Economic Scene: The Payoff in Retiring a Few Years Later

“It’s a disaster, but a slow rolling one,” said Jared Bernstein, former chief economic adviser to Vice President Joseph R. Biden Jr.

N. Gregory Mankiw, the former chief economic adviser to President George W. Bush, wouldn’t disagree. “Other than being precisely the opposite of the kind of fiscal changes we need, what’s not to like?” he told me, with more than a touch of irony.

Yet despite the broad criticism, what the impasse between Democrats and Republicans just did to the federal budget is not at all atypical. It follows to the letter the most ironclad rule of American politics, which has held sway for the last three decades: spare the old.

The impasse was portrayed as a doomsday machine that went off unexpectedly — the consequence of an intractable divide in Washington over taxes and spending. It led to the so-called sequester, the product of a longstanding bipartisan reluctance to tinker with the social safety net erected to maintain the living standards of the elderly. Why? Because the old vote at much higher rates than the young.

It’s true that Republicans have offered plans to limit spending on Medicare and Social Security by turning them into voucher-type programs, letting seniors buy their own health insurance with a set amount of money and manage their own pensions. But they never dared pay the political cost of turning these ideas into law even when they controlled Congress and the White House.

Democrats, meanwhile, have been reluctant to put up an all-out fight for the large tax increases needed to pay for the expanding entitlement programs demanded by an aging population, without any cuts. Usually champions of progressivity, they have nonetheless resisted proposals to direct benefits for the elderly more specifically to low and middle income Americans.

This fixation on defending entrenched positions is getting us nowhere. The problem — a growing cohort of retirees, born during the baby boom, now claiming Social Security and Medicare — is only getting bigger.

But what if there were a way for the government to ease the strain that the aging place on the budget while actually increasing their income in retirement, at little or no cost to their benefits? A well-designed reform would even improve the nation’s rate of economic growth. The way to do it is simply to encourage older workers to spend a larger share of their increasing life spans in the work force.

Reform along this line might even garner bipartisan support. But it requires Democrats and Republicans to overcome their fear of disturbing the old.

Spending on Medicare, Social Security’s old age pensions and retirement programs for civilians and military on the federal payroll will hit almost 9 percent of the nation’s total economic output by 2023, according to baseline projections by the Congressional Budget Office. It will consume about 38 percent of the federal government’s entire budget, up from 25 percent four decades ago, according to the Office of Management and Budget.

Meanwhile, the C.B.O. expects the discretionary part of the budget — which includes every program requiring annual appropriations, from the budgets of the Pentagon and the National Academy of Sciences to worker training programs and early childhood education — will shrink to its smallest share of the economy since the Eisenhower administration. Forty years ago discretionary programs, including much of the spending aimed at improving the economy for future generations, consumed more than half of the budget. In 10 years they will consume less than a quarter.

Senior citizens, to be sure, merit protection. Social insurance to keep retirees from dropping out of work and into poverty is as necessary today as when President Franklin Roosevelt signed the Social Security Act in 1935. But an income support system meant for a society where people retired in their late 60s and died in their late 70s is under strain as Americans take to retiring earlier and living well into their 80s and beyond.

Article source: http://www.nytimes.com/2013/03/06/business/the-payoff-in-retiring-a-few-years-later.html?partner=rss&emc=rss