I have an idea. What if, for everyone under the age 40 right now, we split SS/Medicare into two plans: Limited and Full benefits? At the age 40, when you're just settled enough to look at future planning, you get to choose which one you want to go on when you retire. The catch is that if you select Full your payroll taxes go up to a higher rate. Limited will still be a decent plan, but full will include things such as Part D and maybe add some additional programs to sweeten the pot.
My guess is, given a clearly list of benefits paying the higher rate would provide, even the most anti-tax conservatives would opt in to the tax hike as part of their retirement plan. Considering the 40s and 50s are priming earning years for most people, it would produce enough revenue to cover the shortfall. And the ones who don't take it will save the government a ton of future spending.
Will the "limited" option lead to the moral hazard that in retirement the "limited option" pickers will be a moral hazard, because they will need government subsidies to avoid being old bag ladies and gentlemen. That is the question. I have next to zero confidence that 80% of Americans can adequately plan for their retirement future, and thus the need for a stream of income that creditors cannot touch, that is enough for the basics, when one reaches that certain age when their human capital is de minimus.
Do you agree King?
I thought about that. It all depends on what benefits are offered in each plan.
Another idea could be to make the payroll tax regressive with age, since young folks are less likely to make good long term financial decisions, teenagers would pay the highest rate into SS to get them started right and it would decline every five years or so until retirement. It would also give Americans the feeling of receiving regular tax cuts as they age so they'd be less likely to complain about it.
I like this idea King, but it should only apply to the employee side of the payroll tax. If it were applied to the employer side, you'd see employers discriminating against the young, which would mean young workers would have a harder time getting into the workforce and perhaps reduce the effectiveness of the measure in making Social Security more solvent.
