Intergenerational Transfers and Political Support for the Welfare State
By Randall Holcombe • Monday March 10, 2014 12:35 PM PDT •
Supporters of the welfare state might see it as a mechanism for transferring income from rich to poor with the idea of helping those at the bottom end of the income distribution, but in the United States, the welfare state is increasingly transferring income from the young to the old, regardless of the wealth or income of the transfer recipients.
Obviously, this is the case with Social Security and Medicare, the federal government’s two biggest expenditure programs, because only old people are eligible, and there is no means test to determine eligibility for the transfer. And, not only are the old wealthier than the young, the wealth gap between the old and young is growing.
These programs transfer resources from the young to the old, but also, on average, from the poor to the rich.
Add to these long-standing programs Obamacare, which charges the young rates above what it costs to insure them so that the old can pay rates below what it costs to insure them. The program’s designers made no secret of the fact that the program was intended to impose costs on young Americans to transfer benefits to the old.
Obamacare makes the intergenerational transfer even greater. Thus, it is somewhat paradoxical that young voters have increased their support for the welfare state even as old voters have decreased theirs.
The transfer recipients, who are older and wealthier than average, and who will be dead when the true cost of the current welfare state must be paid, increasingly oppose the transfers. Meanwhile, young voters increasingly support these programs that cannot possibly provide them with the same level of benefits they now approve paying to their elders.
The young and old are, on average, both moving away from supporting policies that are in their narrow interests.
The most paradoxical part of this paradox is that the policies the young support not only work against their current interests, but also against everyone’s interests in the future because the high cost of funding these programs will slow economic growth. Today the old benefit from those transfer programs; in the future, everyone, both young and old, will be worse off because of them.