The Congressional Budget Office just released a major new investigation into household income trends over the last three decades. Researchers found that while the total amount of benefits paid out by government social safety-net programs rose between 1979 and 2007, the share going to the poor actually shrank.
In other words, relatively affluent members of American society now consume a bigger share of government benefits. As the CBO put it, government transfer payments are . . . moving away from households in the lower part of the income scale.
Why? The CBO continued: That shift reflects the growth in spending for programs focused on the elderly population (such as Social Security and Medicare), in which benefits are not limited to low-income households.
This study should serve as inspiration for policymakers to junk the current political calculations plaguing entitlement reform. Instead, they should ensure that the social safety net is preserved for those who genuinely need it and that Americans with the means to pay for their own care are left to do so.
In its review, the CBO found that households in the bottom 20 percent of the income distribution in 1979 received just over half of all government transfer payments. By 2007, that share had dropped to 35 percent.
Its not hard to figure out why. Consider the case of Medicare. Today, 10 percent of program beneficiaries have annual incomes above $60,000. And fully 6 percent have incomes exceeding $80,000.
Of course, Medicare also serves a huge population that doesnt have the means to pay for its own care. About 48 percent of enrollees are below 200 percent of the federal poverty line.
But that still leaves a substantial chunk of benefits flowing to people that could probably pay for some of them themselves. By tightening program enrollment standards, raising the eligibility age, adopting premium support, and introducing some level of means testing, policymakers could put our nations entitlement programs on sounder financial footing and better focus their efforts on caring for the truly needy.
The imperative for such reform is all the more acute because of our entitlement programs shaky finances particularly those of Medicare. As is, the program is headed toward bankruptcy. Its projected to run out of money and fall into the red by 2024. And the Medicare Trustees estimate the programs long-term financial liabilities at a stunning $36 trillion.
With the economy contracting and public debts ballooning, policymakers need to find savings wherever they can. Making Medicare more efficient and targeted would substantially cut down on government costs without compromising patient health.
Indeed, its worth asking whether subsidizing the health care and income of relatively wealthy seniors is really the wisest use of limited taxpayer resources. In 2009, the average household headed by an adult older than 65 had 47 times as much net worth as the typical household headed by someone younger than 35. By contrast, in 1984, the wealth gap between seniors and the young was just ten to one.
In other words, Americas present entitlement structure forces the young and relatively poor to subsidize the lifestyles of the old and relatively wealthy through their Social Security and Medicare taxes. Both conservatives looking to pare back entitlement spending and liberals hoping to make the tax system more progressive should be willing to sign onto reforms that flip this equation.
Theres sure to be vigorous debate over how to means test entitlement benefits. But all can agree that it becomes absurd to hand out scarce taxpayer dollars once an individual has reached a certain income level.
Pairing such means testing with a simple voucher system for all seniors enrolled in Medicare could also help bring down federal spending and stoke competition. Such a system would ensure that federal resources were there for vulnerable patients and would allow them to choose for themselves how to receive that care.
The new CBO report shows that government transfer programs have evolved past simply providing for the needy. Many affluent people now benefit from them. If were serious about tackling the mounting costs of our entitlement programs and preserving them for those who truly need them we must fundamentally change their structure through means testing.