The U.S. government redistributes far more from young to old than from rich to poor, a practice intended to support senior citizens when they are most vulnerable. But we are now overdoing it and exposing young people to consistently greater hardships.
Congress should redress this imbalance by reducing the payroll tax burden on workers and allowing them to borrow from their future Social Security benefits to meet more pressing economic needs.
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According to federal surveys, working-age Americans are three times more likely than seniors to be unable to pay utility bills, to skip meals, or to miss health appointments due to lower incomes. They are twice as likely to report living in houses with pest problems, and 50 percent more likely to live in neighborhoods that leave them feeling unsafe from crime.
In 2022, working-age households had annual incomes $31,000 higher than those aged over 65, but they held $205,000 less in assets—with more dependents to support. While seniors are admitted to hospitals roughly five times more often, they spend less out of pocket on health care.
The relative welfare of seniors owes much to federal policy. In 2022, Americans aged 65 and older received 66 percent of U.S. entitlement spending but contributed only 11 percent of direct tax revenues. Those aged 18 to 64 received an average of $5,359 in benefits and paid $12,398 in direct taxes, while seniors averaged $29,774 in benefits while paying $5,545 in tax.
This disparity is largely due to Medicare and Social Security, which have grown from 4.8 percent to 8.5 percent of GDP over the past half-century. Medicaid also spends more on seniors than other age groups due to their greater need for long-term care.
Substantial public aid for the elderly is clearly desirable. As people age, they become less able to earn an income and face rising health-care expenses. Over time, they lose spouses, and, often without children nearby able to help, increasingly need expensive residential nursing care. But federal programs are poorly focused on providing for those who cannot set aside funds for themselves.
Social Security redistributes substantially to seniors but in complex and contradictory ways. It pays low earners three times as much every month as high earners for every dollar of payroll taxes they contribute, but the richest quintile gets benefits for nine years longer than the poorest. Social Security also provides supplemental benefits tied to spouses’ career earnings, which further benefits affluent households, who are twice as likely to be married.
If Social Security contributions are judged relative to a 2 percent interest rate, the program redistributes overall slightly from rich to poor; assessed relative to a 4 percent interest rate, on balance it redistributes away from the poor.
Medicare benefits don’t vary according to beneficiary contributions. In 2023, the program’s premiums covered only 15 percent of its cost. As Medicare benefits expand with every improvement in medical capabilities, the program now costs almost four times more (after accounting for inflation) than today’s generation of retirees had previously contributed as workers to pay for their parents’ medical benefits. The program is also increasingly funded by federal income taxes, 46 percent of which were paid by the richest 1 percent of Americans in 2021.
Younger Americans are much more exposed to income shocks. During the 2007–2009 recession, the overall poverty rate surged; but it declined among seniors. Low-income workers usually lack the ability to make up for sudden hardship by drawing from savings or borrowing against home equity. Workers at most risk of job loss (the irregularly employed, self-employed, or gig workers) are often ineligible for unemployment benefits.
Policymakers have generally been reluctant to establish generous aid for low-income non-seniors to avoid discouraging employment and further burdening those who remain at work. Yet, over the course of just a few years, such adults typically pay substantial taxes. From 2008 to 2018, 94 percent of working-age households paid more in federal direct taxes than they received in cash benefits, with the poorest 20 percent making an average net contribution of $2,072 per year.
We should be able to help younger adults by reducing their tax burden. Congress can do this by letting young workers borrow up to $500 per week from their own recent prior payroll tax contributions (and future Social Security benefits) for up to six months. With the risk of dependence mitigated by the obligation of beneficiaries to subsequently pay back whatever money they borrow, assistance of similar value as existing unemployment benefits could be expanded to many more workers for a much wider range of needs—including paid family leave.
Federal policy rightly does much to assist the nation’s seniors. But it should be reformed to recognize that Americans often need more help earlier in their lives.