Understanding How Social Security & Medicare Form The Cornerstone Of The American Welfare State

"I've paid for my Social Security & Medicare benefits & have a right to collect them.  They are not entitlements."  - spoken by many senior citizens who are incorrect in this assessment for many reasons.

 

"You've paid into these programs your whole life.  You've earned them"  - BO speaking about Social Security & Medicare retirement benefits by satellite to a national assembly of AARP (Association Against Retired People) members in New Orleans prior to a live presentation by Paul Ryan on Friday to the same group.  Ryan presented his plan of premium support which is the only plan I know of that gives Medicare a chance @ survival.

 

Now of all the myths about Social Security & Medicare the above two quotes summarize just about the biggest things people love to falsely imagine.

 

Social Security & Medicare (along with Medicaid) form the cornerstone of the American welfare state.

 

Once someone qualifies for Social Security retirement benefits under current rules the formula for determining the amount of retirement payments @ full retirement age is based on a percentage of one's averaged indexed monthly earnings - 90% of the first $767, 32% of amounts from $767 to $4,624, & 15% for amounts over $4,624 of average indexed monthly earnings. 

 

You can readily see that the benefit formula is designed to provide lower wage workers with a greater percentage of their past earnings than higher wage earners receive.  The formula is steeply graduated in favor of lower wage workers.

 

At the beginning of 2012 the average monthly retirement benefit was $1,230 & the maximum retirement benefit was $2,513 for a worker who retired @ age 66 – both  amounts are determined by the above formula.  Do your own examples & arithmetic – for instance a worker who paid the maximum Social Security tax during his working life & retired @ age 66 in 2012 would have paid just under four times more into the system than a person who paid the average Social Security tax over his working life & also retired in 2012 @ age 66.  The higher wage worker would receive only twice the benefit of the average wage worker after paying almost four times as much tax.

 

A review of the above formula & doing your own examples shows that the way the Social Security Administration determines retirement benefits makes Social Security a welfare transfer system instead of a system where you receive benefits that pay your contributions back commensurate with what you put in over the years.

 

To illustrate just how dependent many Americans are on Social Security please consider that two thirds of our seniors depend on Social Security as the main source of their income & for one in five it is the only source of income.  Without Social Security half of all seniors would be living in poverty so naturally seniors love Social Security – but they don't know or don't want to know that it is a welfare transfer system.  It is easier to falsely believe that they paid something in & are getting back what they deserve. 

 

If possible seniors love Medicare even more.  Today's retiring baby boomers are the only people who have paid into Medicare their entire working lives.  Medicare Part A is primarily paid for by the 2.9% payroll tax plus co-pays & deductibles paid for by the recipient.  Medicare Part B is primarily paid for from general tax revenues taken from the U.S. Treasury plus monthly premiums & shared co-pays & deductibles paid for by the recipient.  The monthly premium portion of Medicare Part B paid by seniors amounts to only 25% of the program's cost.  Medicare Part D is under a similar arrangement as Part B & is 75% funded by the U.S. Treasury meaning that the drug plan constitutes a public subsidy of 75% of the cost of the program.

 

So what's not for seniors to like – except that these programs are not financially sustainable?  How unkind is it for our elected reps to let this continue until total collapse of the programs?  It is the elderly & people over 55 who are dependent on these programs who will be hurt the most when the programs collapse.  Just what will these people do then? 

 

Carol & I saw Paul Ryan's premium-support Medicare presentation to AARP mentioned above live on C-SPAN & it could not have been better.  Although there was mild applause from time to time Ryan's presentation was coolly received with many interruptions of boos & trying to shout Ryan down whenever he brought up repealing ObamaCare.  Ryan tried his heart out to get his audience (& the American people) to listen & understand what he was saying & what is @ stake for them & many of us.  Based on the reception a lesser man would have left the stage & gone back to Janesville leaving John Galt to pick up the pieces one day.