Health Care and Registered Pension Plans: An Immunized Macro Economic Portfolio
AbstractIn Canada, politicians, and the public, are beginning to worry about how we will be able to pay for public health care in an aging population, especially when the baby boom retires. At the same time, Canadian politicians are also worried about how much money is lost from tax revenues because of the tax advantages offered Employer-sponsored Retirement Pension Plans (RPPs) and Individual Registered Retirement Savings Plans (RRSPs). Under these schemes, contributions (both employer and employee) within specified limits are tax deductible and investment income accrues tax free until the pension funds are taken as income. Thus, there is significant taxpayer participation in these schemes. While it is true that these Registered Pension Plans are costing the government tax revenues today, it is also true that the same schemes will create increased tax revenues for the government when the baby boom retires and turns their pension assets into taxable retirement income. This paper models the extent of the tax dollars being lost by the government today, but then goes on to project the extra revenue that will accrue to the government from these same pension plans when the baby boom retires. It then points out that these extra pension income dollars of tax revenue will come at exactly the time when the baby boom will need extra government support to pay for their increased health care delivery. In short, these two cash flows can be combined to create the perfect macroeconomic immunized portfolio.
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Bibliographic InfoArticle provided by IUP Publications in its journal The IUP Journal of Applied Economics.
Volume (Year): III (2004)
Issue (Month): 6 (November)
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