Heavy Lifting - thoughts and web finds by an economist
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Monday, May 10, 2004


The elderly are the future...


Anyone who cares to do a little digging will quickly discover that the programs addressing the elderly might be disastrously overextended. As the population 65+ years of age becomes larger (both physically and agedly) over the coming decades, there will have to be some serious changes considered. Politicians are loathe to discuss the two most obvious solutions: decrease benefits or increase taxation. The former is costly because the elderly tend to vote in greater proportion than their younger counterparts and therefore cutting benefits might be a suicidal strategy for a politician. Moreover, raising taxes to pay for programs that specifically target the elderly can raise the ire of the younger voters that might likewise damage the chances for reelection.

Therefore, it seems that politicians are more comfortable to stick their head in the sand and do nothing about the programs for the elderly in the hopes that when the house of cards falls they (the current crop of politicians) will no longer be in office. Whether the programs for the elderly are the result of increased political pressure by the aged or a way for the younger generation to "buy" off the need to personally care for elderly parents and family members, it is becoming increasingly obvious that means testing or other forms of limiting benefits will be required.

Many are concerned about means testing, in which only those with sufficiently low income or other resources would qualify for government assistance, for at least two reasons. The first is a belief that most of the elderly are on fixed incomes in which the elderly are more succeptible to inflationary pressures. Means testing is not fair because regardless of the level of the fixed income, all face the same inflationary concerns. A second concern is that those who are excused from government services might actually be able to purchase higher quality services, thereby making it unfair for the less affluent elderly.

However, the House Ways and Means Committee's Green Book has an interesting appendix with lots of data on the elderly population. In particular it is dangerous to assume that elderly households live on very low fixed incomes.

For instance, Table A-8 indicates that




AllMarriedNon-Married
Median income other than Social Security $9,268 $18,111 $4,545
Median Social Security Income $12,355 $16,848 $10,368


What the first row indicates is that a considerable number of the elderly continue to work after sixty five, or otherwise have income flows. Thus, for the median 65+ household, only 57% of income is fixed, the remainder is variable to some extent and is most likely artificially limited by the extremely high marginal tax rates on social security transfers when earned incomes exceed $10,000 per year.

Indeed, the myth of the elderly household with fragile income and difficult decisions such as whether to eat or take medicine may only be true for a relatively few households. Table A-9 indicates that fully 57.6% of all elderly households have annual incomes greater than $20,000 per year and that 21% have annual incomes greater than $40,000 per year.

It seems that politicians are reluctant to suggest that the elderly pitch in to help fund the programs that aim to provide health care, retirement pension, food distribution, prescription drug distribution, public transportation, and the other services specifically targeted towards their age group. Perhaps this would require some to return to work, but Table A-3 indicates that in 1950 almost 50% of males 65+ years old participated in the work force, in 2003 that number was down to 18.5%. Granted, the participation rate is a ratio (#Participate/#Population), in which the denominator is getting larger. However, it is likely that there are many in this age group that would and could continue to work if they had to. Many may not want to, but then again I don't want to work and I am only 35. (To date I haven't been able to convince Congress that a special assistance program should be set up for 35+ year old academic economists.)

Politicians continue to act as if the elderly all live hand to mouth on less than $10,000 per year and therefore require (free) government programs to survive; most politicians have at least one nightmare story to share with the crowd (even if it is not entirely true?). However, the data suggest that a significant portion of the elderly population would be able (and willing?) to pay some or all of the true cost of the programs aimed to assist them. In other words, grandma will take reduced prescription drug prices if the government provides them (grandma might be old but she ain't stupid), however it seems that many might be able to pay the "normal" price of prescription drugs and other services.


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