America Growing Old

Peter G. Peterson ("Will America Grow Up Before It Grows Old?" May Atlantic), to correct his vision of future "Social Insecurity," would have us all, and the elderly in particular, start sacrificing now. The sacrifices he demands, largely cuts in Social Security and health care and a general reduction of consumption, are based on the false premise that the aging of our population makes them necessary.

By the year 2030 -- when, proclaimers of the apocalypse tell us, the Old Age and Survivors Trust Fund will "go bankrupt" -- we will have only about three people of working age (from twenty to sixty-four) for every one who is sixty-five or older, as against five now. The program could be kept solvent all the way to 2069, according to the fund's trustees, by adding less than 2.2 percent to payroll taxes. Many other allocations of revenue could set this right without draconian payroll-tax increases from the current 12.4 percent to 17 or 22 percent, or "about 35 to 55 percent of every worker's paycheck" if we include Medicare, which Peterson indicates will be necessary if we do not tighten our belts now.

The increase in the proportion of the elderly is a real issue, but it has to be balanced against a decline in the proportion of dependent young. The total ratio of dependency, including young and old, will by the fund's "intermediate" projections have risen only six percent by 2030. That leads to the important and relevant question not of what is in trust funds but of how much output will be available to share among the population. What Peterson and many others seem to forget is that the bread the elderly or anyone else eats must be produced by those who are working; we can't eat money or savings accounts, no matter how much they are increased now or in the future.

Fortunately, though, even the modest rate of growth of one percent a year in output per worker -- no more than our slow growth over the past twenty-two years -- would increase total output per worker by 42 percent in thirty-five years. That would be enough to provide for a 33 percent increase in goods and services for every man, woman, and child, regardless of age, even after allowing for a six percent increase in nonworking dependents.

Peterson is right in urging measures to increase growth -- a growth in output of two percent per worker would give us 90 percent more for everybody in thirty-five years. But many of his proposals are counterproductive. Forcing us to consume less will not necessarily increase investment; if we don't buy that new car, a form of investment in itself, GM is likely to invest less, not more. And economists increasingly recognize that the path to growth lies in investment in human capital -- in education, in health, in research, and in providing a safe environment in inner cities and in suburbia where we can all realize our full potential.

Robert Eisner

Peter G. Peterson's suggestions concerning living wills lack the thoughtful argument of the rest of his article. Peterson asserts that an increase in the use of living wills would reduce the 30 percent of the Medicare budget that is spent in a patient's last year of life. Although beforehand knowledge of our death might be useful, living wills are popular not because they hasten death and reduce medical bills but because they provide unconscious patients with a measure of autonomy. This ranges from taking all means necessary to prolong life to ruling out certain interventions in certain situations. Increasing the number of living wills may not have the effect Peterson desires in the absence of incentives to persuade people to opt for less costly intervention.

Recognizing this, Peterson makes an egregious suggestion: that we "perhaps even provide financial incentives to maintain [living wills]." If the purpose of such incentives is to persuade people to forgo costly intervention, little would remain of autonomy. Many people already agonize over the burden they present to their families, which influences their decisions about treatment at the end of life. We should not further encourage people to accept an earlier death because of the cost of medical intervention.

Gregory Fahy

Peter Peterson's latest version of "the sky is falling" reflects our impressive proclivity for treating what should by any standard be a national triumph -- a longer-lived, healthier, more financially secure elderly population -- as an unmitigated disaster. Some of his points are indeed well taken, but his statistical overkill should be a red flag warning the reader to beware of the intermingled ad hominems, personal predilections proffered as revealed truth, and subtle detours around less-supportive evidence.

Consider the Medicare-Medicaid flap, which is less a matter of ill-advised Entitlements than a symptom of our continuing fundamental health-care distress. That distress could easily be alleviated by a move to some variation of the widely misunderstood -- and often deliberately misrepresented -- "single-payer" format, with universal coverage based on universal rating, without the distortions created by the appallingly inappropriate promotion of health care as "an attractive investment opportunity."

Few know that the Congressional Budget Office confirmed that such a program would cover more people for more conditions at lower cost than any alternative.

Edward Marshall Nielsen

Peter Peterson continues his campaign of many years to cut Social Security and Medicare benefits for seniors already in retirement and to portray seniors as a greedy bunch who are living off the next generation.

Tens of millions of seniors made retirement decisions based on individual written assurances from the federal government as to the monthly payments they would receive if they chose retirement. To reduce such payments to retirees when they are older, less healthy, and can no longer go back to the jobs they once held is not only a betrayal by the government but also a default pure and simple. Rather than default on millions of seniors, perhaps we should look into another option -- defaulting on our debt. After all, sales of federal bills, notes, or bonds to investors are nothing more than a promise to repay. Those promises have no more status than the promise to retirees that they would receive a specific monthly benefit. If one can be broken, so can the other. If we defaulted on even a portion of our debt, we could immediately bring the budget into balance.

Sy Forman

Peter Peterson's lucid and alarming article appears to omit one partial solution to the future funding problem which not only has precedent (in the case of Medicare) but also would serve to mitigate the extreme regressive nature of Social Security withholding: do away with the maximum taxable Social Security wages limit and tax individuals a flat Social Security tax no matter what they earn in wages!

