In an interview with George Mannes of Money Magazine, Isabel Sawhill discusses the big three of entitlement programs – Medicare, Social Security and Medicaid – and their potential to wreak havoc on the country’s finances (and yours) unless we scale them back.
Question: You talk about fixing the unwritten agreement between younger and older generations – the “intergenerational contract.” What’s broken?
Answer: The existing contract assumes that the working-age population is going to be able to support the older population – the retired population – out into the future and should do so. And that’s not a sustainable assumption.
Q. Why not?
A. Forty-two percent of federal spending now goes to three programs, with the major share to the elderly.
Two or three decades from now, those three programs will be as large as the federal government is today.
Let’s say someone is now paying 25% of their income in taxes. To maintain the commitments we’ve made to the elderly, they would have to pay 50%.
Q. What’s the solution?
A. We need those who can afford it to contribute more to their own retirement costs.
Take Social Security: Right now the benefit formula provides a pretty good retirement income to those who make more than $100,000 a year.
I don’t think that the working-age population should continue to fund benefits for seniors who are so well off.