Feds Want Us to Live Like Children

Published May 12, 2011

We spend the first part of our lives trying to grow up, and, apparently, millions of us spend the rest of our lives hoping to live like children. How else to explain the desire to “save” Social Security and Medicare?

Since 1935 for Social Security and 1965 for Medicare, older Americans have expected government to take care of them, as if they are children incapable of taking care of themselves. Nanny state, indeed.

We don’t need government to tell us tell us to feed ourselves, clothe ourselves or bathe ourselves. And we don’t need government to tell us we need to save for old age. If government wasn’t guaranteeing us income and health care in old age – and taking more than 15 percent of our earnings to pay for it when we’re young – most people would be setting aside money on their own.

We had a chance to start working toward a phaseout of Social Security in the 1980s, when it was about to go broke. Instead, President Reagan worked with lawmakers to “save” Social Security through a huge increase in the payroll tax.

Until last year, that tax increase brought in more money than was needed to pay benefits. We were promised the decades of extra money would be set aside to become a mountain of money for future generations when they retire.

In fact, none of those trillions of extra dollars was set aside. We’ve been robbed. The government has spent the excess payroll tax money on the military, roads and bridges, social programs, corporate welfare – everything but retirement.

Jack Lew is President Obama’s director of the Office of Management and Budget (OMB). Mr. Lew also worked in the OMB during the Clinton administration in the 1990s and wrote a report that explained that Social Security Trust Fund “balances” are nothing more than a “bookkeeping device.”

Mr. Lew wrote, “They do not consist of real economic assets that can be drawn down in the future to fund benefits.” The OMB says the Treasury Department’s Social Security IOUs are “claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”

Mr. Lew is right. There is no money in the Social Security Trust Fund. As more people retire and live longer in retirement, the government will increase taxes further, pile up more national debt, cut benefits or cut other government programs.

Ditto for Medicare. It, too, relies on bookkeeping devices and has no real economic assets.

In 1939, a woman named Ida May Fuller became the first Social Security recipient. She paid in $24.75 and by the time she died had received nearly $23,000 in payments. Name any investment for which a person could get back nearly 1,000 times more than was invested, with absolutely no financial risk.

But how things have changed. When Fuller started collecting, there were 33 workers for every recipient. Now the ratio is 2.9-to-1. In 20 years it will be 2.1-to-1.

The Urban Institute last year issued a report estimating that a married couple in which both husband and wife earned average wages and retired in 2010 can expect to receive $539,000 in lifetime Social Security benefits after having paid $581,000 in Social Security taxes. That’s a $42,000 loss.

The Urban Institute says when Medicare benefits are thrown into the mix, people come out ahead because Medicare spends so darn much.

But Medicare taxes don’t come close to covering the benefits, and Medicare payments go to health care providers. Retirees in good health will receive little from Medicare. At least Social Security checks arrive regardless of a person’s health.

“Government is the great fiction through which everybody endeavors to live at the expense of everybody else,” wrote the great 19th-century French political theorist and economist Frederic Bastiat.

Social Security and Medicare have led generations of Americans to believe they can live at someone else’s expense. One of these days, we’ll all pay the price.

Steve Stanek is a research fellow at the Heartland Institute in Chicago.