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  • The Case for Entitlement Reform: Taxpayer Contributions Fall Dangerously Short of Received Benefits

    Medicare and Social Security are important retirement security programs for millions of Americans. But they are ticking time bombs with trillions in future unfunded obligations that will bankrupt America if they are not changed. Though awareness of this critical situation continues to grow, Americans remain reluctant to support reform, understandably fearful of the prospect of paying into a program and then not receiving what they paid for. As Ricardo Alonso-Zaldivar wrote for the AP, “You paid your Medicare taxes all those years and think you deserve your money’s worth: full benefits after you retire.”

    But recent research from the Urban Institute’s C. Eugene Steuerle and Stephanie Rennane shows that Americans actually receive benefits well in excess of what they pay in. The truth is, American taxpayers do not actually pay for their own future retirement benefits. Instead, their tax dollars pay for current Medicare and Social Security beneficiaries. Steuerle writes, “The complication is that [recent retirees'] Social Security taxes mainly supported their parents in retirement, and the only way they can do as well in a money-in-money-out (at times partially funded) system is to foist higher tax rates on their children.”

    As the baby boomer generation begins to retire in 2011 and the growth rate of medical costs continues to increase, the cost of Medicare in particular will soar. To call the current trajectory of spending on this program unsustainable is an understatement. It would require raising taxes on the children and grandchildren of retirees to unrealistic rates that would devastate the United States economy.

    Steuerle and Rennane’s data show just how significant the problem really is. Take for example a married couple who turned 65 in 2010 and earned the average wage (in 2010 dollars) of $43,100 each. This couple will have paid a total of $690,000 in Social Security and Medicare taxes, but will receive $882,000 in total benefits over their lifetimes.

    The trend extends to Americans of all earning levels. A one-earner couple earning the average wage and retiring in 2010 will pay $345,000 into the system, but receive $778,000 in benefits. And a single man earning the same wage will pay $345,000 into the system but receive $417,000 in benefits.

    Clearly, current benefit levels greatly exceed what citizens pay into the system. According to Steuerle, “To pay for the rest, we borrow from China and elsewhere, and use up ever-larger shares of income tax revenues, leaving ever-smaller shares for other government functions. Bottom line: without reform, current workers would continue to shunt many of their future Medicare costs onto younger generations, just as their parents did with Social Security.”

    The best way forward in Medicare reform is to transform the program into a premium support system, allowing seniors to use a federal contribution to purchase a health plan that best suits their needs from a wide array of options. This would control the cost of the program while allowing seniors to receive the best value for their health dollars. It has received bipartisan support over the years and is supported by younger Americans, who stand to receive the short end of the stick under the current path. An Associated Press-Gfk poll found that 47 percent of those born after 1980 favored moving Medicare to a voucher system compared to 41 percent who did not.

    Though President Obama and liberals in Congress continue to resist serious entitlement reform, the facts show that there really is no other choice.

    Posted in Economics [slideshow_deploy]

    18 Responses to The Case for Entitlement Reform: Taxpayer Contributions Fall Dangerously Short of Received Benefits

    1. Pingback: The Case for Entitlement Reform: Taxpayer Contributions Fall Dangerously Short of Received Benefits

    2. Paul Stone, Sumter, says:

      We have gotten ourselves in too much of a predicament here. The only way to solve the Social Security problem, in my opinion, is the gradual implementation of private accounts with the individual invested in what he chooses based on risk. Medical accounts seem to be the best alternative for Medicare. Neither Social Security, Medicare, or Medicaid are Constitutional.

    3. Leon Lundquist, Dura says:

      Katheryn, I like the Premium Support idea. I would like to supplant all the Socialism in America with Insurance! "If you are worried? Buy Insurance!" and that is the end of it. You might ask why Obama wants to keep the gutted Health Care Un-affordable Act in place? What is left of it worth preserving? I am really sorry, but I read it! It still has another whole branch of Government in it! They want to duplicate Medical Research, pass on what qualifies as "Treatment" and not. There is a whole bottomless Research boondoggle! They are duplicating an entire Market of Medical Knowledge, creating "Best Practices."

