Wednesday, October 1st, 2014

Federal spending on old and young, by the numbers

Do we have to choose between the old and young when it comes to federal spending?
Do we have to choose between the old and young when it comes to federal spending?

Editor's note: In his second inaugural address, President Barack Obama said this:

We, the people, still believe that every citizen deserves a basic measure of security and dignity. We must make the hard choices to reduce the cost of health care and the size of our deficit. But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future.

That’s the rhetoric. Here’s the reality: For decades, the federal government actually has made just such a choice, spending far more, on average, on each senior citizen than on each child — about 6½ times more in recent years. And as baby boomers reach 65 in massive numbers, those trends aren’t likely to abate. That’s neither right nor wrong — it’s a policy choice, after all — but as Americans debate the nation’s path and priorities, it’s best to do so armed with facts about the current state of affairs: what we’re spending on the young, the old, the debt service and defense, among others. Ultimately, what is the role of government? And at what price?

• • •

The numbers we present here may seem very straightforward. But they’re not. As we discussed them with experts all along the ideological spectrum, several of them raised warning flags about taking these figures uncritically.

For starters, choosing which factors to count, and which to exclude, can make a difference. As we see in these tables, adding in state and local expenditures greatly reduces — but certainly doesn’t eliminate — the spending gap between elderly recipients and children.

And boiling it down to a zero-sum game between young and old can make it seem as if those were the only choices. Indeed, other portions of the federal budget could be targeted instead, from defense spending to interest on the debt. Or people might be willing to pay higher taxes for government to do more.

Perhaps most crucially, if you spend dollars on the old, that can indirectly aid the young, and vice versa.

Imagine you’re a teenager. If the government didn’t spend Social Security on your elderly grandfather or your disabled brother, your parents would have to pick up the slack — and your parents would have less money to spend on you. The reverse is also true: If your local government didn’t spend money on your public school, your grandfather might have to shell out more money for your education, which would reduce the money he can spend on food and housing. Or perhaps you wouldn’t be well educated at all and would be less likely to become a productive member of society. It has been estimated that spending three dollars for an elder saves one dollar for a child, and vice versa.

Finally, some experts suggest that the issue isn’t spending on the elderly versus spending on children. Rather, it’s a question of what policies can promote high employment and growth versus policies that promote consumption today.

Average government spending on the elderly and children

In 2008, all government (local, state and federal) spent $26,355 on average for each person 65 or older, most of which is Social Security and Medicare. (These numbers are adjusted to 2011 dollars. Newer state and local numbers are unavailable, and the federal numbers didn’t change dramatically between 2008 and 2011.) The federal government accounts for almost all spending on the elderly — averaging $25,455 per person.

Conversely, the federal government spends relatively little on children, and Medicaid is the largest single item. State and local governments spend much more on children because they pay for schools. But overall, governments spend far more than double on seniors than they do on children 18 and younger.

Over time, where federal money has been spent

In the overall federal budget, nearly 4 in 10 dollars go to the elderly and disabled, a percentage that has nearly quadrupled in 50 years. About one in 10 dollars goes to children, a number stable for a decade. Spending on these two groups accounts for just over half the federal budget.

The elderly get $1.2 trillion. kids? $444.7 billion

Here is the breakdown for 2011 on overall spending (and tax credits) for children and seniors. As you can see, the biggest category for children isn’t "spending" at all, but "tax credits and exemptions" that parents receive to reduce their tax burden.