Monday, April 9, 2012

Keep Your Eye on the Ball

Robert Samuelson has some fair points in this column about why he thinks that Social Security should be considered "welfare," but he falls into an all-too-common trap: conflating Social Security benefits with Medicare benefits.  Here's the crux of Samuelson's piece:
With favorable demographics, contradictions were bearable. Early Social Security beneficiaries received huge windfalls. A one-earner couple with average wages retiring at 65 in 1960 received lifetime benefits equal to nearly 14 times their payroll taxes, even if those taxes had been saved and invested (which they weren’t), calculate Eugene Steuerle and Stephanie Rennane of the Urban Institute...
Although new recipients have paid payroll taxes higher and longer than their predecessors, their benefits still exceed taxes paid even assuming (again, fictitiously) that they had been invested. A two-earner couple with average wages retiring in 2010 would receive lifetime Social Security and Medicare benefits worth $906,000 compared with taxes of $704,000, estimate Steuerle and Rennane.
Except Steuerle and Rennane's analysis shows that this average couple would receive fewer dollars back in Social Security than it paid in Social Security taxes---$555,000 in benefits for $588,000 in taxes.  Is getting less than what you paid for in taxes now welfare?  There is a slight aspect of income redistribution for Social Security: low-income workers receive somewhat more in benefits than they paid in taxes, and upper-income earners receive somewhat less.  However, this redistribution does not change the fact that the average Social Security beneficiary pays more into the system that he or she receives out of it.

What really drives this disparity between retirement taxes and benefits is Medicare.  Reforming the trajectory of Medicare may be an important topic---however, it is not necessarily connected to Social Security.  Contrary to the main argument of his column, the statistics cited by Samuelson suggest the sustainability of Social Security as a retirement program.  Indeed, the surplus of an individual's Social Security taxes (relative to benefits received) helps defray the cost of Medicare spending.

No comments:

Post a Comment