Younger Americans Can’t Keep Transferring Ever-More To Richer Older Americans
By Eugene Steuerle and Glenn Kramon
For those of you who might have missed it, this is largely taken from a recent piece in the New York Times.*
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You know the expression “OK, boomer”? Better said as “Boomer OK.” That’s because the social safety net in the United States is increasingly favoring the old over the young. And this affects our political views and the security of future generations.
Younger Americans have valid reason for disgruntlement: Big shifts in income and wealth are significantly favoring their elders. Under almost every president since 1980, 80 percent of the real growth in domestic spending has gone to Social Security and health care, with Medicare the most expensive health program, according to calculations based on federal data. As a share of G.D.P., all other domestic outlays combined have declined.
Our current tax system also largely does not help Americans, most of whom are younger, pay for their higher education. That wasn’t as big a deal in the 1960s or ’70s, when the average college graduate most likely had little or no student debt. Today the average taken out each year is about seven times that in 1971, in part because state governments have stripped colleges and universities of funding. This is happening at a time when owning a house is increasingly out of reach. The median price has risen from about 3.5 times median annual income in 1984 to 5.8 times in 2022.
So it shouldn’t come as a surprise that today, younger generations are more likely to fall into lower-income classes than their parents or grandparents. Nearly a half-century ago, it was the reverse. And in 1989, the median net worth of Americans ages 35 to 44 was nearly 75 percent of those 65 to 74. By 2022, that ratio had fallen to one-third.
The why is simple. Unlike with most other spending, Congress effectively designed Medicare in 1965 and Social Security in the 1970s in such a way that outlays would increase forever faster than our national income. That’s partly because Medicare costs keep rising along with medical prices and new treatments and because Social Security benefits are designed to increase for each new generation along with inflation and wages. And we’re living longer, which means more years of benefits.
Today tax revenues are so committed to mandatory spending, largely for older Americans, and to interest on the national debt (which has quadrupled as a share of G.D.P. since 1980) that little revenue is left for everything else. So unless we borrow to pay for it, there’s little for education, infrastructure, the environment, affordable housing, reducing poverty or the military.
It’s not hard to figure out which generation has benefited most. Picture the older folks parading in golf carts for Donald Trump (and some for Kamala Harris) in The Villages this summer. Then picture 20-somethings paying onerous student loans and living with their parents because they can’t afford a house.
All of this may explain why so many young people are expressing disenchantment with politicians both Democratic and Republican, becoming more vulnerable to extremist rants on social media and deciding not to vote at all. A recent report in The Lancet Psychiatry suggested that economic trends might even be partly to blame for the mental health crisis crushing many young people.
Most of the taxes workers pay for Social Security and Medicare are not reserved for their retirement but rather pay for current beneficiaries. Like some adolescents who don’t appreciate how much their parents pay to support them, many older Americans don’t seem to appreciate how much more they are taking out than they are put in. A 65-year-old couple with average life expectancy and average household income (about $90,000 in 2023) retiring in 2025 will require $1.34 million to finance their benefits, even though they paid only $720,000. (Numbers are adjusted for inflation.) Younger generations are making up that difference.
What’s more, the decline in the birthrate means fewer taxpaying workers to support the increased costs. The result: a rising burden and a budget with ever less left for them. Listening to Ms. Harris’s plan to help struggling Americans, we can’t help but wonder: How will she pay for it?
What to do? Many argue that raising taxes on the wealthy and on successful businesses would help. But that would not be nearly enough to meet these obligations. So we must also consider other changes.
“Old age” must be redefined and retirement ages raised so that living longer doesn’t mean retiring longer on workers’ taxes, particularly for wealthy retirees. After all, longer lives for most people should mean more productive years.
Furthermore, we must slow the rate of increase in lifetime benefits for future retirees, who are now scheduled to receive substantially more than the boomers do, after adjusting for inflation. For example, Social Security and Medicare benefits will exceed $2 million for a millennial couple with average earnings — and will be significantly more for those with higher incomes.
Because many lower-income older Americans depend heavily on these programs, benefits for the wealthy could be the first target. And some of those savings could go to the neediest retirees, as well as programs for the young.
We must also repair our immigration system so that new Americans can help support benefits for older ones.
Four of the past five presidents (all except Joe Biden) the past 32 years and many members of Congress have been baby boomers, born between 1946 and 1964, as are the candidates Mr. Trump and Ms. Harris. Unless generations younger than us 70 million boomers become more politically engaged in addressing these problems, they will squeeze out even more of what the government provides for their children and grandchildren.
Politicians tend to avoid discussing this hard reality, recognizing how unpopular the solutions are. But something has to give. It’s time for us all to grow up.
*Guest Essay, New York Times, September 1, 2024.
I would differ, for several reasons. First, parents spend hundreds of thousands of dollars or more to raise and educate children. Presumably, the children received value that will last their whole lives. They will owe Social Security tax only to the extent that they earn money, and only up to the FICA limit. Second, there is no zero-sum game between generations; most pensioners instantly spend their SS benefits back into the economy, where it drives GDP. Or, if they keep it in banks, it creates reserves, and banks can lever reserves into 10 times as much in business loans. Money always moves up toward those who can afford to save instead of spend. Even when saved, it doesn't sit still or move down. Money never vanishes until it is taxed back by the federal government. Then it disappears, to be replaced by new federal spending. Social Security isn't a perfect way to insure a whole country's longevity risk. But no better way has been found. No private life insurer, or consortium of life insurers, has a deep enough balance sheet to underwrite that amount of risk, in perpetuity. Only the federal government, whose IOUs (cash and debt) are money, has a balance sheet with the necessary breadth, length, and depth to shoulder that risk. And the power to make the program universal and mandatory. A federal program never needs to be "pre-funded," because you don't need to pre-fund IOUs. That's the system that Alexander Hamilton copied from the British. While it may be true, in a superficial sense, that our grandchildren will "inherit the debt," they will also inherit our assets--an amount equal to the debt. Every Treasury bill, note, or bond is both an asset and a liability. We should worry more about the $18 trillion that banks have loaned into the economy and which remains unpaid. That debt will turn over but its absolute value will only grow over time.