How can you tell that Medicare and Social Security aren't handouts? According to President Obama, it's because seniors have earned them, by paying into the programs. Via TPM, here's what Obama told the American Association of Retired Persons (AARP) earlier today:
"There's been a lot of talk about Medicare and Social Security in this campaign, as there should be," Obama said. "And these are bedrock commitments that Americas makes to its seniors, and I consider those commitments unshakable. But, given the conversations that have been out there in the political arena lately, I want to emphasize, Medicare and Social Security are not handouts. You've paid into these programs your whole lives. You've earned them."
It's true that workers pay Medicare and Social Security taxes over the course of their careers. But have they "earned" them? Not in the sense of having paid into the system equal to what they get out.
A single man or woman who turned 65 in 2010 and earned the 2011 average U.S. wage of $43,500 will pay $58,000 in Medicare taxes and $294,000 in Social Security taxes, making for a total of $352,000, according to a 2011 report by the Urban Institute.
But the average Social Security and Medicare benefits that single man will recieve will come to about $432,000. And the single woman will get benefits worth about $475,000 out of the system.
This isn't a new development either. The same Urban Institute report shows that the average wage-earning man who turned 65 in 1980 would pay about $104,000 into the two entitlement programs, but get benefits worth $265,000. A single woman in 1980 would pay in the same amount and get benefits worth $330,000. Single earner couples fare even better. In 1980, they'd pay in the same $104,000 — and get an average of $512,000 in benefits. Today that single earner couple would pay $352,000 into the system and get $798,000 out.
This isn't about "earning" one's own benefits. With Medicare, money being paid in isn't being held for the individual who paid for it. As the Associated Press reported last year, "Many workers may believe their Medicare payroll taxes are going for their own insurance after they retire, but the money is actually used to pay the bills of seniors currently on the program."
If more seniors knew this (not that either of our current president or his Republican rival likely to tell them), they might think differently about making changes to the program. The latest Reason-Rupe poll found that 68 percent of voters say they’d be willing to accept some cuts to their own Medicare benefits if they’re guaranteed to receive benefits equal to what they and their employers paid out.
The point, though, is that Medicare is a transfer program in which the federal government takes money from current workers and gives it to retirees. One might call that a handout.
Social Security, meanwhile, certainly isn't a guarantee. Obama might consider the retirement program a "bedrock commitment," but the Supreme Court doesn't. The court has ruled on two difference occasions that citizens are not entitled to the dollars they pay into the entitlement. Money paid into the program can be used to fund other totally unrelated government activities, just like any other tax dollars. The commitment to the program is dependent on the whim of politicians who are legally allowed to tax you for one thing and use that same money to pay for something else. That — and nothing else — is what seniors paying into Social Security have actually earned.
Reason's Nick Gillespie and Veronique de Rugy covered a lot of this ground in their August cover story, "Generational Warfare."