The Corner

Simple Solutions to Our Unsustainable Fiscal Path

Arnold Kling of the Mercatus Center has proposed some simple solutions to address the looming entitlement crisis. “The dire future fiscal position,” he explains, “comes largely from promises being made to people who will be eligible for Social Security and Medicare in 2020 or later.” Hence the solutions rely on scaling back those promises to more realistic levels.

For Social Security:

My proposal is to increase the age of eligibility for Social Security by enough to restore the life expectancy of a Social Security recipient to 13 years, as it was around the time that the program was enacted. The goal would be to complete this restoration for those who will be 65 in 2032. By then, life expectancy at 65 is likely to have increased by another 2 years, to 20.7 years, because it has been going up at a rate of about 1 year per decade. That means that in 2032, the age of eligibility for Social Security ought to be 73, which would leave a life expectancy at eligibility of 12.7 years. . . .

The intent is not to keep people working and paying taxes until age 73. In fact, my proposal assumes no additional revenue from payroll taxes, and this assumption could be “hard-coded” by exempting workers between age 67 and 73 from the payroll tax.

For Medicare, his proposal transforms Medicare into a combination of a voucher and extreme catastrophic insurance.

Under the proposal here, as the U.S. population ages, the spending on catastrophic coverage will go up, and the amount available for vouchers will decline, particularly on a per capita basis. By 2020, this plan will allow vouchers of $6,000 for seniors aged 75 and up, with only $2110 for seniors aged 65-74. By 2030, the voucher for seniors aged 75 and up would be $5,000, and the voucher for seniors aged 65-74 would be just $700. Keep in mind that these figures would go up by the ratio of nominal GDP in those years to nominal GDP today. The net result is that by 2030 seniors would have to fund much of their health expenses, including health insurance, out of their personal savings.

More here.

And this is what unsustainable looks like. 3.3.2010.jpg


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