New Report Finds Entitlements Now Leave Retirees Better Off than Working Americans

Redistribution from workers to seniors exceeds all other federal domestic spending put together

NEW YORK, NY — Former President Donald Trump recently proposed eliminating taxes on Social Security benefits, which are currently borne by the wealthiest seniors. By contrast, his running mate J.D. Vance has developed a brand emphasizing the need to reduce the tax burden on young working families. But the two goals are in tension with each other. In this intra-ticket debate, who is right? In a new Manhattan Institute report, senior fellow Chris Pope finds working age Americans are in more need of a tax break.  

Entitlement programs are supposed to redistribute funds from times of plenty to times of need, as well as from rich to poor. For this reason, America’s publicly financed benefits are largely reserved for seniors, while taxes are heavily concentrated on working age households. Yet American retirees are now typically less needy than their younger counterparts. It is working age Americans who have less living space, are more likely to go without meals or healthcare, and are less able to pay utility bills. Despite this discrepancy in need, Pope finds federal entitlements are redistributed much more to middle class retirees than to the poor. In 2021, the lowest income quintile of Americans aged 35 to 44 received an average $5,372 in benefits but paid $3,106 in taxes. By contrast, the poorest seniors aged 75 to 84 received $16,496 in benefits after taxes, the middle quintile of that age group $31,973, and the richest $12,430.  

Spending on federal entitlements for seniors greatly exceeds retirees’ prior payroll tax contributions and is projected to increase over time. Over the next thirty years, spending on Social Security and Medicare will rise from 8.4% to 11.3% of GDP. If America’s increasingly costly entitlements for middle-class retirees are not soon reformed, major additional tax increases on workers at all levels of income will be required—further exacerbating redistribution away from age groups who are worse off. To redress the impact of federal entitlement expenditures so that they do not redistribute excessively from the young to the old, Pope proposes several reforms which include: 

• Workers contributing to Social Security should be allowed to opt for a uniform basic income in retirement, in return for a lower payroll tax for the remainder of their careers;
• Further expansions of Medicare’s standard benefit package to new medical services should be paid for by beneficiaries;
• Medicaid’s long-term care benefit should be subject to tighter asset tests, so that affluent households cover their own expenses by purchasing private long-term care insurance. 

Click here to view the full report.