The five biggest lies about entitlement programs

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A big part of the lie is that these projections aren't applied to the other side of the ledger — the programs' revenues and growth in the U.S. economy projected out to infinity. The latter, the trustees calculate, would be about $1.5 quadrillion. (How's that for a big number?) For Social Security, the infinite gap accounts for only 1.3% of infinite GDP, which would bring it about to the level we spend today on defense and veterans affairs.

Lie No. 4: You're paying too much (or too little) for your benefits.

This is a double-barreled lie, based on the misconception that Social Security and Medicare are retirement funds. They're not; they're insurance programs. What you recover depends on your personal circumstances, but the point is they're there when you need them.

The idea that the social insurance programs will impoverish today's children while their grandparents make out like bandits was recently rehashed in a Wall Street Journal op-ed by former hedge fund manager Stanley Druckenmiller and two colleagues. "A typical third-grader will get back (in present value terms) only 75 cents for every dollar he contributes to Social Security over his lifetime," they wrote. "Meanwhile, many seniors with greater means nearing retirement age will pocket a handsome profit."

That isn't true, according to C. Eugene Steuerle and Stephanie Rennane of the Urban Institute, whose 2011 calculations are the basis for most such assertions. They computed that a couple retiring in 2010 with annual earnings of $113,000 would have paid about $750,000 in 2011 dollars into Social Security over their working lives, and collect (on average) $665,000 in lifetime benefits. (The tax computation includes both the employee's and employer's share, and is adjusted for inflation and a small investment gain; the benefit calculation is also discounted for future inflation.)

Not exactly a "handsome profit," but that's how insurance works. Some people will die two years into retirement, others will live to 100. Some families will be sustained by Social Security, some will collect disability pay, some will receive dependent benefits, some won't need any of those payments. But no other public or commercial insurer provides all those potential benefits at Social Security's low cost.

What skews the calculations is Medicare, which leads us to:

Lie No. 5: Medicare, Social Security — it's all the same.

Not at all. Medicare is in big trouble, almost exclusively because of rising healthcare costs. Social Security can be financially tweaked by changing its tax or benefit structure, or both. That won't work with Medicare, which is the prisoner of this big external factor. Steuerle's and Rennane's calculations show how these costs outstrip individual contributions — our high-income couple retiring in 2010 will have paid $149,000 in taxes, yet receive $351,000 in lifetime benefits. The imbalance increases for future retirees.

The lesson is that it's misleading to lump these two programs together as if they have the same issues amenable to the same solutions. But that's what you usually hear: "Social Security is mostly OK, Medicare is in big trouble, so entitlement programs are in big trouble and we should cut Social Security." See how much trouble a lie can make?

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.

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