No money has been saved. No investments have been made. No cash has been stashed away in bank vaults. Today’s payroll tax payments are being spent to pay medical bills for today’s retirees. And if any surplus materializes, it’s spent on other government programs. As a result, when today’s workers reach the eligibility age of 65, they will be able to get benefits only if future taxpayers pay (higher) taxes to support them.
Just as Bernie Madoff was able to offer early investors above-market returns, early retirees got a bonanza from Social Security and Medicare. That’s the way chain-letter finance works. But in the long run, there’s no free lunch. That’s why things look so dismal for young people entering the labor market today.
The return from Medicare has been very much in the news lately because of an Urban Institute findingthat seniors are getting a lot more out of Medicare than they put in. This conclusion is being used to justify cuts in Medicare spending favored by both Democrats and Republicans.
There is no question that Medicare needs reforming. But the Urban Institute paints a picture that is too rosy. That report failed to account for income taxes seniors pay to support Medicare, failed to adjust for the full measure of Medicare cuts under health reform (ObamaCare) and treated Medicare promises as though they are as secure as government bonds, even though they clearly are not.
Regardless of who cranks the numbers, the reality remains the same. The generations who will be hit the hardest by Medicare reform are the same people who weren’t going to get a good deal from the system even without reform.