Why are Medicare and Social Security so problematic?

tl;dr: It’s an age distribution problem.

  • Figure: The 1.483 million U.S. citizens with an annual income greater than $250,000 earned a total of $632.551 billion in 2010. [1]
  • Figure: The U.S. annual budget deficit in 2011 was $1.3 trillion. [2]

    • Thought: Even if we taxed all income over $250,000 at a rate of 100%, we would only reduce our annual budget deficit (the amount by which our national debt grows each year) by around half.

  • Figure: America had 412 billionaires as of March, 2011 at which time they had a sum total net worth of $1.5292 trillion. [3]
  • Figure: The U.S. Federal government debt grew past $15 trillion in November, 2011. [4]

    • Thought: Even if all our billionaires donated every last penny of their fortunes to the Federal government, that accumulated treasure would only last us about 14 months at our current rate of spending or pay off a measly 10% of our current national debt.

  • Figure: There were approximately 14.463 million households (12.8% of all 113 million households) with a net worth over $500,000 in 2004 with a mean (average) net worth at the time of $1,410,872 and a collective cumulative wealth of $20.405 trillion. [5]
  • Figure: Bloomberg reported that America had 8.2 million millionaire households and its figures from the Federal Reserve imply that they have a collective cumulative net worth of $31.808 trillion. [6]
  • Figure: The average age of an American millionaire is 57-62. Only 10% are under 40 and 1% younger than 35. [7][8]
  • Figure: The baby boomers, approximately 76 million Americans born between 1946 and 1964, are now 47-65 years old. [9]

    • Thought: The baby boomer generation could pay off the entire national debt (federal public debt), most of which was accumulated after the last boomer turned 18 and became a voting citizen in 1982, if they chose to.

  • Figure: Medicare and Social Security together consumed almost a full third of the Federal FY2010 budget (fiscal year 2010 which ended on September 30, 2010). [10]
  • Figure: There are currently (2011/12) about 47 million Medicare beneficiaries and 38 million old-age insurance Social Security beneficiaries. [11][12]

    • Thought: At the current rates of spending per beneficiary, including the rate at which the spending is increasing, Medicare and Social Security outlays will almost double over the next 18 years. Who is supposed to pay for all of that? Someone has to, even if they “pay” by not receiving money in the first place.

Conclusions:

America does not have enough modern aristocracy (the “1%”) to lynch and rob, French Revolution style, to fix our financial situation. They couldn’t even fix the situation on their own if they wanted to. This is not a problem that should even be viewed as a class problem, even as it has the trappings of one.
* This is an age problem. *
Yes, like the rest of the developed world, we in the United States of America have an *age distribution problem*. Social Security and Medicare represent a massive transfer of wealth by age, from young to old. The only way that can work is if there are sufficiently many young people per old person or if the transfer is sufficiently small per old person. In some ways, such a transfer seems fair. Societies’ young have taken care of the old for eons, and modern healthcare is both very expensive and, in many cases, necessary for continued life. In other ways, such a transfer seems grossly unfair. Our elders are no longer supporting children (which is also very expensive) and have had a lifetime to earn and save for their retirement. In any case, our living ancestors are getting more elderly, living longer, and wish to continue acting youthfully. I can’t blame them. I love having them around and hope to live a long and healthy life myself. I’m almost 30 and still have a great grandmother alive for goodness sakes; how cool is that!? However, at present values, the situation is unsustainable. Math doesn’t care for feelings or wishes, and if we don’t make a plan for how to deal with this then it will be made haphazardly for us.

In order to afford our aging population, we have to bring our collective spending within our collective means. With only 18 years until the last of the boomers turns 65, it is too late for the solution to be “have more children”. That leaves only 4 ways to resolve this situation:

  • Spend and have less publically (i.e. cut wealth transfers like Medicare and Social Security)
  • Spend and have less privately (i.e. raise taxes thereby reducing private consumption, or charge higher Medicare premiums; e.g. you don’t get to have a 42″ plasma-screen TV because that $500 was taxed from your income to fund Medicare to pay for your dad’s dialysis treatment this month)
  • Earn more (which sounds all well and good, but someone has to pay us for our labor and resources for that to happen at a national level)
  • Redefine “we” through comprehensive immigration reform (yeah, about that…)

References:

[1]: “CPS 2011 Annual Social and Economic (ASEC) Supplement : 2010 Person Income Tables” (male and female) by the Current Population Survey (CPS) joint effort between the U.S. Bureau of Labor Statistics and the U.S. Census Bureau, 2011/03/–
http://www.census.gov/hhes/www/cpstables/032011/perinc/new11_000.htm

[2]: “U.S. deficit at $1.3 trillion in fiscal 2011″ by Reuters (Reporting by Richard Cowan and Donna Smith; editing by Philip Barbara), 2011/10/07
http://www.reuters.com/article/2011/10/07/us-usa-debt-cbo-idUSTRE7965IA20111007

[3]: “The World’s Billionaires” by Forbes, 2011/03/09
http://www.forbes.com/wealth/billionaires/list?country=225

[4]: “ U.S. Debt Tops $15 Trillion Mark Today” by ABC News (with contribution by The Associated Press; report by Bill McGuire), 2011/11/16
http://abcnews.go.com/blogs/business/2011/11/u-s-debt-will-top-15-trillion-mark-today/

[5]: “ Wealth and Asset Ownership: Detailed Tables: 2004″ by the U.S. Census Bureau, Housing and Household Economic Statistics Division, last revised 2011/10/31
http://www.census.gov/hhes/www/wealth/2004_tables.html

[6]: “ U.S. Millionaires’ Ranks Increase 8%, Remain Below ’07 High of 9.2 Million” by Elizabeth Ody of Bloomberg, 2011/03/16
http://www.bloomberg.com/news/2011-03-16/u-s-millionaires-ranks-increase-8-remain-below-07-high-of-9-2-million.html

[7]: “Demographic Profile – An Average American Millionaire” by Dan Lacy, 2008/06/16
http://danlacy.wordpress.com/2008/06/16/demographic-profile-an-average-american-millionaire/

[8]: “American Millionaires and their Regional Differences” by SpectrumAdvisor, 2007-2008 (undated article so using site copyright
http://www.spectremadvisor.com/HNW-Advisor-Articles/American-Millionaires-and-their-Regional-Differences.html

[9]: “Baby boomer” on Wikipedia
http://en.wikipedia.org/wiki/Baby_boomer

[10]: “2010 Financial Report of the United States Government” by the U.S. Government Accountability Office, 2010/12/21
http://www.gao.gov/financial/fy2010financialreport.html
http://www.gao.gov/financial/fy2010/10frusg.pdf

[11]: “Research, Statistics, & Policy Analysis: Monthly Statistical Snapshot, October 2011″ by the U.S. Social Security Administration, 2011/11/–
http://www.ssa.gov/policy/docs/statcomps/ssi_monthly/2011-10/index.html

[12]: “Total Number of Medicare Beneficiaries, 2011″ on StateHealthFacts.org by the Henry J. Kaiser Family Foundation, 2011/11/–
http://www.statehealthfacts.org/comparemaptable.jsp?yr=200&typ=1&ind=290&cat=6&sub=74

Additional Reading:

“Who Rules America: Power In America: Wealth, Income, and Power” by Professor G. William Domhoff, Sociology Dept., University of California at Santa Cruz, 2005/11 – 2011/11 [first post to recent update]
http://www2.ucsc.edu/whorulesamerica/power/wealth.html

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