What the Public Doesn’t Understand About Social Security and MedicarePosted: January 30, 2013
An earlier short highlighted my research with Caleb Quakenbush into how much people pay in Social Security and Medicare taxes over a lifetime, and how much they receive in benefits. For instance, we found that a two-earner couple making an average wage who turned 65 in 2010 would have paid $722,000 in Social Security and Medicare taxes over their lifetimes, but would receive $966,000 in benefits.
These types of numbers often generate outraged debate over how much seniors are “owed” based on what they “paid in” to Social Security and Medicare.
But there is another, more philosophical, issue that these numbers cannot address. Americans do not pay their taxes into a personal account that they can take out, plus interest, when they retire. The money paid into Social Security and Medicare has always been chiefly paid out immediately to older generations. The only exception has been some trust funds which have always been modest in size and are shrinking. Thus, Social Security is effectively a transfer system from young to old, and always has been.
We may feel that because we transferred money to our parents, our kids, in turn, owe us. But we must take into account also how much they can or should afford for this task as opposed to their own current needs for themselves and their children. Think of a one-family society, where three kids support their parents, but then those three kids have no children of their own (or only one or two children). What those three kids gave their parents informs us only slightly on what they can or should get from their own children if there are none or fewer of them. Likewise, when demographics change and there are fewer workers to support an aging population, society has to make adjustments, regardless of what some may otherwise think is “fair” or what they think is their entitlement.
For articles inspired by this research, see a recent PolitiFact.