Wednesday, August 25, 2010

Is War Between Generations Inevitable? What About a War Between The Sexes?

From the 2001 study "Is War Between Generations Inevitable?" by economists Jagadeesh Gokhal of the Cleveland Fed and Laurence J. Kotlikoff of Boston University:

"Seniors today will receive far more benefits from government transfer programs (programs that redistribute resources among groups) than their share of the national tax burden. On average:

1. A male reaching 65 years of age today can expect to receive $71,000 more in government transfer benefits (of all kinds at both the federal and state levels, but mainly from Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies.

2. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes.

A far different picture confronts people entering the labor market today. In general, they will pay far more in taxes than they will receive from transfer programs, and any expansion of elderly entitlements will make things worse. For example:

3. A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime.

4. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits."

HT: Walter Williams

MP: We've got quite a gender gap here!  On average, 65-year old men today will receive only 43.6% of the net benefits that women receive, and young men today can expect a net tax burden over their lifetimes that will be 3.4 times greater than for women. 

10 Comments:

At 8/25/2010 9:21 AM, Blogger Jet Beagle said...

In general, I admire the research done by Laurence Kotlikoff. But I do not appreciate the generational accounting included in this piece.

If Kotlikoff wanted to give a true picture of the burden of government, he should group not just by generations but by lifetime incomes as well. I'm fairly confident that higher income taxpayers - taxpayers who have incomes in the top ten percent for most of their working years - will pay much more in taxes than they receive in benefits. That's true for not just tomorrows high income earners but also for those who will soon be retiring.

What's even more insidious is that the less productive majority, ignoring promises made to all taxpayers for generations. will vote to means-test pension and health benefits for retirees. So those high productive workers who also saved and invested earnings - the investments which fueled the nation's high standard of living - will get screwed twice: during working years through much higher taxes; and then again during retirement through reduced benefits.

 
At 8/25/2010 9:32 AM, Blogger juandos said...

Good comment Jet!

"...will get screwed twice: during working years through much higher taxes; and then again during retirement through reduced benefits"...

The hosing will only get worse if SS payments to various individuals are subject to 'means testing'...

 
At 8/25/2010 11:56 AM, Blogger Benjamin said...

Men get hosed.
Learn to wear raincoats.
If you are an average guy, you will get hosed your whole life.

 
At 8/25/2010 12:40 PM, Blogger Evil Red Scandi said...

Ooooooh... I get to say something deeply unpopular!

Future generations, in my opinion, have no moral obligation to perpetuate the Social Security Ponzi Scheme - and that includes paying out benefits to people who "paid into it."

If the money had gone into an actual trust fund that would be one thing, but it didn't - it went into a "wink, wink, nudge, nudge" pretend trust fund while the actual money was actually spent. This is one of the great dangers of collectivism - no sane individual would participate in such a scam. Considering the behavior of government over time, it would be like investing your life's savings in your alcoholic brother-in-law's drinking binges. It's a scam, it was well-reported as being a scam, the politicians running it certainly know it's a scam, but enough people decided to cover their ears, close their eyes, shut up and go along with it to allow it to perpetuate.

The question becomes: are future generations (that is to say, us) beholden to this scam? Are we morally obliged to pay real returns on their pretend investments? I would say "no."

If people were to raise a great hue and cry at this (and they certainly would), we could simply issue their payments in Monopoly Money (the game kind, not a trite reference to fiat currency) and reassure them that these payments are every bit as real as the investments they made.

 
At 8/25/2010 1:29 PM, Blogger morganovich said...

scandi-

i'd change your formulation a bit. it's not that no "sane" person would participate, it's that no "uncoerced" person would. as i value not being in jail, i pay.

