Entitlement Schemes

One of the myths politicians like to perpetuate is that programs like Social Security and Medicare are types of investment or insurance programs. Characterizing them this way allows for people to think that they are all contributing to their own retirement or health-care by setting aside some of their paycheck, to be used when they are older.

In reality, both programs are more like the type of Ponzi scheme the government jailed Bernard Madoff for. Money paid by employees and employers today goes to retirees today. If it wasn’t government doing it, it would no doubt be illegal.

So, with that in mind comes this recent suggestion from Senate Majority Leader Harry Reid to raise Medicare taxes on wealthier Americans:

Reid’s proposal would apply Medicare taxes to non-wage income earned from capital gains, dividends, interest, royalties and partnerships for U.S. couples earning more than $250,000, the aides said. He’s also considering an alternative that would simply increase the 1.45 percent Medicare tax on salaries of couples who earn more than $250,000, one of the aides said.

Not only would the money paid by those wealthier Americans not go to their Medicare benefits, they will not benefit any more for contributing more. Also, premiums can be higher for those wealthier Americans when they start to collect their benefits. So, in reality, as this proposal shows, Medicare is more of a social welfare program in that some people pay more than others.

But politicians don’t often like to point that out. They would prefer for people to think that what they put in is what they get back. That might make them less likely to believe that such programs could be headed for a financial crisis.

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