...shifting from a pay-as-you-go program to a funded system entails significant “transition costs,” which are borne by the very citizens who would decide to make the change. Since today’s Social Security, Medicare, and Medicaid benefits are paid from today’s taxes, if we decide to pre-fund these programs then the current generation must pay twice: first for current beneficiaries, and second for their own benefits. Put simply, to shift from an unfunded program to a funded program, someone must contribute extra funds. When the defining characteristic of domestic policy has been for voters to shift their own cost burdens to future generations, it is highly optimistic to expect current voters to accept a double burden. The expected result is to kick the can down the road, such that deficits grow and future taxpayers become even worse off.
Thursday, September 23, 2010
Andrew Biggs argues that defined benefit plans like Social Security are the reason that government grows despite the fact that most Americans oppose bigger government. Biggs's main point is that the transition costs of moving from a defined benefit plan to a defined contribution plan stymie the political process: