How can you tell that Medicare and Social Security aren’t
handouts? According to President Obama, it’s because seniors have
earned them, by paying into the programs.
Via TPM, here’s what Obama told the American Association of
Retired Persons (AARP) earlier today:

“There’s been a lot of talk about Medicare and Social Security
in this campaign, as there should be,” Obama said. “And these are
bedrock commitments that Americas makes to its seniors, and I
consider those commitments unshakable. But, given the
conversations that have been out there in the political arena
lately, I want to emphasize, Medicare and Social Security are not
handouts. You’ve paid into these programs your whole lives. You’ve
earned them.”

It’s true that workers pay Medicare and Social Security taxes
over the course of their careers. But have they “earned” them? Not
in the sense of having paid into the system equal to what they get
out.

A single man or woman who
turned 65 in 2010 and earned the 2011 average U.S. wage of $43,500
will pay $58,000 in Medicare taxes and $294,000 in Social Security
taxes, making for a total of $352,000,
according to a 2011 report by the Urban Institute. 

But the average Social Security and Medicare benefits that
single man will recieve will come to about $432,000. And the single
woman will get benefits worth about $475,000 out of the
system. 

This isn’t a new development either. The same Urban Institute
report shows that the average wage-earning man who turned 65 in
1980 would pay about $104,000 into the two entitlement programs,
but get benefits worth $265,000. A single woman in 1980 would pay
in the same amount and get benefits worth $330,000. Single earner
couples fare even better. In 1980, they’d pay in the same $104,000
— and get an average of $512,000 in benefits. Today that single
earner couple would pay $352,000 into the system and get $798,000
out. 

This isn’t about “earning” one’s own benefits. With Medicare,
money being paid in isn’t being held for the individual who paid
for it. As the Associated Press reported
last year, “Many workers may believe their Medicare payroll taxes
are going for their own insurance after they retire, but the money
is actually used to pay the bills of seniors currently on the
program.”

If more seniors knew this (not that either of our current
president or his Republican rival likely to tell them), they might
think differently about making changes to the program. The latest
Reason-Rupe poll
found that 68 percent of voters say they’d be willing to accept
some cuts to their own Medicare benefits if they’re guaranteed to
receive benefits equal to what they and their employers paid
out.

The point, though, is that Medicare is a transfer program in
which the federal government takes money from current workers and
gives it to retirees. One might call that a handout. 

Social Security, meanwhile, certainly isn’t a guarantee. Obama
might consider the retirement program a “bedrock commitment,” but
the Supreme Court doesn’t. The
court has ruled on two difference occasions that citizens are
not entitled to the dollars they pay into the entitlement. Money
paid into the program can be used to fund other totally unrelated
government activities, just like any other tax dollars. The
commitment to the program is dependent on the whim of politicians
who are legally allowed to tax you for one thing and use that same
money to pay for something else. That — and nothing else — is what
seniors paying into Social Security have actually earned. 

Reason’s Nick Gillespie and Veronique de Rugy covered
a lot of this ground in their August cover story, “Generational
Warfare.”