He states:
Myth: The elderly have "earned" their Social Security and Medicare by their lifelong payroll taxes, which were put aside for their retirement. Not so. Both programs are pay-as-you-go. Today's taxes pay today's benefits; little is "saved." Even if all were saved, most retirees receive benefits that far exceed their payroll taxes. Consider a man who turned 65 in 2010 and earned an average wage ($43,100). Over his expected lifetime, he will receive an inflation-adjusted $417,000 in Social Security and Medicare benefits, compared with taxes paid of $345,000, estimates an Urban Institute study.
As we have demonstrated in excruciating detail, this is FALSE, the Myth is TRUE! Now if a family earns $43,100 pa now then going back some 40 years means that they were making about $4.200 pa in 1970! That was minimum wage almost. If you take the lowest paid person and assume that their salary applies to all you are going to come up with the nonsense that the economist comes up with. Remember that Medicare takes its 3% of your GROSS, no limit like SS.
If one makes an assumption that leads to an erroneous conclusion, than garbage in and garbage out! The economist has apparently put garbage in, and of course there is garbage out. Indeed if one makes $43,100 at age 65 then that person will be subsidized. That to a degree was part of Social Security and Medicare. That is why they call it an insurance and not a defined contribution plan, although it is also somewhat of that types as well.
One could suggest that the economist above do some simple calculations which I believe even an economist may have the simplest of tools to do, with the help of Excel perhaps, and reach a more reasonable conclusion.
What I find worse is that all too many economists will reach the same conclusion without examining the detail. The problem is that anyone who has effectively run a business understanding that details and facts are important, that theories and political views are less useful. It is a true shame that these economists seem to avoid the facts, the details, the results. This example of the $43,100 pa 65 year old is at the end of the financial spectrum, the bottom end.
The conclusion is simple. You cannot use the minimum contribution payer, ie lowest salary, and relate it to the highest distribution receivers, namely greatest benefit recipient, and call that an example for all. That is not only sloppy analysis it is, I believe, an outright misrepresentation.
However, having said this, I have also stated that both systems need significant reform. For example:
Social Security needs:
1. A change in eligibility ages to a moving number dependent upon average lifetime of its participants. Namely if expected life is 77 years then it should not start until 67 or ten years prior to end of life.
2. SS should be just that, not a catch all for every other type of program.
3. SS Funds should not be allowed to be confiscated as was started by the Democrats during the Johnson Administration.
Medicare:
1. Raise the 3% to 4%. Make the 4% apply to all types of income including capital gains. They have already done that to individual home sales so why not apply to investment bankers.
2. Move its eligibility as with SS.
3. Increase Part A and B deductibles, making them means tested.
4. Increase the monthly payment and make it means tested also.
5. Make Medicare payment acceptance mandatory otherwise there will be negative disintermediation. However allow over-rides if possible.
6. As with SS make the fund untouchable!
Just some thoughts.
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