Have You Paid for Government Retirement Benefits?

Ezra Klein of The Washington Post periodically writes provocative columns about Social Security and Medicare. One of his basic points is that seniors haven’t really paid for the benefits they’re expecting to receive during retirement. Most have paid less in Medicare payroll taxes than they’ll receive in benefits. For Social Security, it’s more of a mixed bag. The result is that taxes have to rise or other spending has to decline to pay for those benefits. But he misses a few other points that should be made. We all could have saved and invested more if during our working years we hadn’t been paying those taxes to pay for other people’s benefits. Also, he’s comparing taxes paid in with estimated benefits to be paid. He ignores the income we could have earned by investing those taxes that the government spent.

Even so, the programs aren’t designed to fund benefits in advance, and there was no promise or guarantee that you would receive the current benefits for the rest of your life. The fact is, the government overpromised to previous generations and something has to change. As I’ve said many times, we have to depend more and more on our own resources to pay for retirement expenses. Policymakers might find a way to make things work without reducing scheduled benefits, but I wouldn’t count on it.

The point here isn’t that seniors don’t deserve their benefits, or have done something wrong. It’s that the structure and politics of the federal budget right now are leading to a situation in which spending on retirees and keeping taxes low on current workers could really shortchange needed investments in our future. And, while I don’t want to fall into the trap of pretending that government exists to pay out future Social Security benefits, if future growth is low, it’s very difficult to imagine promises to current workers being kept.