As the situation is now, it is the middle middle class (those who barely make the Social Security maximum taxable wage) that subsidizes not only the working poor but also the rich, who presumably have less need for Social Security income to supplement their retirement income. If we can finally admit that the trust fund and pension aspects of Social Security are really nothing more than a tax, why are we not insisting that when the Michael Eisners of the world make $200 million in wages and compensation in one year, they pay more in Social Security taxes than the middle manager at AT&T who makes $65,000 a year? Currently, people at both salaries pay about $4,500 a year in Social Security taxes. Surely we all have an interest in the security, both social and otherwise, of our elderly. Why shouldn't the burden of aiding the have nots be shared proportionally by the haves and the barely haves in society?

Philip J. Guarco

Peter Peterson's focus on the growing forest of Social Security and Medicare entitlements is useful, but myopic with regard to the individual plight of many of the seedlings beneath: modestly paid current wage earners whose disposable income and political flexibility are now being stunted by the regressive funding of such entitlements. Thus when he recommends that all workers be required to contribute four to six percent of their pay above FICA and Medicare payroll taxes, for a total payroll tax of 16 to 18 percent, and acknowledges that such a requirement "would decrease the consumable portion of each paycheck," he is proposing a fiscal remedy that would be crushing even in combination with his proposed reforms.

Consider, for example, an unmarried self-employed taxpayer earning a near-median income of $30,000. This taxpayer is not eligible for relief through the earned-income tax credit, and is subject to combined federal taxes of about 26 percent of his or her gross income (15 percent in Social Security and Medicare taxes and 11 percent in income taxes, after a credit for half of the employment tax) and more than seven percent in state income and sales taxes. For such a taxpayer, an additional six percent tax could reduce after-tax income to roughly 60 percent of earnings, or $18,300. It is very difficult for such a middle-income, self-employed person to eat, pay rent, and run a business on $1,500 a month, let alone set aside savings for retirement.

Rather than be subjected to greater tax burdens, such earners should be given some tax relief from the regressive payroll tax. Such relief could include creating a floor or standard deduction against the payroll earnings of the self-employed, substantially raising the $62,700 ceiling for determining the taxable payroll earnings of all wage earners, and limiting that current ceiling to indexed inflation when determining the base for maximum benefits.

Jonathan S. Gellman

Robert Eisner's proposal, a permanent hike in the Social Security payroll-tax rate from 12.4 to 14.6 percent, is a solution only if we enact it this year, if we pretend that all the mythical trust-fund surpluses are genuine savings, if we disregard the huge cash deficits that Social Security would run after the trust fund peaked (more than $350 billion yearly in 2030, even with Eisner's tax hike), and if we ignore the even larger projected shortfalls for Medicare and Medicaid. The first assumption has a zero probability, and the second is especially astounding. Mr. Eisner claims that the future wealth generated by my proposed increase in savings invested in the real economy (plant, equipment, and R&D) is somehow illusory. We "can't eat money or savings accounts," he says. But here he supposes that the future wealth generated by interest earned on trust-fund assets (in other words, government bonds the interest payments on which merely come straight out of taxpayers' pockets) is somehow genuine.

Mr. Eisner seems to imply that spending less on children will compensate for spending more on the old. This overlooks the monumental fact that the government spends far more on each American aged sixty-five or over than it does on each American under age eighteen. At the federal level, in fact, the ratio is now at least eleven to one. Yes, future working adults could to some extent sustain their own after-tax living standards by spending less on their children or by not having any children at all. In order to keep rewarding the past, apparently, we are to negate our own future. I find this line of reasoning utterly grotesque.

I apologize to Gregory Fahy for the misunderstanding. I propose to offer people a very modest reward for maintaining a living will -- period. One survey shows that 89 percent of Americans think a living will is a good idea, yet only nine percent say they have one. I expect that most people would use such wills to express their natural aversion to costly and painful intervention when there is no reasonable chance of survival. There would certainly be no requirement that they do so.

Edward Nielsen suggests that a single-payer system is a painless cure for our health-care-cost problem -- without acknowledging that this solution, like any other, requires that someone consume less. Canada's single-payer system, for example, has only one eighth as many MRI units per capita as the United States. Does Mr. Nielsen believe that government rationing is, by definition, painless rationing?

Sy Forman is wrong in implying that there is no difference between changing Social Security and defaulting on the national debt. Social Security is not and has never been a property right. Its underlying statute states (and the Supreme Court has agreed) that its benefits can be changed at any time without compensation -- and over the past forty years Congress has repeatedly done just that.

Philip Guarco, like many others, urges us to think of progressive ways to boost future tax revenues. But eventually this approach turns government into a revolving door for funds coming from and going to the same middle- and upper-income households. At some point we have to stop and look at progressive ways to cut future spending increases. That's what my proposed affluence test does.

Jonathan Gellman raises a critical issue:how are median-earning households likely to respond to a plan that requires them to put aside a few percent more of consumable income?Almost by definition, these are households for which we could not provide any sizable direct subsidy (because there are so many of them, the cost would be prohibitive). Yet these are also households whose financial situation no one would call comfortable or easy.

The key, I believe, is to stress what Mr. Gellman overlooks. This new contribution, though mandatory, is not a tax; it is not even what the Clinton Administration, when defending its federal health plan, liked to call a "premium." From first to last this contribution is personal, common-law property, payable into an interest- or profit-earning fund the full value of which the worker will ultimately consume (or bequeath). The tradeoff is clear: in exchange for consuming somewhat less in the near term -- the unavoidable first step in raising savings rates -- most Americans will gain the immediate assurance that (as FDR once said, inaccurately, about Social Security) "no damn politician" will ever be able to take away these new contributions and that the system's long-term funding problems have been solved.

The Atlantic Monthly; September 1996; Letters; Volume 278, No. 3; pages 10-13.

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