Thursday, June 25, 2015

Spending Other People's Money, aka OPM ...The Taxing of Future Generations for Government Mandated 'Entitlement' Promises Has Become a 'Great' American Political Tradition ... To Future Generations, These Entitlements Represent Frauds, Ponzi Schemes, Scams, or Can Kicking

Perhaps the greatest fraud perpetrated by politicians on Americans is allowing us to believe that while working we are paying fully for the benefits we ultimately receive from the government in the form of Social Security and Medicare.

{For a timely and current analysis of this freebie tendency enjoyed throughout America as a result of legislation, please see ObamaCare Beyond the Handouts. It's subtitled 'We've already proved we can subsidize health care. But which subsidies make sense?'}

The fact is that we pay only for a portion of the benefits to which government programs 'entitle' us. The 'pay-go- approach and 'can kicking' methodology in fact passes the vast majority of those costs on to future generations. It's called 'pay-go' but the total 'pay' doesn't happen until after the worker-beneficiary has 'gone' from the workforce.

The Medicare example is instructive, but it's not unlike Social Security, public sector pensions and many other underfunded entitlement programs sponsored by government officials. It may not be a fraud or a Ponzi scheme, and it may not be a scam, but it certainly is both unfair to, and unsustainable by. future generations of working Americans as our society ages.

Our Entitlement Problem for the Next Generation, in One CBO Chart tells the story succinctly and revealingly:

The Congressional Budget Office’s 2015 Long-Term Budget Outlook analyzes the mean lifetime Medicare payroll taxes and benefits relative to lifetime earnings, by decade of birth.
Congressional Budget Office
"The Congressional Budget Office released its annual update last week regarding the long-term budget outlook. In that document, one chart in particular demonstrated the financial difficulties caused by an entitlement system that has promised Americans more in benefits than it can deliver.

Figure 2-5, on Page 47 of the CBO report, analyzes the average lifetime Medicare benefits and taxes for cohorts of the population based on their decades of birth. Individuals born in the 1940s will receive, on average, Medicare benefits equal to about 7% of their lifetime earnings. Those born in the 1960s will receive lifetime Medicare benefits equal to about 11% of their average lifetime earnings, and those born in the 1950s get benefits equal to about 9% of their earnings. In all three cases, the lifetime benefits received from Medicare will vastly exceed the lifetime taxes paid in. Most cohorts, CBO said, will pay about 2% of taxes relative to their lifetime earnings.

These findings echo reports by Eugene Steuerle and colleagues at the Urban Institute analyzing Social Security and Medicare benefits over a lifetime. Their most recent series of estimates, released in November 2013, found that a two-earner couple in which both make average wages and turn 65 in 2015 will receive more than three times as much in lifetime Medicare benefits ($427,000) as they paid over their career in Medicare taxes ($141,000)."

Summing Up

Facts are facts.

Politicians enact legislation which provides current voters future benefits and purportedly pays for them by the taxation of current workers.

But if the tax is insufficient to fund the promised benefits, which invariably is the case, future taxpayers necessarily get the bill.

Spending other people's money (OPM) is a well established American political tradition and practice. It's a vote getter, pure and simple.

The OPM that relates to entitlements spending, however, is going to be an unaffordable burden for future Americans, our kids  and grandkids.

And as more workers leave the workforce and exceed the  number of youngsters entering the workforce in future years, the 'problem' will become a genuine national crisis.

Do you think this will receive serious discussion in the upcoming 2016 presidential campaign?  Neither do I.

That's my take.

Thanks. Bob.

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