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Friday, November 03, 2006


Social Security and Medicare Problems

Last month the Federal Accounting Standards Advisory Board has proposed to the government that they would have to account for the cost of future Social Security payments each year as people build up entitlements. The FASAB has asked that the United States government to start including future Medicare and Social Security liabilities in current budget deficit figures. Of course the reported deficit would go up by hundreds of billions of dollars a year.

However, under rational expectations this nominal change should be neutral. Looking more abstractly though, more simplicity in government is desirable. Over the long run, government would treat these promises of future benefits more like expenditures. Also, if these benefits are counted in the current budget as liabilities, it’s going to be harder politically to cut them out in the future. One easy way of cutting them out would be to tax them, which wouldn’t be hard to do. If one is in favor of tax hike, they would favor this proposal; however, if one would prefer spending cuts, they probably would not.

Social Security and other related items are big issues in our society today. I agree with those who think that these items are not only liabilities for the future but also promises, whether they will be kept or not. I understand of course why some people are opposed to this idea because of the potential raise in taxes, I don’t want my taxes increased as well. However, I think a possible solution to this is for the government to come up with a plan for Social Security and Medicare is to collect funds without having to raise taxes all the time. The government could figure out a way for there to be a set price and have the money go straight to Social Security or Medicare. I suppose some would oppose this idea though because it almost acts like a contract, since money will have to be “dished” out from now on to these issues. They should not be done away with though, so many people depend on them, the government just needs to come up with better ideas to raise money for them without always raising the taxes.

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