Thursday, August 2, 2012

Entitlements vs. the Safety Net

The National Center for Policy Analysis’s Daily Policy Digest summarizes “Generational Warfare,” a new article in Reason Magazine by Nick Gillespie and Veronique de Rugy.

As a young, new generation enters the workforce, they are subjected to taxes that will be allocated to a generation gearing up for retirement. However, while this may have been an attractive option in the 1960s, it is now a strain on a fragile economy and a generation that has a hard time finding work as it is, say Nick Gillespie, editor in chief of, and Veronique de Rugy, a senior research fellow at the Mercatus Center.

The promise of a social safety net for those that are retired and sick may seem worth fighting for, but the data paints a different picture.

  • Under the Federal Insurance Contributions Act, workers must pay 6.2 percent and 1.45 percent of their incomes to fund the entitlement programs Social Security and Medicare, respectively.
  • In 1940 there were 159 workers to each beneficiary, while today there are fewer than three.
  • The Social Security program allotted $725 billion in 2011 with 56 million Americans receiving an average of $1,229 each month.
  • That same year, Medicare spent approximately $560 billion to provide health care for 49 million people.

In addition to these costs, many seniors that benefit from these programs do not need them.

  • Citizens age 65 and older have lower poverty rates than any other group, and their poverty rates have fallen in the last 50 years.
  • The average wealth of seniors has increased almost 80 percent in the past 20 years.
  • In 2010, only 11 percent of households headed by people age 65 or older were in poverty.
  • Meanwhile, 22 percent of households headed by people under the age of 35 were in poverty.

Politics has gotten in the way of sensible policy, and as a result the current structure of these programs is not sustainable. Social Security's trust fund is set to be depleted by 2033 while Medicare's trust fund is set to be depleted by 2024.

Baby boomers and those soon to be retired argue that there is an obligation for them to receive benefits from Social Security and Medicare because they paid into these programs. However, the Supreme Court undermined this assertion in Flemming v. Nestor, when it ruled that no one is legally entitled to the money.

Source: Nick Gillespie and Veronique  de Rugy, "Generational Warfare," Reason Magazine, August/September 2012.

For text:


Arne said...

While "there is something wrong with perpetuating a system that doles out scarce tax dollars to recipients regardless of need" sounds good if you don't think about it, it would actually rule out government from providing roads as well.

WilliamLarsen said...

"In 1940 there were 159 workers to each beneficiary, while today there are fewer than three." what a play on numbers. First in 1940 the only ones who could retire had to be age 65 or over and they had to have paid into social security. 1940 was the first year benefits were paid. In short you had basically one cohort of retirees and 45 cohorts of workers. In 1941 you could have two cohorts of retirees and 45 cohorts of workers. In simple terms it was an immature program. If you were to look at those age 65 and over who numbered nearly 9 million to those who were working 49 million, the ratio is close to 5.0