Monday, April 24, 2017

Growing life span inequality has given the rich an extra $130,000 in government benefits

Matthew Yglesias · Friday, April 21, 2017, 8:42 am

A powerhouse new study’s surprising revelations about inequality.

The federal government spends a large amount of money to support the living standards of elderly people — primarily through Social Security and Medicare but with significant helping hands from Medicaid and disability insurance. That amount is growing as a share of the economy because productivity growth is slowing, and because birthrates continue to fall (in line with a long-term trend), but mostly because Americans are living longer.

To many people in Washington, that rising life expectancy is itself a full rationale for cuts to the program. "If you can't raise the retirement age to 68 by the year 2050 without the AARP losing their marbles," former Sen. Alan Simpson, co-chair of the Simpson-Bowles commission, once said, then the country just "won't make it."

The truth, however, is that the extension of life expectancy in recent decades has been a profoundly class-driven matter — with richer Americans experiencing the vast majority of the gains. This has profound implications for how America’s major retirement security programs work, and for which groups would be hurt if those programs are changed. Raising the age at which you can claim Medicare benefits by a year or two, for example, lops off a far larger share of the expected retirement period of a poor person than a rich one.

Working out the full implications of any proposed change is extraordinarily difficult. That’s why it took a superstar team of 13 academics — economists, public health experts, and demographers — to produce this new magisterial study of how life expectancy inequality intersects with possible program changes. And the upshot of their analysis is clear even if the authors don’t directly draw it themselves. To counteract the downward spiral of inequality, we need to raise taxes on affluent families.

Raising eligibility ages makes a regressive situation worse

The researchers start with a basic demographic forecast. According to their work, a man who turned 80 in 2010 would, on average, have a longer life expectancy than was enjoyed by a man who turned 80 in 1980. The average, though, is misleading. For men in the top 40 percent of the income distribution, that amounts to seven or eight extra years of life. But for men in the bottom 40 percent, it amounts to basically nothing.

That growing inequality in life expectancy between people born around 1930 and people born around 1960 has changed the distributive implications of America’s retirement programs.

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