The Corner

Medicare and Social Security: What You Pay In vs. What You Will Get (Maybe)

In the Washington Post this morning, there’s an interesting article on the gap between what we pay in taxes for Medicare and Social Security and what we get in exchange. According to data compiled by Eugene Steuerle and Stephanie Rennane of the Urban Institute, many people pay much less in Medicare taxes than they will get in return, while many pay more into Social Security than they are scheduled to receive.

Consider an average-wage two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services – including prescriptions and hospital care – worth $355,000, or about three times what they put in. […]

The same hypothetical couple retiring in 2011 will have paid $614,000 in Social Security taxes, and can expect to collect $555,000 in benefits. They will have paid about 10 percent more into the system than they are likely to get back.

The article mentions that all the money paid in taxes, whether for Social Security or Medicare, is not tucked away in an account to pay benefits in the future. Instead, it goes to current Social Security and Medicare beneficiaries. But the article doesn’t talk about the fact that a lot of the tax money allegedly collected for future benefits — the money in the trust funds — is used to pay for the the government’s daily consumption and gets replaced with IOUs. So, basically, whether one one paid a little or a lot into the system, it doesn’t mean one will get that money back in the future without the federal government increasing taxes and/or debt. And, of course, even increases in taxes and debts are unlikely to be enough to cover for the explosion in Medicare spending.

Relatedly, here is a fascinating article about why in the current system it is so hard to control the growth in health care spending.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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