“Ponzi Scheme” Keeps Nearly 14 Million Seniors Out Of Poverty

September 27, 2011

I’ve remarked before that the measure the Census Bureau uses for its annual poverty reports was crude from the get-go. Three times the cost of what was then the U.S. Department of Agriculture’s lowest-cost food plan.

The measure has become increasingly inappropriate over time, as food costs have come to represent a smaller portion of basic living costs and living standards have risen.

Shawn Fremstad at the Center on Economic and Policy Research tells us that, in the early 1960s, the poverty line was nearly half the median average income. It’s now slightly under one-third.

Other research, he says, suggests that twice the applicable poverty threshold would be a better indicator. That would put 33.9% of Americans, rather than 15.1%, into the poverty category.

Well, the Census Bureau will be issuing poverty figures based on an alternative measure it’s developing. In the interim, it gives us a bit of a preview, with three “alternative resource measures” pulled from its 2010 Income, Poverty and Health Insurance Coverage report.

One shows how poverty figures would rise if the current measure didn’t include Social Security benefits. Hence the headline.

In 2010, these benefits kept a total of 20.3 million Americans from falling below the poverty threshold. The largest number — 13.8 million — were 65 and older.

In other words, without Social Security benefits, five times as many seniors would have been officially poor — and therefore very poor indeed.

Specifically, a senior living alone would have had to get along on no more than $10,458 for the year, a couple on no more than $13,194.

To put this in perspective, an elderly couple in the Washington, D.C. area would have had only $678 left after paying the rent for a modest efficiency unit.

The other alternative measures show similar, if somewhat less dramatic impacts. For example, 3.2 million people had enough income to lift them above the poverty threshold because at least one household member received unemployment insurance benefits.

The current poverty measure includes Social Security and UI benefits because they’re cash income. Food stamp benefits aren’t.

But, as the Center on Budget and Policy Priorities reports, 3.9 million fewer people would have been counted as poor if they were part of the Census measure.

These figures ought to send a message to policymakers who want to bring the long-term deficit down by drastic cuts in Social Security, as well as key safety net programs.

Also, I think, provide useful perspectives on what they’re hearing from some conservative economists and columnists.

Professor Edward Glaser, for example, argues that the temporary payroll tax cuts in the President’s jobs plan should be paid for by increasing the eligibility age for Social Security retirement benefits because that “was always going to be part of any sensible entitlement reform.”

So much for those with other ideas.

Washington Post columnist Charles Krauthammer puts a new spin on his long-standing insistence that Social Security (and Medicare) benefits have to be cut because too many of us older folks are living too long — and didn’t have enough kids when we were younger.

Social Security is a Ponzi scheme, he says, implicitly endorsing the view of that well-known economist Governor Rick Perry.

This, I take it, is because Social Security operates like other insurance programs, with premiums some people pay, plus returns on investments, funding payouts on claims by others.

Still, Krauthammer allows that Social Security is “vital” and “humane.” Just needs to be adapted to “new demographics.”

Most important fix is to raise the retirement age — “an absurd anachronism” he calls it, using life expectancy figures that the Social Security Administration itself has shown to be misleading.

This isn’t to say that the Social Security Trust Fund won’t eventually lack funds to pay full benefits if we do nothing to change the system. Only that a further increase in the retirement age is hardly the only way to fix it, let alone the best.

What the new Census figures tell us is that a further hike in the retirement age will almost certainly increase the over-65 poverty rate.

What, pray tell, are older workers supposed to do if they lose their jobs or find the tasks too physically demanding?

Just hang in there in until they’re 70? Take a big cut in benefits at a bumped-up early retirement age — a likely companion to an increase in the full retirement age?

Why not instead address the future shortfall by lifting the cap on the payroll tax? Or at least, as Senator Barney Frank (I-VT) proposes, requiring the highest-earning workers to pay more?