Sticking our kids with the tab

Dec. 21, 2004
Ah, spring. The time of year when a young congressman's thoughts turn away from sex toward . . . Social Security reform?

Hard as it is to believe that the impeachment fiasco is finally over, it's even harder to believe that Congress is now ready to tackle the politically sensitive task of reforming Social Security. Yet against all expectations President Bill Clinton has proposed a plan to reform Social Security so that the system doesn't go bankrupt in 2032. Republicans don't much like the plan -- it calls for Social Security to begin investing in stocks, which could eventually lead to Uncle Sam owning as much as 4% of corporate America. Still, Clinton has succeeded in beginning a national debate about an important, if decidedly unsexy, topic: generational equity. In simplest terms, generational equity refers to how fairly society allocates both tax burdens and benefits distributions among various generations. For example, it's unfair (or generationally inequitable) for one generation to tax itself lightly while expecting the next generation to pay higher taxes to support their elders' generous old-age benefits. And yet a controversial new study by Jagadeesh Gokhale, an economist at the Federal Reserve Bank of Cleveland, says that even if Clinton's plan were enacted in full, current government policies will bequeath a heavy and manifestly unfair burden on our children. According to Gokhale's estimates, although all living generations can expect to pay 28.6% of their lifetime labor incomes in taxes, future generations will pay a whopping 49.2%. Why? Because while our current fiscal policies -- which include not only Social Security spending, but expenditures on Medicaid, Medicare, and numerous other programs -- are resulting in current budget surpluses, their long-term impact is less sanguine. Simply put, we're promising ourselves too much and paying too little -- in essence, charging our retirement on a credit card we hope our children will someday pay off. Gokhale's doomsday calculations say that in order to maintain current policies and balance our generational accounts with our children, we'd need to either increase all taxes immediately and forever by 8.9% or cut all government purchases immediately and forever by 15.4%. How likely do either of those legislative actions seem to you? The point, of course, isn't whether Clinton or Gokhale is right in his plans or estimates. It's whether we, as parents and grandparents, are ready to do the right thing by our children and grandchildren as we begin to wrestle with hard decisions about reform, not only of Social Security, but of entitlements in general and the tax policies that support them. Are we willing to cut benefits for our generation, either across the board or with means testing? Are we willing to pay our generation's fair share in increased taxes for the benefits we expect to receive? Or should we hope instead for another sex scandal, to distract us while we mortgage another year (or 10) of our children's future? Send e-mail messages to John Brandt at [email protected]

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