Falling Short: Social Security, Medicare, and Payroll Taxes
Published: April 10, 2018
Many people believe Social Security and Medicare are fully funded by payroll taxes. In reality, both programs are increasingly relying on regular tax revenue and ultimately more federal debt to stay afloat. Unless both programs are put on sustainable fiscal path, their ongoing expansion will crowd out all other government spending.
- What can be done to reform Social Security to put it on a financially viable path?
- How can Medicare be reformed while still protecting low-income seniors?
- Read John Cogan’s book The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs to learn more about the federal program; available here.
- Listen as John Cogan talks with EconTalk host Russ Roberts about Cogan's book, The High Cost of Good Intentions, available here.
- Read John Cochrane’s blog on John Cogan’s book, The High Cost of Good Intentions, available here.
- Read John Cogan’s chapter, “Entitlements and the Budget,” in Blueprint for America, available here.
- John Cogan discusses social programs on Area 45: Is Entitlement Reform Possible? Available here.
Many people believe Social Security and Medicare are fully funded by payroll taxes.
But the unfortunate truth is that both programs are increasingly relying on regular tax revenue – and ultimately more federal debt – to stay afloat.
It’s been this way for years now. In 2016 alone, $90 billion of Social Security funding didn’t come from payroll taxes... and that amount is only continuing to grow.
Medicare gets even less of its money from payroll taxes. Over three hundred billion dollars came from general tax funds to cover physician care and prescription drugs, meaning only 37% of its spending was funded by payroll taxes.
In the end, Social Security and Medicare are responsible for half of the current federal deficit. And due to our aging population, that share is growing over time.
The uncomfortable truth is that what retirees have paid toward Social Security has been spent, and what they’ve paid toward Medicare is only a fraction of what they’ve been promised they’ll receive.
Unless we reform both programs to lower their future costs, we’ll be left with a mountain of debt and we won’t be able to afford any other government services.