Social Security has always been an inter-generational transfer program. Workers pay in, and the money is promptly turned around and sent out to people who have retired. At one point, when the ratio of workers to retirees was high, more money came in than went out. No longer. Now, with relatively fewer workers and relatively more retirees, more money is going out than is coming in. That trend is going to continue, and the difference between the amount going out and the amount coming in will increase.* When the Social Security Trust Fund is exhausted (see the first footnote below), the federal government will have to figure out some other way to get money from workers to pay retirees – and retirees will make sure they do.
Obamacare is another inter-generational transfer program. In fact, it is designed as that. Younger, healthier people are required to buy insurance, at above-market rates, so older, less healthy people (whether workers or not) can buy insurance at below-market rates.** (Here and here.)
Finally, there is the biggest inter-generational program: the deficit. The huge deficits we are incurring today will have to be paid by our children tomorrow. To the extent that the deficits are building for the future, then the young get a benefit from them.*** To the extent that they don’t do that and merely finance current consumption, then the young are being asked to pay the bills for what their parents wanted to buy and didn’t want to pay for.
At some point, we are going to have to ask: How much should we ask the young to pay for
the old, and how much should we ask the old to pay for themselves?
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* Some people say that this “deficit” between what Social Security is now
paying out versus what it is taking in is not a problem because of all the
surpluses that were collected in the past.
There is still a huge balance from past surpluses that won’t disappear
for another twenty years. Actually, the
surpluses in the past were just lent to the federal government to spend on
other things. There is no special fund
that has been set aside. When Social
Security needs more money to pay out benefits than it is collecting in taxes, which
is the situation now, the federal government just goes out and borrows money
and gives it to Social Security to pay to people. (For a detailed post on Social Security, see here.)
** Obviously, there are younger people who are, because of health conditions, not paying above-market rates, and there are older workers in great health who are paying above-market rates for insurance. But on average, the program is designed as an inter-generational transfer program: Healthy young people pay for older, sicker people.
I understand that Obamacare is supposed to be financed, in part, by cuts to Medicare. (Here and here.) That would reduce the inter-generational transfer aspect of Obamacare. It does not eliminate it, however, and it is unclear to me, from a political point of view, how many of those cuts will happen.
*** Examples would be the deficits that financed World War II and the end of the Cold War in the 1980s. The spending in the ‘80s led to not only freedom for many countries, but also reduced defense spending in the ‘90s.
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