      Would you trust Progressive Socialists (actual Cold War Communists) to create our Medical Science in some twisted way? Define belief in God as "disease?" No joke! They have already done that! Imagine what these Totalitarians would do! Like it was in Russia, Doctors were made slaves! And Medicine was used to inculcate, brain wash and punish people! I agree with Judge Vincent, the whole thing is Unconstitutional and everything Obama does to keep it is Unconstitutional. Oh! Oh! That is another High Crime! (And Obama gets away with it!)

      Medical Savings Accounts, Vouchers and matching funds! Let's do Copays that actually help the Clinics! Now the copay barely covers the cost of collecting it! A little common sense! Please! Sixty percent of illness is Patient Created, and no amount of Medicine will help because the Patients just won't stop their self destruction! Give them a ten thousand dollar test that they can ignore? What is the "benefit" in that? A very little investigation will prove that Medicine itself has been coopted and perverted for money. Remember when suddenly all the Prescription Costs went over the Moon? It wasn't accidental. Remember when they closed ninety percent of our Medical Schools? You don't?

      Nobody talks about training more Doctors and Nurses! The Government has made this solution impossible! So? Defund that part of the Government. Do like Dick Morris says, defund whole Agencies! Health and Human Services? They do nothing but ruin the American Medical System! Defund those guys!

    4. Lloyd Scallan (New O says:

      What is not include isthe overall income value of the Social Security system over the decades. What happened to the billion of dollars that were left in the system when people who died before they collected one penny of benefits? Did it go into Clinton's "lock box"? Oh, that's right, the lock box was raided and emptied by politicians that did not contribute a single dollar.

    5. Dom Brunone, Austin says:

      Does the author's numbers include the other 50% of Social Security that was paid by my employer over my 40 year working career? Does it include the amount of interest that the government should have earned on that money (as I would have, had I been allowed to keep it)? And does it include the amount of interest that they should continue to earn (had they not pissed it away on their greedy pork programs) while I am drawing my benefits??!!

    6. Spiritof76, NH says:

      We can not depend on the politicians to tell us the hard truth because we can not face it ourselves. I wish someone influential in the public arena such as Sarah Palin start talking about the entitlement beasts that are poised to swollow this nation and enslave our kids and grand kids. Aren't there any decent Americans of Democratic party left willing to speak the truth? It is just bewildering to me that no meaningful discussion on the impending financial collapse is taking place in a country of educated people!

    7. J Tucker, Springfiel says:

      Leave Medicare and Medicaid ALONE! You can find all kinds of pork and other useless, senseless government spending to defund and balance the books. But, no, you want to make the poor, the children of the poor, the disabled, and the elderly pay the bill!

      By the way, I am a Conservative Republican who is ashamed of my party for wanting the most pitiful people in our country to pay for the government's mishandling of "We, the people's" money!

    8. Carol C. George, Rig says:

      I believe that Medicare, Medicaid, and other health programs should be eliminated and one program set up in the states where those who need financial assistance are known personally in the community by the managers of the program. We already have district health departments that have facilities that could be put to use. Those who qualify would be accepted as a family. A family would consist of any combination of people who are listed together on tax returns. This could be a couple with six children, a single parent with two children, a couple providing financial care for elderly parents, two individuals with a civil union. After full disclosure of their assets they would be given a "status" that would determine whether they would pay 5% or 70% of their medical bills.

      Everyone would pay something ….just $5.00 for the lowest fee …. when they had an appointment. A universal …. for everyone… estate tax would provide for a catastrophic fund so that seniors who often receive more assistance during their last years pay back. People who have need of the catastrophic fund could, when their crisis is past, pay back into the fund…..even just $25.00 a month for life. Clinics, cooperation of the doctors and recognition of those doctors who contribute to others would be part of the plan …..and many other features.

    9. HawkWatcher says:

      Bernie Madoff set up a similar raiding scheme and was caught and jailed for it. Yet here we sit, under the thumb of the biggest ponzi scam of all: social security from the federal government, backed up by a pile of worthless IOU's in an imaginary trust fund. And the scam continues, paycheck to paycheck, my pocket to another pocket.

      We've been had. If we don't elect a ton more ax-wielding regular Americans to Washington in 2012, this republic is finished. No poop.

    10. Eustace R. Lake Trea says:

      One of the major problems with Social Security is that it has expanded beyond the original intent.

      This program needs to return to the design it was originally intented and funds need to not be made available to the Federal Government.

