Our Negative Bequest to Our Children

Economics Comments Off
May 122011

As calculatated by John Cogan:

Starting next year, this typical [66-year-old] couple, receiving the average benefit, will begin collecting a combination of cash and health-care entitlement benefits that will total $1 million over their remaining expected lifetime.

According to my calculations based on government data, such married couples will begin receiving monthly Social Security checks that will, on average, total about $550,000 after inflation. They will receive health-care services paid for by Medicare that, on average, will total another $450,000 after inflation. The benefactors will be a generation of younger workers who are trying to support themselves and their families while paying taxes to finance the rest of government spending….

Many of the million-dollar couples believe they rightfully deserve the benefits they have been promised. They have, after all, spent all of their working years paying into Social Security and Medicare. And true enough, the typical 66-year old couple and their employers, on their behalf, have contributed nearly $500,000 in payroll taxes (in today’s dollars) toward these benefits during their working careers.

But regardless of how much they have contributed, the hard reality is that the federal government has already spent it. No matter how deserving they are, it is younger generations of workers who have to come up with the money.

Posted by Laura at 4:49 am Tagged with: ,

Government Spending by Another Name

Economics Comments Off
Jul 202010

Wise words from Marty Feldstein:

When it comes to spending cuts, Congress is looking in the wrong place. Most federal nondefense spending, other than Social Security and Medicare, is now done through special tax rules rather than by direct cash outlays. The rules are used to subsidize a wide range of spending including education, child care, health insurance, and a myriad of other congressional favorites.

These tax rules—because they result in the loss of revenue that would otherwise be collected by the government—are equivalent to direct government expenditures. That’s why tax and budget experts refer to them as “tax expenditures.” This year tax expenditures will raise the federal deficit by about $1 trillion, according to estimates by the congressional Joint Committee on Taxation. If Congress is serious about cutting government spending, it has to go after many of them….

If tax expenditures are not cut, taxes on households and businesses will have to rise to prevent an explosion of the national debt, which is now projected to increase to 90% of GDP by 2020 from today’s 63%. When benefits for Social Security and Medicare are set aside, the rest of the outlay side of the budget is too small—7.5% of GDP—to provide much scope for reducing annual budget deficits that are now projected to average 5% of GDP for the rest of this decade. In contrast, total tax expenditures are now 6.4% of GDP.

Posted by Laura at 6:39 pm Tagged with: ,

A Bit More on the Soda Tax

Economics Comments Off
Jun 072010

David Leonhardt comments on my soda tax article, and he pushes the case for the tax on the grounds of budgetary externalities.

I have not seen the article in Health Affairs that he cites, but I wonder if it nets out the appropriate budgetary savings from shorter lifespans.  When writing my article, I contacted several prominent health economists to ask whether a complete accounting of both budgetary costs and benefits has been done for obesity, as has been done for smoking.  A typical response was the following:

“I don’t know of anything on obesity. Good topic for an econ or health policy doctoral student!”

Another said,

“My impression is that the net effects are relatively small, all things considered.”

He added,

“Two factors make the obesity case stronger, however. One is that we subsidize agriculture a lot, and one could view the soda tax as an offset to that (of course, it would be better just to get rid of the subsidies, but let’s stick to what is feasible). Second, there are internalities associated with people not being able to do what they would like. As in smoking, these would be huge.”

I agree that the agricultural subsidies should go. (I did not address this issue in my column, but I doubt anyone would be surprised about my views on it.) I did address the second argument. When he says “internalities,” he means the externalities that impinge on one’s future self. As I said in my column, this is, I believe, the key issue at stake in this debate.

Updates: A reader alerts me to this study, which concludes:.

Although effective obesity prevention leads to a decrease in costs of obesity-related diseases, this decrease is offset by cost increases due to diseases unrelated to obesity in life-years gained. Obesity prevention may be an important and cost-effective way of improving public health, but it is not a cure for increasing health expenditures.

Add savings on pension costs such as Social Security into the mix and the argument against obesity-related budgetary externalities seems even stronger.  Tim Worstall reaches a similar conclusion.

Note also that the impact of obesity on the cost of insurance may not be an externality: Some work suggests that the obese bear that cost themselves in the form of lower wages.

Posted by Laura at 11:28 am Tagged with: , ,
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