domestic product and -- assuming the federal government stays at its current size -- will account for 80 percent of all federal spending.
As the Cato report demonstrates, the elderly spending boom is on behalf of a demographic group that no longer needs such largess. The elderly work less than in the past and are wealthier. In 1950, 46 percent of men over age 65 worked; in 2002, 18 percent. The poverty rate for the elderly in 1959 was 35 percent, higher than the population at large; in 2001, it was 10 percent, lower than the population at large.
It used to be that the elderly consumed less than the young. No more. In the 1960s, the average 70-year-old consumed one-third less than the average 30-year-old. By the late 1980s, the 70-year-old was consuming more. Most of the money for this consumption has come from federal transfer payments -- in other words, directly out of the pockets of the young.
According to Cato, a male at age 65 will receive, on average, $238,000 in federal transfers during the rest of his life, while paying $167,000 in taxes -- a net $71,000 gain. A 25-year-old male will pay $524,000 in taxes during his lifetime and get only $202,000 in transfer payments -- losing a net $322,000.
This disparity will only get worse as Washington ladles out more benefits for the elderly and the growth in the number of seniors outpaces the growth in the number of young workers. Higher taxes for the intragenerational transfers will discourage work and productivity. Resources will be taken from young people who would save it -- contributing to investment and other felicitous economic phenomena -- and given to the elderly to spend freely.
We considered it a damning statement of irresponsibility that young women once thought it acceptable to bear children out of wedlock and make the rest of society pay the bill. So why isn't it considered uncouth for seniors to force young families, struggling to pay the bills, to fund their often cushy retirements? The moral odium directed at the Welfare State, which resulted in welfare reform in 1996, should find a new target in the Geriatric State.
President Lyndon Johnson said in 1965, upon the creation of Medicare, "No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents." Families staggering under a tax burden that will only get bigger can only respond 40 years later, "Yeah, right."