The Case for Entitlement Reform: Taxpayer Contributions Fall Dangerously Short of Received Benefits

Kathryn Nix / February 28, 2011

Medicare and Social Security are important retirement security programs for millions of Americans. But they are ticking time bombs with trillions in future unfunded obligations that will bankrupt America if they are not changed. Though awareness of this critical situation continues to grow, Americans remain reluctant to support reform, understandably fearful of the prospect of paying into a program and then not receiving what they paid for. As Ricardo Alonso-Zaldivar wrote for the AP, “You paid your Medicare taxes all those years and think you deserve your money’s worth: full benefits after you retire.”

But recent research from the Urban Institute’s C. Eugene Steuerle and Stephanie Rennane shows that Americans actually receive benefits well in excess of what they pay in. The truth is, American taxpayers do not actually pay for their own future retirement benefits. Instead, their tax dollars pay for current Medicare and Social Security beneficiaries. Steuerle writes, “The complication is that [recent retirees’] Social Security taxes mainly supported their parents in retirement, and the only way they can do as well in a money-in-money-out (at times partially funded) system is to foist higher tax rates on their children.” (more…)