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They also assume that medical expenses will continue to rise well above normal inflation rates, until medical costs per person reach four times what they are in every other developed country. This is possible; no doubt given the increased longevity of our seniors \(itself a medical it likely? Let’s hope not. Even conceding the forecasts, what do they come to? Kotlikoff and Burns claim they will require “doubling the payroll tax in the short run” \(by which 2075. This ignores the possibility that other taxesfor instance on income or wealthmight be used to pay the bills. And if they were, would taxes have to be raised by the full amount, in this century, required to cover the gap? The answer is no. The national debt is eternal, and the future goes on forever ahead. Those debts not paid in this century can actually be rolled over into the century after that. They will provide new financial assets for future generations to hold. And while this may seem a shocking suggestion, one should realize we have been doing just exactly that with the national debt for 200 years, and no one seems to be any worse off for it. Oh. A few years ago, Kotlikoff evidently got the government to prepare a special analysis of the inter-generational accounting “problem.” Much to his distress, the government cut the paper from the published budget in 2004. It is possible that they did this to save Bush’s third tax cut, as Kotlikoff and Burns now allege. Far be it from me to defend Team Bush from any charge of improper conduct. But it is also possible that cooler heads in the federal government just thought it better not to concede a flawed case. And it is flawed. For, in fact, the entire characterization of the Social-Securityand-Medicare problem as “inter-generational” is misleading. It conflates and confuses two very different things: the problem of caring for today’s elderly by today’s young, and the problem of paying today for the future care of the elderly tomorrow. The first is a problem that must be faced today, and that will have to be faced at every future date. The second, which is what Kotlikoff and Burns want you to worry about, is an illusion. Today’s population, whether young or old, cannot set aside resources to pay real benefits or provide medical services five, ten, or twenty years from now. All we can do is make promises, as we have done, that certain benefits will be paid and services provided. When the time comes, each year’s needs are met, well or poorly, by production in that year. Only a few things can be stored over long times, and medical care and food are not among them. Moreover, the growing older generation will be with us, whether they are cared for by Social Security and Medicare or not. If they are not, some will their children. Those without children will suffer. And children without living parents will be unburdened, both financially and as a matter of conscience, relative to young people who do have aging parents to support. Thus the real transfer effected, every year, by Social Security and Medicare is not from today’s young to tomorrow’s old. And it is not even from today’s young to today’s old, since that transfer would have to occur in any event. It is, rather, from children without parents to children with parents. And it is from seniors with children to seniors without them. In this way, past work is honored, irrespective of reproductive choices and luck. And current virtue \(the child who not punished. Rather, the basic needs and medical care of all the elderly are taken care of out of a common fund. You cannot imagine the cruelty of family life in America if Social Security and Medicare did not exist. And this is why it is difficult to fathom the folly of Kotlikoff and Burns, in their argument that these two programs should be gradually abolished. Kotlikoff and Burns would replace Social Security by a personally funded pension system with greatly reduced benefits, undoubtedly increasing poverty and insecurity among the old. They would replace Medicare with a weird voucher scheme for private medical But when economists start waving around big numbers, it’s useful to ask, what exactly do they mean? What exactly is the meaning of $45 trillion in net present value? insurance, which would require the government to keep complete and timely records of everyone’s health. They would abolish the payroll tax and impose a national sales tax, spreading the special burden of paying for their own retirement benefits to the elderly themselves, and also to the non-working poor. As in a Bushite’s wet dream, no tax they propose would touch the cash holdings of the idle rich. What actually should be done? Social Security should be left alone. Yes, the Trust Funds will run down as the baby boomers retire. That was the intention of the Greenspan Commission back in 1983. Social Security can perfectly well be funded partly from general revenue, which means that the burden of paying for retirees would be spread beyond workers to those with higher incomes, including the elderly who have financial wealth. What’s wrong with that? Nothing. If it is politically prudent to “keep the Trust Fund solvent,” then Congress could credit the estate tax, plus income tax paid on Social Security benefits, to the Trust Fund. Assuming the estate tax is not repealed, those two measures would go a long way to filling what is, in any event, a purely cosmetic gap. Medicare does have a problem. But it is the larger problem of American health care. The problem is that we lack a rational system to decide who gets what and how much is to be paid. 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