My column titled "What Handouts to Cut?" created a number of angry responses, and for the first time in my life, I had some, not much, sympathy for political cowardice. Most letters were from senior citizens angered by my suggestion that they were receiving handouts and those handouts be cut.
Federal tax receipts for 2009 totaled $2.1 trillion. The largest items in the federal budget were Social Security ($710 billion), national defense ($689 billion), Medicare ($456 billion) and Medicaid ($327 billion). The primary recipients of federal spending are seniors. Some of the letters argued that it's unfair to characterize what seniors are getting as handouts because they worked all their lives and paid into Social Security and Medicare.
Jagadeesh Gokhale, senior economic adviser, Federal Reserve Bank of Cleveland; and Laurence J. Kotlikoff, professor of Economics at Boston University document the looming Social Security and Medicare crises in "Is War Between Generations Inevitable?". They report that "A male reaching 65 years of age today (in 2000, the year of their study) can expect to receive $71,000 more in government 'transfer' benefits (of all kinds at both the federal and state levels, but mainly from Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes."
The picture is not so rosy for people who entered the labor force in 2000. They will pay far more in taxes than they will receive from transfer programs. Expansion of elderly handouts, such as prescription drugs, will make things worse. "For example: A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits."
Why is Social Security a better deal for today's seniors? Just look at what they paid in.
From 1937 to 1949, the maximum annual Social Security tax was $60. It remained under $200 until 1956. After 1956, Old Age, Survivors and Disability Insurance was added and in 1966, Medicare was added. It wasn't until 1969 that maximum Social Security taxes exceeded $2,000. Today, the maximum annual Social Security tax is $13,000 and the maximum annual benefit is $25,000.
As with any Ponzi scheme, the people who get on board early make out. This is pointed out by Geoffrey Kollmann and Dawn Nuschler of the Congressional Research Service in their report "Social Security Reform" (October 2002) They say, "Until recent years, Social Security recipients received more, often far more, than the value of the Social Security taxes they paid. ... For example, for workers who earned average wages and retired in 1980 at age 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at age 65 in 2002, it will take 16.9 years. For those retiring in 2020, it will take 20.9 years." My question is: How can anyone who draws out every penny he's put into Social Security in a few years say that he's not living at the expense of another?
In my opinion, it takes a special form of callousness and disregard for the welfare of future generations of Americans for today's senior citizens to fight against reform. Nobody's talking about abolition of federal senior programs. We must accept that serious mistakes were made and we must take compassionate corrective action. But what the heck! As I said in my "What Handouts to Cut?" column, "Both today's politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future?"
Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
COPYRIGHT 2010 CREATORS.COM
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12 Comments | Post Comment
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I appreciate these two articles. I'm one of those who entered the work force in 2000. Not only will I NOT receive what I paid in (theft), but the job market has been such that I've been sparsely employed since I entered the work force. This is because I work in IT and the government has been doing everything it can to destroy my industry by inflating the tech bubble & creating incentives to offshore (my first job was sent to India). Thanks Uncle Sam. I'm only in the one industry that has shown any growth in the last decade.
I don't believe in taking money from the government, so I have never gone on unemployment. Currently, I'm self-employed and owe the government an additional $2600 on my taxes, which I'm paying with interest in installments. Can you guess what this money is for? Self-employment tax ie FICA for self-employed workers. In the past, I had an employee, but I had to fire her (another young person) because the taxes and red tape for being an employer were too much for me.
There are many other young people like me. Where is OUR voice in this "representative," government. I write my Congressman and get no reply. Do you think I have enough money to start a family? Do you think I can afford health insurance? No, but I'm going to be forced to buy it, I guess. Thanks again. How is our country and our American way of life going to continue like this? I could sure use that $2600 that I EARNED MYSELF with HARD WORK, money that NO ONE GAVE ME.
I often wonder where we live, because this isn't America. There's more than just one side to this issue, seniors. My name is John, I'm 28 years old and I'm a REAL person and you're REALLY making my life worse right now.
Not in 2050.
RIGHT. NOW.
Comment: #1
Posted by: John Fairfull
Mon Aug 23, 2010 10:42 PM
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At 64, I tremble at the thought of being totally dependent on SS and Medicare (one day), but not for the reason you might think. Even before I knew that the "Social Security Fund" was non-existent, I wondered how the little money my payroll taxes proffered could be mushroomed into enough money to take care of my basic needs (TBD) and my medical expenses (also TBD) until my death. Since I have allowed myself the luxury of remaining financially ignorant all these years, I assumed it was the "Jack in the Beanstalk" principle in effect: Plant it and it will grow. When I read Mr. Williams article "Who Cares About Our Future," I winced because this little chicken's future may be in doubt; she's going to have trouble paying for a roost because she let Poppa SS handle almost all her retirement money. Oh, sure, there's an IRA that could support me for about three years if I have no further medical problems. (Fortunately - or not - I seem to incur problems that, to date, won't kill me but will instead make me really uncomfortable.) Let this be a lesson to the children, and more importantly to those who are in charge of teaching the children. Don't sugar-coat it, People, let them know exactly how much of their care depends on them alone.
Comment: #2
Posted by: Dianne Mueller
Tue Aug 24, 2010 4:47 AM
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I do not for one second argue with your conclusion: SS must change. And as a forty-something, I am in the generation that has surely paid more than I will ever receive.... and I am still in favor of reducing benefits even though this will directly affect me.
But I have a question for clarity sake: Does your calculations take into account inflation and lost interest? I.e. Does it account for the 1937 value of $60 invested with average returns? I ask because THAT is the amount of money that the government forcibly took from people's paychecks.