      If you look at the above numbers and add just a 3.5 % return on the investment over the years it takes to accumulate the $690,000 I believe that there would be a surplus of funds at the time that couple is deceased.

      I also believe medicare should be available as a small supplement to everyone that has paid into the system. Beyond that amount users need to pay for any additional insurance as per the plan they choose.

      I am firmly against any form of payment from either program for those that have not paid into the system unless disabilities (proven) prevented them from paying.

      I believe we need to go back to JFK's statement: "Ask not what the Country can do you, But ask what you can do for the Country".

      I realize that we have many programs that are not needed and need to be eliminated that our Governments (both State & Federal) are currently wasting our tax dollars on, but entitlemensts need to be addressed this year.

      This Country did just fine until the Federal Government started to give our tax dollars to programs that do not provide any type of return.

    11. Elizabeth Farrar says:

      I fully support the option outlined in this articel for allowing a government contribution of some amount ( taken out of the expected social security retirement payment) to be used by seniors and the disabled towards purchasing healthcare that is best suited for the individual. I actually prefer no Medicare programs at all and let seniors and disabled use the social security income to choose their own health insurance. If all seniors and disable are place in the same boat I believe that insurance companies will create programs to intice enrollees in these demographics, but maybe I am dreaming.

      FYI, I am a 55 yr old baby boomer and it appeared to me that the Medicare Advantage programs were attempting to accomplish this. I also would suggest that the option for me to "pick" which former spouse's social security earnings to receive when I reach the eligiigility age be ended. If I individually paid into FICA, then I should only be entitled to my own benefit limit without tapping into ex-spousal or deceased spouse benefits or penalty for being married. I am hearing the "are you crazy" shouts already.

      Thank you for the opportunity to comment.

    12. GWolf says:

      Most people assume that Social Security benefits are strictly paid to retirees. Why isn't there a description of all the instances where social security payments are made, including the total amounts annualy made in these payments. Over the years, eligibility for entitlement payments have grown beyond simply funding retirements. The concern is that the umbrella has grown so large, and has never had a serious review to see if it is and should be sustainable. Why is there a cap on income for social security withholding? Why is social security retirement benefits not means-tested? Why does Bill Gates or Warren Buffet need to collect retirement payments from the social security system?

    13. Barry Berlin says:

      Implement all the suggestions of the panel of the budget deficit. Put these recommendations into effect now and change them as you need to. Nobody will be happy and that will be the first positive step.

    14. Bobbie says:

      Just bugs the heck out of me that all this weight is being put on the elderly in the first place. Wasn't social security a type of insurance where it would be there IN CASE you needed it? Now misguided by government as a type of retirement amongst other more corrupt spending taken from social security?

      This was the responsibility of the government and their dereliction of incompetence. Always throwing their weight around dumping it on the truly most vulnerable.

      Please have the government in various areas, describe the definition word for word, of "entitled," "entitlement.' Bet we get various definitions!

    15. Lee Estabrook, Louis says:

      The statement, "Clearly, current benefit levels greatly exceed what citizens pay into the system.tement, " This is only true, if one disreguards the value of mmoney (interest). I ruffly analysed the example of a couple retiring at 65 in 2010. They contributed $690,000 and then received (or would receive) $882,000 over their life. An annuity with a vallue of $690,000, earning only 5% would generate payments worth about $1,000,000 over a 15 year payout period.

      This tells me, if the money I put into Social Security, and later Medicare had been permitted to earn a moderate return, I would now be receiving a larger SS check and my Medicare account would probably be sufficent to fund my Medicare payments (or would be less "under-water").

      If we are going to continue to run these programs as a Ponzi scheme, using the talents of Bernnie Madoff and other now being housed in Federal Prisons as "expert" advisors, should be considered.

      Best Wishes & God Save the USA

    16. Jo from Missouri says:

      You haven't allowed for inflation or higher wages.

      There has been 2.6 trillion dollars saved for Social Security retirees since 1983.

      Medicare would be fine if the overcharges for prescriptions were controlled.

    17. Pingback: The False Choice Between Existing Medicare and Ryan’s Proposal | The Foundry: Conservative Policy News.

    18. Pingback: The False Choice Between Existing Medicare and Ryan’s Proposal | Step Down Obama

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