Answered: Under one plan for Social Security…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter2: Some Tools Of The Economist

Section: Chapter Questions

Problem 14CQ

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Under one plan for Social Security reform, younger workers can put up to $1,000 of their payroll taxes into an individual retirement account (IRA) in exchange for lower benefits when they retire. However, advocates of this plan typically offer a method of ensuring that funds in an IRA are turned into benefits that work in a Social Security–like fashion (e.g., monthly payments until one dies).

(a) What restriction could policy makers implement to ensure that money in an IRA be paid similarly to Social Security?

(b) Why wouldn't policy makers simply allow individuals to accept a lower level of Social Security benefits in exchange for a lower level of taxation without also mandating that individuals put the saved tax funds in an IRA?

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