SS is a train wreck. notions that taxes will not need to rise until the "trust fund" is depleted in 2037 are utterly false. they need to rise the minute receipts fall below payouts.

consider:

there is no actual trust fund. that money has all been borrowed and spent by other government agencies. it need to be paid back as soon as receipts fall below payments.

so, sure the SS tax doesn't need to go up, but other taxes do unless the agencies that borrowed the money are going to spend less as they begin to pay back borrowings (fat chance). where else are they going to get the money? perhaps they can transmute the $4tn they owe into federal debt, but that too requires servicing and payback.

also:

i have a question about the gender gap in payments. that looks much too high to just be life expectancy. what's driving the rest of it? has it been adjusted for workforce participation? it seems unlikely to me that the whole gap can be explained just on wages and length of life.

 
At 8/25/2010 1:38 PM, Blogger Evil Red Scandi said...

@morganovich - I had thought that the notion of coercion was implicit in the comparison of collectivized versus individual behavior; however I can now see how this could be misconstrued. I appreciate your suggestion. I just turned this comment into a post on my blog, and incorporated your suggested clarification. Thank you.

 
At 8/25/2010 2:49 PM, Blogger Irrippi said...

A large part of the disparity between the net benefits of men and women is that women live longer. Lifestyle choices are a large part of that difference.

So I'm less concerned about the gender disparity than I am about the redistribution from young to old and from relatively rich to poor.

Increasing the retirement age, raising the taxable cap, or means testing will just increase the redistribution just to save a broken system.

Evil Red Scandi: While I agree with you about the "wink wink" trust fund, what sort of actual trust fund would have worked? Government bonds is just substituting one promise to pay with another. Investing the surplus in private equity and bond markets is riskier.

If we are going to invest social security contributions in private markets, then why not just privatize the whole deal? The answer, of course, is that government can't redistribute income that way.

I'm all for screwing over the elderly. They voted themselves all these unsustainable benefits. They weren't the slightest bit concerned about our welfare, so I have no concern for theirs. I would privatize retirement savings, eliminate defined-benefits pensions, and cut benefits for the current elderly.

 
At 8/25/2010 5:21 PM, Blogger Jet Beagle said...

"Future generations, in my opinion, have no moral obligation to perpetuate the Social Security Ponzi Scheme - and that includes paying out benefits to people who "paid into it."

That may be true. But future generations will never have the voting power required to end Social Security.

Once a voter reaches age 48 or so, he will likely be dependent on future Social Security benefits for retirement. At that point, what he has paid in is gone. The benefits he can expect to receive after age 65 are likely to be greater than the SS taxes he will pay between 48 and normal retirement age (66 or 67). So the voting block for continuation of Social Security should include everyone between the ages of 48 and 100.

Anyone younger than 48 who expects to earn significantly less than median lifetime income should also favor continuation of SS. After all, the low income voters - present and future - will always come out ahead. So we should add the younger but lower income voters to the SS continuation voting block.

So who is left? Middle and upper income voters who are between the ages of 18 and 47. IMO, this group will never be large enough to outvote the SS voting block.

 
At 8/25/2010 5:31 PM, Blogger Jet Beagle said...

"SS is a train wreck. notions that taxes will not need to rise until the "trust fund" is depleted in 2037 are utterly false. they need to rise the minute receipts fall below payouts."

I'm not so sure SS is a train wreck. If benefits paid are reduced to the level of receipts, there is no need to raise taxes.

The last time I read the SS trustees report, they claimed that receipts would decline from 100% of payouts to 73% of payuts over the next 15 or so years. After then, they expected funding to remain stable at about 73% of payouts.

Through means-testing and increases in the normal retirement age, Congress could gradually reduce payouts to that 73% level over the next 15 years. Granted, that requires a large number of SS beneficiaries to be means-tested. But politicians are already moving voters to accept this solution.

Medicare, of course, is a train wreck. No level of means-testing can solve its shortfall.

 
At 8/25/2010 9:29 PM, Blogger VangelV said...

I would not worry much. SS is bankrupt and so is the government. The way that I see it, a real default is inevitable and future generations should not worry about bailing out current ones because the present lenders will act sooner rather than later. Once the government goes bust so will the idiotic sex based discrimination laws.

 

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