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Sending the bill to the young |
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Financial Times, May 07, 2003
America's children will pay for these tax cuts
By Ted Halstead and Maya MacGuineas
With military victory in Iraq secured, it is time to recognise another battle being waged on America's home front - a generational war. When two countries go to war, one side usually wins. But generational warfare is a losing proposition for all because of the long-term social, fiscal and political strife it creates.
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The final bill to US taxpayers for regime change in Iraq will probably total in the hundreds of billions of dollars. By contrast, the liabilities now being passed on to members of the post-baby boom generation as a result of current policy actions or inactions are of an altogether different order: well over $20,000bn.
In his last State of the Union Address, George W. Bush pledged not to "pass along our problems to other Congresses, other presidents and other generations". Yet that is precisely what he and his administration are doing. Mr Bush - with occasional help from Democrats - is waging a three-pronged assault on generational equity.
First, there has been bipartisan neglect. The president's budget estimates that the US would need to set aside $18,000bn today in order to plug unfunded liabilities in the Social Security pension system and Medicare, the public healthcare programme for the elderly. Although Mr Bush made Social Security reform a centrepiece of his presidential campaign and appointed a commission to flesh out the details, he has yet to implement the commission's recommendations. His proposal for adding prescription drug benefits to Medicare would only increase the size of the unfunded liabilities. The Democrats, meanwhile, have been even less constructive in advancing concrete reforms to these programmes.
Second, there are the president's tax cuts. Instead of taking advantage of the budget surpluses he inherited to push ahead with entitlement reform, Mr Bush squandered the surpluses on the immediate gratification of tax cuts. Scholars at the Brookings Institution estimate that the cost of the president's proposed tax cuts is more than $10,000bn in present financial value.
Third, there is the administration's proposal for Retirement and Lifetime Saving Accounts. In essence, these accounts would increase tax revenues in the short run while shielding the bulk of investment income going forward. If enacted, it would add at least another $1,000bn in present value to the budget shortfall, while permanently shrinking the tax base.
The cumulative impact of this triple blow would be staggering. It would saddle the children and grandchildren of the baby boom with insecurities and financial obligations that are difficult even to imagine, creating the conditions for an exceptionally painful period of strife between generations over the decades ahead.
The unfunded liabilities in Social Security and Medicare that would be passed to future generations are huge. Mr Bush's own budget points out: "The federal government would have to confiscate almost half of all household wealth to have the resources necessary to close both these programmes' future financial gaps." Each year of delay in entitlement reform only adds to the already tremendous costs, while shifting them to the future.
Much of this could have been avoided through different policy choices today. If either party were serious about their fiduciary responsibilities to future generations, they would raise the retirement age and slow the growth of promised Social Security and Medicare benefits. They would also reduce each generation's dependence for retirement income on the size of future ones, probably through individual retirement accounts. This would require shared sacrifice and impose significant transition costs. But the long-term benefits would be priceless.
The tragedy is that Mr Bush entered office with the inherited resources at hand to avoid intergenerational warfare. By putting his priority on tax cuts instead of entitlement reform, he squandered the price of peace. Instead of freeing future generations from the legacy of debt that hangs over their heads, he burdened them with more. Instead of liberating Americans from the spectre of generational warfare, he all but guaranteed it.
If only a leader willing to take pre-emptive action against rogue nations were willing to do the same to stave off a civil war of the worst variety: one pitting grandparents against their own children and grandchildren.
Ted Halstead is founding president and Maya MacGuineas is director of fiscal policy of the New America Foundation
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http://zfacts.com/p/110.html | 01/18/12 07:29 GMT
Modified: Mon, 17 Apr 2006 05:43:55 GMT
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