Comment: #3
Posted by: Spork
Tue Aug 24, 2010 6:28 AM
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Most people are reluctent to look a gift horse in the mouth because they do not want to admit it is a gift.It is much more comfortable to claim it was earned.I regularly get mail asking me to preserve SS and never respond.I will not be a willing accessory to a criminal ponzi scheme.The record is clear that no govt. can be trusted with our money long term especially.Annual expenses must be paid for by annual taxes but pension promises by nearly every level of govt. have been exposed massive frauds recently, just as in all ponzi schemes the first investors are rewarded and the later suckers lose everything
Comment: #4
Posted by: dunce
Tue Aug 24, 2010 9:52 AM
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I too am part of the generation of workers who will never get back what we put in. I am 29, my husband is 28, and together we pay well over $10,000 per year towards Social Security and Medicaid. And not only do we have to pay all that, but because we're not blind to the fact that we'll never get a dime of those benefits back, we also put away around $15,000 per year for our own retirement. Oh and one more thing to think about, beyond just the inherent unfairness aspect - - because we have to essentially save double for our retirement, we cannot afford to start a family. No doubt if we ever do, we'll have fewer children because we'll be starting so late. Who do you think is going to keep paying for all your expensive medical tests, retired folks?? We 20-somethings can't afford to create the next generation of workers to take on the ever-heavier tax burdon!
Comment: #5
Posted by: Kim
Tue Aug 24, 2010 1:21 PM
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Is it possible that Dr Williams is ignoring the time value of money? I am fifty-something, and I have the distinct impression that if I had been allowed to invest that money myself over the years, in the most conservative, low-interest accounts available, I would receive far more than I am slated to receive under my currently forecast benefit plan.
I loathe the AARP and their greedy short-sightedness and hypocrisy, and I have always supported some form of privatization of Social Security, but it seems simple fairness that there shoudl be some level of "grandfathering" in any transition to a new system.
There is a lot of resentment among young workers that seems to me largely misplaced. I have read extremely hateful comments from people who have been contributing less than 10 years claiming that they are being bled by people who have in fact been contributing for many decades. More "politics of envy" will not get us out of our current state.
Comment: #6
Posted by: hpoulter
Wed Aug 25, 2010 7:18 AM
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You neglect to consider that the dollar's value has plunged over the past 40 years. The value of the dollar in 1970, related to the price of an ounce of gold, was $40. Today, the dollar is worth only 1/30 of what it was then, as the price of gold is hovering at around $1200/ounce. Thus, seniors are receiving dollars that have only 1/30 the buying power they had when many of these people began paying payroll taxes.
Comment: #7
Posted by: Katharine C. Otto, MD
Wed Aug 25, 2010 1:06 PM
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While I agree that Social Security may have to be cut I am of the conviction that all programs are going to have to give their share. Federal retirees of all levels and members of congress as well. I am a senior and paid in what I was asked to. My benefits are far below those of those groups. And mine are taxed where many government pensions are not. I would have gladly paid in 7% or thereabouts for the benefits they receive. Congress probably doesn't pay in a dime yet get a pension far beyond their value. Welfare, food stamps, disabilities. Everyone has to pay a price. Another place to review is the easy disability program in government employee areas. What is the percentage of disability grants between private industry and government agencies? 410k's and IRA's were created so that we could invest for our retirement as well and many took advantage of them. When I was involved the amount we could invest was well below what can be invested today. If you were over a certain income level you could only invest half of what those of lower income could. Why? Either everyone gives their fair share or no one and we go down the Congressional bankruptsy chute together. Will Congress have the courage to make the proper changes? NO. Most useless group of people on the planet! But they we get theirs.
Comment: #8
Posted by: Hugh Fowler
Thu Aug 26, 2010 7:53 AM
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@hpoulter Dr. Williams is an economist. He does not ignore the time value of money. The problem has been all along that Congress hasn't invested the money. They used it to pay current accounts. There is no inherent time value here. The government has no money of its own and therefore doesn't pay for anything. Only taxpayers pay. And you know this as well. - Your logic works like this - I gave the government $60 in 1940 that someone born in 1990 must pay back to me with 70 years worth of interest. Do you not see the problem with your position?
Comment: #9
Posted by: Dieter Donnert
Thu Aug 26, 2010 3:29 PM
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I hope all the young folks realize that Social Security is an example of what happens when the Government manages
a program designed to "help" you in the future. I can't wait to see how they will "help" with our health care.
History has shown that Socialism doesn't work very well. Remember "Social Security" when you go to the polls in the future.
Comment: #10
Posted by: Joe DeLOrenzo
Fri Aug 27, 2010 9:56 AM
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I think someone has to bring in the " PURCHASING POWER " of the $ from 30 ies to now, and bring out the ponzi sceam the fed's have been running with the blessing of the government since 1913. Now Madoff behind bars, how about the fed, and all the criminals in the government ? Wake up people. We the people supposed to tell the government what can they do. Not the other way around.
Comment: #11
Posted by: Mike Ecer
Sun Aug 29, 2010 1:48 PM
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I am almost 60 years old and have already outlived both of my parents. I mention this only because my father paid in his whole working life and my mother for over 25 years, all they received were the $200 (or $400) death benefit.
I wonder what a true balance sheet of this country would look like. How high would we have to evaluate Yellowstone Park or the Capitol Building just to keep the equity portion from going negative.
Comment: #12
Posted by: Wood Miles
Thu Sep 2, 2010 7:27 PM
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