The message is obvious. Increasingly, white-collar employees will be unable to look to their company for long-term personal economic security, and for those within the ranks of the unskilled the future is truly bleak. Stephen Machin at the Center for Economic Performance at the London School of Economics, believes that western market economies are entering a period that will bring about the ‘end of the unskilled job’ as shifts in employment patterns adversely affect those without qualifications. (Robert Taylor, The Financial Times (5/31/96) p. I)
Taxes, the Elderly and Forms of Remuneration Other than Wages
Just how much influence international competition and technological change have on the average American wage, or the average European wage and levels of unemployment, is a question open to great debate, and what governments can do about these trends is even more contentious. One thing does appear certain, however, governments are increasingly finding themselves constrained in their ability to improve the lot of those people who are loosing under turbo-charged capitalism. Ethan Kapstein wrote in the June Edition of Foreign Affairs that the global economy is leaving millions of disaffected workers in its train. Inequality, unemployment, and endemic poverty have become its handmaidens. Rapid technological change and heightening international competition are fraying the job markets of the major industrialized countries. At the same time systemic pressures are curtailing every government’sability to respond with new spending. Just when working people most need the nation-state as a buffer from the world economy, it is abandoning them. (Kapstein, p. 16)
One group, and they apply great pressure on their elected officials, that governments have not abandoned is the elderly. In looking at why wages have stagnated for many workers, and why employers are increasingly tempted to make employees redundant through technology, it is important to look at the role of payroll taxes. Today’s workers, throughout the countries of Europe and North America, are seeing a greater and greater percentage of their income flowing from their wallets and bank accounts to the elderly. In the United States, in the 1960’sthere were about 6 workers who paid Social Security taxes for every beneficiary and the average worker paid only $200 in Social Security taxes per year. A large increase in benefits legislated in the early 1970’s, full indexing for inflation and a decline to about 3.8 workers per recipient have made it necessary to increase these taxes to more than $2000 per year for the average worker. By 2035, the number of workers per beneficiary will decline to between 2.0 percent and 2.2 percent, which will create enormous problems in financing Social Security. (Robert M. Dunn Jr., The Washington Post (5/3/96) p. A21)
According to a recent study paper released on behalf of The Manufacturing Institute the most damaging tax is the payroll tax used to fund Social Security and Medicare, which raises the cost of labor by 15.3 percent. (NAM, White Paper. p. 17) Social Security and Medicare taxes together are 45.5 times higher today than in 1955, while median income is only 10 times higher. The employer’s share of payroll taxes has increased by a similar percentage. (NAM, White Paper. p. 12) In 1955, the median single-income family paid less than 4 percent of it’s total income in payroll taxes…Today, it pays close to 15 percent. (John Merline, Investors Business Daily, US Retirement Programs Punish Work, Savings.)
Lester Thurow argues that today, the elderly (people over the age of 65) are the big economic winners. It is they who in the future will be driving the economic system. (Thurow, p. 34) Families headed by a person aged 35 to 44 had an average net worth of $66,000, while those headed by a person 65 to 74 had $220,000…There has been a huge redistribution in the past 30 years. (James K. Glassman, The International Herald Tribune (2/18-19/95) Currently, the government spends nine times as much per person on the elderly as it does on the young. In fact, government spending on the elderly by itself now gives the elderly per capita incomes of equal to 60 percent of the American average…the elderly make up about 13 percent of the population, but they receive, excluding interest on the national debt, half the federal budget. (Thurow, p. 104)
While, in the United States a couple with one child earning $30,000 pays $2,449 in federal income taxes. An elderly couple needing to support only two with an equally large income of $30,000 (40 percent of it coming from social security) pays only $791 in taxes. (Thurow, p.110)
Many elderly, even those who are wealthy by any standard, argue that they paid into the Social Security system for all the years they were employed, and therefore deserve the payments they receive. In addition, the elderly reckon that the government promised them Social Security, and should not renege on its promise. True enough, but the fact remains that males born in 1920 who earned average wages can expect on average to get 336 percent of their tax payments back. (John Merline, Investors Business Daily) Rewards for hard work will not be evenly distributed among the generations by Social Security. Future retirees on average will get back little more than what they paid in, plus a very low rate of interest. In contrast, a single-earner couple who retired last year could expect to get back 2.5 times their lifetime contributions. (Albert B. Crenshaw, The Washington Post (6/2/96) p. H1)
Some economists, academics and even a few brave politicians are arguing that the payroll taxes that finance Social Security and Medicare are overdue for reexamination. They hit hardest on young workers with modest paychecks who are struggling to pay their bills, because both taxes are imposed on the first dollar of earnings. And the Social Security levy, which is much larger than the Medicare tax, phases out at $61,200, thus reducing the burden on the well-to-do. (David S. Broder, The Washington Post, (5/12/96), p. C9)
In addition to the current worker having more of their pay-check go to subsidize the elderly, it is fair to argue that the elderly have been benefiting from government largesse at the expense of children. The US Census Bureau reported to Congress in October of 1995 that the rate for children living in poverty was 21.8 percent…, while the rate for the elderly was 11.7 percent. (Editorial, Old Versus Young. The International Herald Tribune (10/10/95) A recent article in Time argued that the elderly may have strengthened their own safety net at the expense of the young. ëIs there a disproportionate amount of money being spent on people over the age of 65 versus under the age of three?’ asks one legislative leader. ëYes, unquestionably. Is it in part a function of their lobbying efforts? Yes, unquestionably. Is it largely a function of their need? No, it is not. (Elizabeth Gleick, Time (6/3/96) p. 34)
This trend does not look to improve anytime soon, and in fact will probably only worsen both in the United States and in most of Europe. In the OECD, the association of developed nations as a whole, five times as much money is spent on social expenditures on those over 65 per capita as those from 15 to 64-years of age. It is important to note that one of the causes for these higher expenditures on the elderly is the cost of medical care, especially in the United States. In the US, where there are now 4.5 workers working to pay for every pension, 2030 there will be only 1.7 workers available to be taxed to pay for every pension…In Japan in 2025, the elderly are expected to account for 26 percent of the population…In Western Europe today’sprograms for the elderly will take up 50 percent of the GDP by 2030. (Thurow, pp. 97-98)
