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Why bankruptcy has become a rite of passage for many of America's seniors

The wealthiest country in the world should be able to keep older people living in security and dignity. We just have to choose to do it.
Image: Senior debt
Senior couple at home reacting to many billsCreatista / iStockphoto - Getty Images

There is no reason that, in the world’s wealthiest country, so many older people face such daunting odds of making ends meet. But alarming new research shows that Americans 65 and older — when they should be enjoying their golden years in peace — are filing for bankruptcy at a rate three times higher than they did in 1991.

It’s not as if Baby Boomers are retiring earlier: Studies show that more and more people over 65 and even over 70 are remaining in the labor market, and many of them are saving more than previous generations (especially women, according to a Pew report). But older Americans increasingly face stark economic conditions over which they have little control, like skyrocketing medical costs, disappearing pensions and debts that used to be exceedingly rare among retirees (like student loans carried or cosigned for children).

The authors of a study highlighted in the New York Times note that the government and employers have been dumping more financial risk onto people for several decades. The results, judging from the spike in bankruptcies, are ugly.

But it doesn’t have to be this way: America already knows how to keep older people living in security and dignity and has the resources to do it.

Take Social Security: The popular, cost-effective program is strongly supported across party lines. Yet politicians constantly talk as if cuts are necessary to save even a portion of the program — an argument favored by wealthy people who wish to avoid further taxation (and don't need the program for their own later years), along with financiers who seek to fleece the rest of us by charging fees on private retirement accounts.

According to a 2017 Pew Research report, however, the vast majority of Americans — 86 percent of Republicans and 95 percent of Democrats —wish to either maintain or increase spending on Social Security. A 2013 report by the National Academy of Social Insurance found that eight out of 10 Americans were willing to pay more to expand the program, and an even greater number, 83 percent, favored increasing the Social Security taxes paid by the wealthy.

They could easily afford it: Wealthy Americans already pay no Social Security taxes on the capital gains and inheritance that make up a growing share of their wealth, and hand over a trifle on the rest of their income. Only the first $128,400 of yearly income — a pittance to the country’s gazillionaires — is subject to the Social Security tax in 2018. Raising that ceiling would hardly be a burden to people made even richer by President Trump and congressional Republicans, who gifted them additional income and capital gains tax cuts in December 2017.

To further ease the retirement crisis, Social Security can and should be expanded. Raising the ceiling would be a very simple way to fund that expansion, and we could also restore the funds that were looted from Social Security and redirected to the general budget starting in 1983 (when President Reagan increased the tax rate supposedly funding it).

Economist Teresa Ghilarducci, an expert in retirement issues, told NBC that she favors both expanding Social Security and creating a portable, low-fee, steady-return retirement program for people who do not get pensions or 401(k)s through their employer. “We need a federal plan that adds a pre-funded layer on top of Social Security,” she argues. “We need to add a public option to the patchwork individual account system.”

But properly funding and expanding Social Security won't likely be enough to solve poverty among the nation's elderly. Health care costs are the number one reason why Americans of any age file for bankruptcy, including seniors. And Obamacare has failed to rein in the costs: With high deductibles, rising premiums and unpredictable expenses, it is no wonder that Americans increasingly reach retirement with paltry savings.

The dysfunctional current system is not only exorbitantly expensive, but also grossly unfair. Household spending on health care has become a significant contributor to income inequality and drives the gap in health and longevity. Today, the life expectancy of the wealthiest Americans now exceeds that of the poorest by 10 to 15 years.

A recent Kaiser Family Foundation poll shows that six in 10 Americans support a national health plan, while even more — 75 percent — support such a plan as an option for anyone who wants it.

Fortunately, America has a program with a proven track record of quality and effectiveness that could be expanded: Medicare, the popular insurance plan for seniors.

Expanding Medicare to cover everyone would not only be fairer than the current system, but could save everyone money through increased efficiency and savings on drug costs. Plus, Medicare already has a funding mechanism in place — the 2.9 percent payroll tax paid by individuals and employers, alongside modest monthly premiums — which could be adjusted to support expansion. Increased taxes on the wealthy would also be a fair way to strengthen the program and help curb economic inequality.

Predictably, those who guard the pockets of the rich do not want this. Libertarians at the Koch-funded Mercatus Center have warned that despite such savings, the “Medicare for All” program advocated by Sen. Bernie Sanders, I-Vt., would cost the federal government more than it currently pays. Yet even its own projections indicate that the total cost of health care in the U.S. would go down with the Sanders plan; it's just that the government would pay more and individuals would pay less (even if they were taxed slightly more).

The most embarrassing fact about the American system is that countries all over the world — France, Canada, the U.K. — do a much better job with both health care costs and outcomes through universal coverage programs that protect citizens from poverty and medical nightmares. The refrain that it can’t be done here only rings true to America’s Scrooges. In fact, the U.S. is the only wealthy, industrialized country without universal health care.

But there’s one more issue, usually associated with millennials, that is seemingly dragging seniors into poverty: The staggering student debt crisis, which has been driven by decades of rising tuition and insufficient state investment.

Today many parents are forced to take out student loans to help their children, just as they themselves are approaching retirement age. A survey by College Ave Student Loans reports that a third of parents say they are on the hook for some or all of their kids’ student loans. In addition, some retirees are even seeing their Social Security checks garnished to pay off student loans they’d already defaulted on or that they took out to assist their children: Between 2002 and 2015, there was a 540 percent increase in people 65 and older who had their Social Security checks garnished to pay off federal student loans. (This was illegal prior to 1996 and should be again).

This grotesque situation is part of a larger, recent development in America.

A few decades ago, state governments funneled enough money into higher education that families could send their children to a local institution without getting stuck under a pile of debt. Back in 1970s, states supplied public colleges with nearly 75 percent of their funding. State funding has now dropped to 23 percent, and since 2012, America’s students have been paying more for public university education than state governments.

What changed since the 70s? Mainly the rise of market-obsessed conservatives who pushed tax cuts for the rich and budget cuts for everyone else. After the bank-driven 2008 financial crisis hurt state budgets, conservative state legislatures argued that slashing higher education funding was necessary. Now that the economy and state budgets are recovering, however, state governments in thrall to these politicians and their wealthy donors are still withholding funding, forcing universities to raise tuition.

This is crazy: Cutting investment in education leaves citizens unprepared for the work force, downwardly mobile and hamstrung at every stage of life, all so the rich can keep their taxes unreasonably low.

In reality, low taxes for a small minority of the very wealthy looks more and more like the elimination of both inter- and intra-generational wealth for many other Americans.

In a paper for the Institute for New Economic Thinking, political scientist Daniel Chomsky has shown how broad the support is for making the wealthy pay their fair share in taxes, noting that, over the last four decades, substantial majorities of Americans have consistently said they want higher taxes when specifically asked whether businesses or the wealthy pay too little, too much, or the right amount. Claims that there is a generalized demand for lower taxes brush those findings aside.

Current tax policy, then, has been instituted against the will of the people, and is in opposition to their health and wellbeing. Fair tax policies would go a long way to ensuring that hard-working people do not face retirement hounded by debt-collectors and buried in bills. America can do better — and it has. We just need politicians who are willing to help us, and not the very wealthy, be better again.

Lynn Stuart Parramore is a cultural theorist who studies the intersection between culture and economics. Her work has appeared at Reuters, Lapham’s Quarterly, Salon, VICE, Huffington Post and others.