The Entitlement Myth

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The Entitlement Myth

Many of President Donald Trump’s supporters are outraged about the budget debate currently happening within the GOP right now,

Mr. Trump’s budget blueprint — which is expected to be central to his address to Congress on Tuesday night — sets up a striking clash with the House speaker, Paul D. Ryan, who has made a career out of pressing difficult truths on federal spending. For years, Mr. Ryan has maintained that to tame the budget deficit without tax increases and prevent draconian cuts to federal programs, Congress must be willing to change, and cut, the programs that spend the most money — Social Security, Medicare and Medicaid.

President Trump made it very clear on the campaign trail that he would not touch social security or medicare.  His argument was noble, but also fundamentally dishonest…

If we are able to sustain growth rates in GDP that we had as a result of the Kennedy and Reagan tax reforms, we will be able to secure Social Security for the future. As our demography changes, a prudent administration would begin to examine what changes might be necessary for future generations. Our goal is to keep the promises made to Americans through our Social Security program.”

Trump, like many of his supporters, believe entitlements can be saved.  It’s commendable that he is trying but it is an impossible task.  Social Security is essentially a Ponzi scheme legalized by the US government that has been running a deficit from almost day one.  The first receipt of a monthly Social Security check was Ida Fuller.  She had paid into the program for a whopping 3 years before she applied for benefits.  She ended up collecting benefits for 35 years and the math didn’t quite add up…

Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits. 

She collected 1,000 times what she paid into the program.  Even with inflation that is a ridiculously lopsided equation.  Social Security is government at its worst.  It was a tax increase on average hard working Americans with a built in promise that could never be fulfilled. Until 2010, the average beneficiary of social security was a lopsided deal for the government as CNN explains, “A couple who each earned the average wage during their careers and retired in 1990 would have paid $316,000 in Social Security taxes, but collected $436,000 in benefits, according to data crunched by Eugene Steuerle, an economist at the Urban Institute.”  However, after 2010 thanks to a major overhaul of the program in 1983 Social Security beneficiaries began collecting less than they put in…

Had that couple turned 65 in 2010, however, they would have paid $600,000 in taxes, but could expect to collect just $579,000. This is the first time in the program’s history that taxes outweighed benefits for this group, a couple with average earnings. 

The imbalance will get more pronounced for future generations of retirees. Couples now in their early 40s will have forked over $808,000 in Social Security taxes by the time they retire, but get back only $703,000 in benefits. 

So why is the shift happening now? It’s because the first waves of recipients saw their promised benefits rise without sufficiently large tax increases to pay for them, Steuerle said. Rates rose significantly after the program was overhauled in 1983. 

“Younger generations are paying much higher tax rates for the same benefits,” he said.

Problem solved, right?  Wrong.  As Social Security finally began balancing its books, another program picked up the deficit slack. Created in 1965 under the guidance of President Lyndon Johnson Medicare became the next money pit of the American taxpayer. Before medicare, retirees saw a good chunk of their social security and retirement money going to health related costs.  After the inception of medicare, seniors needed less money to cover their medical costs and therefore a smaller increase in social security benefits was less damaging.  This, however, didn’t solve the problem it only transferred the problem to another government program.  As social security balanced, medicare’s equation became more and more lopsided.  The Urban Institute calculated the current imbalance…

The reality is that a male earning an average wage over his lifetime will receive from Medicare lifetime benefits in retirement that amount to $180,000. Lifetime Medicare taxes for this average male would have amounted to only $61,000…For a female earning the average wage, the situation faces even great discrepancy. Because she will live longer, her lifetime benefits will amount to $207,000 even though she will have paid in the identical amount of payroll taxes over a lifetime. In short, she will collect $146,000 more in benefits than the taxes she paid into the Medicare trust fund.

The problem was never solved.  It was only transferred.  The other sad truth is that even if we balanced both entitlement programs today we would still have to deal with the deficit both programs ran for 77 and 52 years, respectively.  The current unfunded liabilities of Social Security and Medicare are anywhere from 30 to 200 trillion dollars.  Just to put that in context, the total valuation of the US’s 5 stock exchanges is 30 trillion.  If the US government liquidated every company on all 5 exchanges we would either barely meet our obligation or only cover 15% of it depending on which evaluation you use.  This doesn’t even cover the rest of the US government or our current 20 trillion dollar debt.  Does anyone want to still argue we can leave entitlements alone?

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