Strengthening Constitutional Self-Government

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Health Care

The Buy-In Myth

Ross Douthat writes:

Asking a population that's increasingly brown and beige to accept punishing tax rates while white seniors receive roughly $3 in Medicare benefits for every dollar they paid in (the projected ratio in the 2030s) promises to polarize the country along racial as well as generational lines.

Wouldn't it be more accurate to say, they will receive "roughly $3 in Medicare benefits for every dollar they have paid to benefit those who have retired before them"?

Categories > Health Care

Discussions - 10 Comments

The Baby Boomers will get more out of Medicare and Social Security than they paid in. There were more Baby Boomers supporting retired Greatest Generationers than there will be Gen Xers/Millenials supporting Baby Boomers by a significant margin. Additionally, the Baby Boomers will live ten years longer and consume an exponentially greater amount of health care resources as they age. They've been at the helm of the ship of state for some time now and have chosen to do nothing about the impending crisis. I don't expect they'll get much sympathy. Assuming skin color will play a factor in the general angst is a rather odd assumption on Mr. Douthat's part.

There is nothing wrong with getting $3 for every dollar you pay in. That is the entire point of investing. You open an 401k because you want to get more out than you put in. For those against getting more out than you put in the mattress is a good choice.

The way I see it you owe those people U.S. bond returns on every dollar they put in, which would significantly disrupt the whole $3 per dollar argument.

The only reason to polarize the country along racial or generation lines rests in not wanting to take the time to explain.

In addition the old folks can always point out that when they put in that dollar in it bought them a pack of cigarettes, a gallon of gas and a coke. Nowadays a pack of cigarettes runs around 5, a gallon of gas around 4, and a coke costs a whole dollar. Old folks could say, look I am entitled to 10 to 1.

There would be nothing wrong with getting a good return on one's investment, if one's money were well invested, and if there were an investment. The trouble is, there is no investment fund holding your money. There are only current taxes. Workers don't put money in. They pay current bills, nothing more. The powers that be have been happy to pretend that it's different, however. Hence people think they have put money into a something like a fund.

Both of you raise good points, but I would only add that our entitlement system has become an investment in the same sense that a Ponzi Scheme is an investment.

Andrew has it, though what he says is just an efficient summary of what Richard says immediately above. Without future taxpayers as suckers there is no payout. Since we are talking about government, it is the suckers who must pay up or go to prison, not the perpetrators and purveyors of the grand scheme.

I always end up making arguments I didn't intend on making, which is why I keep comming back.

"The trouble is, there is no investment fund holding your money. There are only current taxes. Workers don't put money in. They pay current bills, nothing more. The powers that be have been happy to pretend that it's different, however. Hence people think they have put money into a something like a fund."

I think if you are an old school farmer you could understand this, you do have seperate accounts for the farm, despite flow thru taxes, you have legal+IRS reasons for not co-mingling funds. Why would you go borrow money at 10% for personal use if your business had a line of credit at 4%?

So the idea of not co-mingling funds is a legal requirement for businesses above the mom and pop partnership/farm level. It is also a requirement for funds, and you have FINRA and all of that jazz which polices all the requirements for annuities, insurance, mutual funds, stocks, bonds, trusts and each of these various legal investments have their own tax implications.

"The trouble is, there is no investment fund holding your money." -True. (except for the private investment funds holding U.S. treasuries, TIPS)

"There are only current taxes."-True (but also false, the treasury is not legally allowed to have a negative account ballance, so it must sell bonds if current taxes are insufficient.)

"Workers don't put money in. They pay current bills, nothing more."- True technically, in all times where the budget is in a deficit, if we are in a surplus the treasury can actually buy back debt.

"The powers that be have been happy to pretend that it's different, however. Hence people think they have put money into a something like a fund."

Well I kind of agree with the powers that be, but this is because no one has ever accused me of not having an immagination. I don't need a legal fund to understand why the powers that be would be against a legal fund, given the realities of deficit financing and spending.

The more money the treasury has to buy (by issueing bonds) the higher the interest rate on that debt. (unless you want to be a smart ass empirically and point out that the federal reserve can step in and sell it(money)...thus lowering the interest rate on the debt!)

Thus by comingling funds the treasury maintains a lower rate of interest on treasuries than it would otherwise be able to get (ceteris paribus, not accounting for the Federal Reserve.)

So the fact that there isn't a seperate account strengthens my argument that they are entitled to U.S. bond returns, because if there was a seperate account and co-mingling could not occur, bond rates would have been higher.

You understand that a seperate account would simply be a legal contrivance anyways? The Social Security Lock Box was a main component of Al Gore's presidential run, and it was rejected by Bush who wanted to be able to cut taxes.

When I think about my payroll taxes, I think of them as taxes designated to pay current retirees, with a small surplus for retirees in the next few years.

I presume that the government will not give me much of a return when I retire, and may not give me anything when I retire. The law says that they don't have to. And I presume that the government will not be paying anyone who has any other money saved.

To me, that's the only honest way to see it. Some politicians try to make it seem that the payroll taxes are for our own retirement, or that there is a generational compact. Neither is true. To believe that I should get the average rate of return on bonds over the years I have paid payroll taxes, is to fall for dangerous myth.

A very easy way to fund social security and medicare and keep the accounts seperate. Have congress put the debt cap at something like 40 trillion. Have treasury issue bonds, have the fed buy them, then have treasury use the money to create a trust that buys the bonds from the fed and puts them in a trust fund, a deficit ballance in social security or medicaire would cause the trust to sell bonds. This would be somewhat inefficient, but maybe worthwhile if necessary. The way I look at it, is there are lots of ways to look at the deficit, but understating it for the longest time because you didn't have a trust and then going out to 2080 and overstating it, causes illogical fear and uncertainty.

Sometimes it really is best to set up a trust, especially if you trust the trustee more than you do the beneficiaries. Given the sort of political games that could be played, it might be worthwhile to actually do the trust explicitly rather than implicitly regardless of how ridiculous it would be in terms of practical mechanics.

After all if we are focusing on practical mechanics, it hardly makes sense to pay folks lots of money to use harsh chemicals to dig a yellow rock out the ground, only so we can use more energy to melt it down into bars, and lock it in massive metal boxes where we pay people with the cleanest legal records lots of money to watch over and audit it, only so we can use leverage to trade paper and electronic multiples of its actual existance.

John. If the government set up an actual trust, that was truly segregated from other money controlled by the government, I would believe that my Social Security taxes were for my own retirement. Until that happens, I will continue to believe that they are simply contributions to general revenue--albeit contributions that the powers that be want me to think are something else.

The Social Security Act (Act of August 14, 1935) [H. R. 7260] PREAMBLE

An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes.

Social Security was never intended merely for retirement benefits. See: http://www.ssa.gov/history/35actinx.html

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