New Cato Study: Expensive Entitlements Should Be Phased Out

October 3, 2003

The Medicare prescription drug benefit currently being debated in Congress would be yet another blow to young taxpayers as the federal government continues to make young America pay for graying America, according to a new Cato Institute study.

Cato director of fiscal policy studies Chris Edwards and researcher Tad DeHaven argue that Congress should cut spending rather than expand entitlements for the elderly. In "War between the Generations: Federal Spending on the Elderly Set to Explode," they explain that with the huge numbers of Americans nearing retirement age, Medicare and Social Security are already insolvent, and adding pricey new benefits to the program will prove costly and unfair to young workers.

According to the study, in the 1960s, the total consumption of an average 70-year- old was about one-third less than that of an average 30-year-old. But by the late 1980s, an average 70-year-old consumed about one-fifth more than an average 30-year-old. The problem is that most of that elderly consumption is being fueled by transfers from the young. By 2040, Social Security, Medicare, and Medicaid will account for nearly 80 percent of the federal budget.

And since today's elderly are much better off financially and physically, such large entitlements aren't even necessary. Moreover, the elderly are generally more financially stable than today's younger workers. But as the young are burdened with the retirement of the old, they are forced to forego their own financial planning, creating a vicious cycle.

To fulfill the great expectations held by those retiring today, "the elderly should work more, entitlement programs should be turned into savings-based systems, and the taxation of savings should be reduced to allow families to build bigger retirement nest eggs," say Edwards and DeHaven.

"It is clear that adding an unfunded prescription drug benefit to Medicare moves directly against reform because it puts the program's spending on an even more unsustainable path," they write. "Unfortunately, tomorrow's young taxpayers are not here to defend themselves against the huge burdens that are being foisted on them by Congress."

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