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Aid to Elderly Comes at Others' Expense

Column by Mark A. Smith


Welcome to campaign season.

Television viewers are currently being treated to advertising blitzes by both the major candidates for president and other political organizations.

Better known as special interest groups, these organizations utilize tactics based on emotional appeal rather than detailed explanations. A typical commercial depicts a couple struggling to finance home nursing care for a loved one, which Medicare does not cover. The advertisement presents a quick and powerful pitch for long-term health care for the elderly. In what seems to be a public-spirited encouragement of democracy, the end of the commercial urges people to vote. The fine print at the bottom of the screen reveals the name of the sponsor, the American Association of Retired Persons (AARP).

Just who is the AARP? The organization is arguably the most powerful political lobby in the country. Although the AARP is not as well known as other special interest groups like the National Rifle Association and the AFL-CIO, its influence has helped make Social Security, Medicare, and other government programs for the elderly sacred political cows.

Unknown to most of the public, our nation has been directing an increasing amount of its scarce resources towards senior citizens. Between 1978 and 1987, federal government expenditures for the elderly increased by 52 percent. Spending on children, by contrast, declined by 4 percent. In 1965, Social Security, Medicare, and related programs consumed 16 percent of the federal budget. By 1990 this figure had risen to 29 percent. Stated another way, spending for the elderly makes up 29 percent of the roughly $300 billion federal deficit, which will ultimately be paid through higher taxes on future generations.

Social Security represents the lion's share of federal benefits for the elderly. The program began in the 1930s as an income supplement for senior citizens, financed through payroll taxes on workers and employers totaling 6 percent of applicable wages. Continual increases in benefits (which grew 75 percent faster than average wages since 1965) have been paid through higher payroll taxes, which now total 16.3 percent. Expansions in Medicare have also been supported by higher taxes on the working population.

Of course, many senior citizens depend on federal assistance for their mere survival. One of the unsung public policy achievements of the last few decades has been a vast reduction in the number of elderly people living in poverty. We must continue to provide adequate assistance to senior citizens in need.

Our system does have one fundamental flaw, however. Much of the benefits of federal programs go to wealthy seniors who do not need income supplements. In many cases, we are transferring resources to senior citizens who possess several times the net worth of the average wage earner. Many elderly people own their own houses and command a substantial reservoir of assets. Their high standard of living is subsidized by payroll taxes on younger people of more modest means.

In 1989, for example, the richest 0.4 percent of all taxpayers collected $4.9 billion from Social Security alone. Sen. Alan Cranston (D-Calif.), whose annual income exceeded $300,000, absorbed over $19,000 in Social Security benefits. This is simply ludicrous. We are providing billions of dollars to elderly people who would remain affluent without any government transfers. The government is effectively subsidizing second homes in Florida for thousands of senior citizens. The potential savings from severe reductions in Social Security, Medicare, and other programs for the wealthy elderly would be enormous.

Some people might mistakenly oppose these cuts on the grounds that wealthy elderly are simple recovering the contributions they made during their working years. Social security is commonly misperceived among the public as an annuity plan (i.e. retirees receive their own contributions while they were employed plus interest). In reality, current social security recipients typically receive several times this amount, due to continual expansion of benefits over the last few decades.

The same pattern holds for Medicare and related programs. Senior citizens pay token fees and premiums for Medicare,which amount to less than one-tenth the cost to provide covered health care. Taxpayers pick up the rest of the tab. We could cut federal benefits for the wealthy elderly by two-thirds and they would still be receiving more than they contributed to the programs over their lifetimes.

What are the chances of slashing federal benefits for wealthy senior citizens? Recent efforts to provide catastrophic health insurance for the elderly suggests the answer. In the late 1980s, Congress recognized the need to protect the elderly from extremely expensive chronic illnesses that could quickly wipe out a person's assets. The Catastrophic Coverage Act, passed by Congress in 1988, provided a slew of new benefits for the nation's seniors, such as long-term hospital and physician care. The program was funded through a surtax on higher-income elderly. Only the wealthiest 40 percent of seniors were taxed at all, and most of them paid only a modest amount relative to the benefits they were receiving. The act received broad bipartisan support and represented one of the few achievements of the second Reagan administration.

Only a year later, however, Congress repealed the Catastrophic Coverage Act. Wealthy seniors rebelled over the taxes used to fund the program. Partly due to misinformation and a massive campaign against the act, even those who would not have been taxed opposed the concept of the elderly having to "pay" for their insurance coverage.

Political pressures dictate that Congress can easily increase entitlements like Social Security and Medicare, but cutting them is very difficult. Recipients come to believe that they have some moral right to their benefits, i.e. they are "entitled" to receive them. Any proposal to reduce these programs - even for the wealthiest senior citizens - will be vetoed by the American Association for Retired Persons and the voters the organization controls.

The AARP boasts a membership of about 30 million, or one of every eight voters. The group is publicly committed to protecting and expanding federal benefits for all seniors, regardless of income. During past attempts by legislators to curtail subsidies for the wealthiest elderly, the organization has scared all seniors into thinking that their benefits were jeopardized.

Many politicians privately recognize the need for reform, but publicly they cannot afford to alienate one of the nation's largest voting blocks. AARP's get-out-the-vote tactics, manifested in their latest commercial, have been very effective in stimulating senior citizens to participate in the political process. The result, of course, is that politicians are forced to cater to the elderly at the expense of everyone else.