Should US Taxpayers Cover Ukraine’s Pensions?

Thus far, the US federal government has spent about $9 billion on Ukrainian pensions.

By Marc D. Joffe

If Congress approves President Biden’s next supplemental aid package, the Ukrainian pension payments will continue at a rate of up to $600 million per month. Previous reports of this spending have raised eyebrows. Critics argue that the US should shore up its own retirement system before bailing out that of a foreign nation.

The pension spending is part of a larger effort by the United States and the World Bank to stabilize Ukrainian government finances during the war. Ukraine was already running deficits before Russia invaded in February 2022, but since then, the gap between revenues and expenditures has widened. According to IMF data, Ukraine’s general government financing gap increased from 4.0 percent of Gross Domestic Product in 2021 to 18.6 percent of GDP in 2023. The gap would have been much wider had the World Bank not injected foreign funds, primarily from the US, into the nation’s government sector.

Despite the large deficit, Ukraine’s price inflation is only moderate, most recently estimated at 5.1 percent annually. Ukraine is not having to print money to cover its budget deficits because it is also receiving loans from the IMF and other international financial institutions. Unless Ukraine’s economy improves, these loans will have to be written down, ultimately adding to the costs borne by US taxpayers.

About 10 million Ukrainians – more than a quarter of the country’s 36.7 million people – receive pensions. This high level of pension dependency is the result of Ukraine’s aging population and the relatively low eligibility age. While Americans become eligible for full social security benefits only at age 66-1/2 (increasing to 67 in 2027), the retirement age in Ukraine is 60. Also, Ukraine’s government provides pensions to certain categories of younger people including survivors, the disabled, and those working in certain privileged professions. Those professions include teachers, doctors, artists, and public transportation drivers. Individuals working in these fields for a sufficient number of years are able to retire at 50 or 55.

But the average pension is only $146 per month. Like other former Soviet states, Ukraine has a high rate of old age poverty. Under Communism and in its immediate aftermath, most people did not earn enough to save for retirement. The elderly must either rely on meager state pensions or work. The latter option may be difficult for the many older Ukrainians in poor physical condition.

So, while it is unfair to force American taxpayers to pay Ukrainian pensions (or those of any foreign country), ending support could result in real human suffering. Further, if we had a choice of being taxed to pay for weapons or taxed to pay for pensions, many of us who favor peace would likely prefer the latter.

Peace is a much better solution to Ukraine’s pension problems. A durable ceasefire would allow most soldiers to return to the private economy and would encourage many refugees to return. Their return to the private workforce would generate more domestic tax revenue to fund the nation’s pensions without foreign support. What a great combination: peace and lower taxes for Americans.

Ending US budget support would also oblige Ukraine officials to take a more critical look at who should be on the pension rolls. The government might increase the retirement age closer to US levels and eliminate profession-based pension privileges.

While war advocates emphasize that extending hostilities will weaken Russia, it also weakens Ukraine. The quicker the war ends, the greater the chance that Ukraine’s economy can get back on its feet and support those retirees who absolutely cannot survive on their own.

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