Michael Lissack don’t use it you don’t lose it. With equal tax treatment and medical IRA’s we would see a process begin that would have tens of millions of individuals policing the health care market instead of government bureaucrats insurers and employers. By the same token, the government must learn to be more open with problems that have few if any clear answers. Take the problem of pensions and Social Security. Pensions funded on a pay-as-you-go basis out of current taxation have been the dominant source of retirement income. Funding pensions in this way means in effect, that taxes paid by the present gener- ation of workers are used to pay the pensions of the previous generation of workers. This carries over to the promised private pensions of the private sector. Of the 66,000 government guaranteed pension plans offered by 8,000 companies, a quarter are considered underfunded to the tune of $53 billion. But with the ratio of old people to workers rising inexorably, experts doubt that tomorrow’s taxpayers will be willing to pay for all the pensions that to day’s workers expect to receive. This leaves today’s workers with an unwelcome choice. They can put more money of their own aside, privately, for retirement and so in effect contribute to two sets of pensions-their own, by saving; and their parents’, through taxation. Or, they can gamble that the experts are worrying unnecessarily, and make no extra provision. But even that choice is more limited than it seems. What today’s workers get in retirement depends ultimately on how big a slice of the pie tomorrow’s soci- ety allots them-whether by transferring money in the form of higher taxes to fund state pensions, or by providing an economic and fiscal environment in which firms will pay the rising dividends on which private pensions depend. Agreeing on sensible ground rules now will make it less likely that future generations decide suddenly to give pensioners less than they expect. By the same token, the longer action is deferred, the more painful any changes will have to be. We need to learn that incentives work better than commands. There are two ways to make people do what we want them to do: pass laws com- pelling them to act a certain way, or give people incentives to act the way we want. The first way requires detailed information about how people must
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