The great baby boomer con

Author: Bob Ivry

Published: January 25, 2004

To: Generations X, Y, and Z From: Baby boomers and the "greatest" generation

Re: Thanks for paying our bills! ;-)

Maybe all you Justins and Caitlins were too busy IM-ing each other and missed the news. We don't blame you. It's all just boring math anyway.

But it wouldn't be any fun if we scammed you guys and didn't live to see the looks on your faces. So we'll tip you ahead of time. Humongous federal budget deficits combined with the cost of shelling out Social Security, Medicare, and Medicaid to geezer baby boomers is going to bulldoze the good old U.S.A. right into the Third World.

That's right, whippersnappers. America's economy is set to head seriously south - at just about the time you'll be taking over.

Oh come on, you say. Deficit shmeficit. What does that have to do with me?

Well, you're right. The answer is: nothing. It has nothing to do with you. Today.

But fast-forward 10 years, when the government's 2014 budget is projected to be $1 trillion short, and this is what the deficit will mean to you: It'll be awfully tough for you to buy a house. You'll be taking home a lot less of the money you earn. As for your retirement, it may seem like a long way off, but when there's no money to pay for it, it'll be even a longer way off than you think.

It's not like there haven't been plenty of opportunities to hit the brakes and turn this baby around. But we've been burning cash as if we actually had some. Billions for war? Sure. Billions to rebuild Iraq? OK. Prescription drug benefits? Check. More tax cuts? Heck, why not? Money for space exploration? You bet.

How are we paying for these things? We've gone on a "borrowing binge," says Robert S. McIntyre, director of Citizens for Tax Justice, a non-partisan research group.

"We borrow, that's what we do," McIntyre says. "That $87.5 billion for Iraq and Afghanistan? Borrowed. We're going to Mars on a Visa card."

We'll spend and spend. And someday, you'll pay it back.

We'd feel bad if we didn't at least thank you. Maybe send you a muffin basket. Least we could do.

In the meantime, here are some numbers to gnaw on. By 2014, the national debt will cost everyone some major bucks, according to the Brookings Institution, a Washington think tank. A 30-year, $250,000 mortgage - because you won't be living like a college student all your life - will cost $2,000 more per year in interest. And $3,000 more per household per year will go to paying down the debt.

That last figure means one of two things: Either your taxes will go up by 3 grand, or wave bye-bye to 3 grand's worth of services that are now provided by your federal government.

If your generation continues to spend like we do, by 2030 you'll have a government without the spare change to do anything, says Chris Edwards, director of fiscal policy studies at the libertarian Cato Institute.

"It'll just be a giant transfer state," he says, "transferring money from younger people to older people."

The long goodbye to fiscal fairness begins in 2008, when the first round of baby boomers hits 62 and qualifies for early retirement benefits. (You Gen-Xers will have to hit 67 before the benefits kick in - if you're lucky.)

Some prominent economists are now crystal-balling even scarier scenarios than the Chicken Littles over at Brookings. Robert Rubin, former treasury secretary under Bill Clinton, says government has two choices: balancing the federal budget or printing more money to pay off debts.

Balancing the budget means a combination of raising taxes and cutting government programs, and who's going to do that? It's an election year! It's always an election year!

By comparison, printing more money sounds good, doesn't it? But doing it to excess could mean inflation - you know, like $20 cheeseburgers. Inflation translates into lost savings (put a dollar in the bank in 2004 and it's worth a fraction of that in 20 years), skyrocketing interest rates, unemployment, stalled research-and-development projects.

If we follow the current path of borrowing like lunatics, "you can say with a high degree of probability these things will occur," Rubin says. "You just can't say when."

The number of people alarmed at these eventualities is growing like mold. Every economic egghead has been yammering about it on television.

It doesn't take a genius to see that two forces - biology and politics - are conspiring against you Gen-X, -Y, and -Zers.

Let's look at biology first. Between 1946 and 1964, the national birth rate zoomed to an average of more than three babies per woman.

Then, in the 1970s, the baby boom went bust: The birth rate fell to less than two babies per woman. The trend of families squeezing out less than just an heir and a spare will continue, the government says, into the foreseeable future.

Combine that with a trend toward longer life-spans and you're talking about the 21st century being chock-full of fogeys. Want numbers? In the next 75 years, life expectancy is projected to jump 28 percent, to somewhere in the 90s. By 2030, about the time Gen-Xers start developing liver spots, 1 in 5 Americans will be 65 or older.

Living longer means more time spent in old age, which means more time spent in doctors' waiting rooms. Barring a medical miracle that conquers all disease and makes everyone happy and healthy, the government will be paying out a lot more in Social Security, Medicare, and Medicaid than it does today.

Want more numbers? According to one study, the average Grandma or Grandpa needs 37 percent more health care than a 30-year-old. Given that dizzy revelation, the Congressional Budget Office may be optimistic when it predicts that entitlement payouts, which today amount to about 7 percent of everything we produce, will jump to 20 percent in 2070.

We weren't always so darned cash-strapped. As recently as 2001, the U.S. government was $127 billion in the black. Then the bursting Internet bubble hit home, the stock market hit the skids, Osama's boys hit the Trade Center, and the feds started hitting up the money store.

How did President Bush respond? He started cutting taxes. Big time.

According to numbers crunched by Citizens for Tax Justice, New Jersey taxpayers will get $39.6 billion from tax cuts between 2001 and 2006.

But for every dollar in tax cuts received, the organization says, New Jersey residents will end up paying $3 in the debt those cuts ring up. Higher interest rates, higher state and local taxes. Etc., etc., etc.

Sound like a bargain to you?

"Not only is the Bush administration not trying to solve the problem of budget deficits, they're actively making things worse," says William G. Gale, co-director of the Tax Policy Center in Washington. "What do they plan to do about deficits? The answer is nothing. Usually there's a policy, and you can argue if it's good or bad. That's not the case here because there is no policy. There is no proposal. There is no solution."

An even bigger blow to cash flow, though, was the Medicare prescription drug benefit, signed into law last year and slated to begin in 2006.

According to Rudolph Penner, chief economist at the Office of Management and Budget under President Gerald Ford, the drug benefit will cost $400 billion over the next 10 years. And over the 10 years after that - when most baby boomers will sink their dentures into it - the program will set us back $1 trillion. Translated, that's $1 out of every $10 people earn in this country going to pills, potions, and lotions.

"The program is gargantuan," Penner says. "It digs the hole deeper by a very large amount. Going to Mars is cheap by comparison."

Last year, without the drug benefit, the government budget was already in the red to the tune of nearly $400 billion. As of this writing, the total national debt is a whopping - $7,008,606,702,827.92.

A trillion dollars of that debt has accumulated just since President Bush took office.

A trillion here, a trillion there.

In his 2003 State of the Union, Bush said, "We will not deny, we will not ignore, we will not pass along our problems to other Congresses, to other presidents, and other generations."

"That's double-speak," Gale says. "Passing along our problems to other generations is exactly what they're doing."

To other generations. To you.

The Social Security system was based on the assumption that each successive generation would do better than the one that came before it. That way, they would pay for their elders with a minimum of whining.

You youngbloods today, you whine a lot. And you're not doing as well as we did.

So why not make you pay more than we did for what you'll be getting?

"It's really not fair," says Van Ooms, a former chief economist for the House Budget Committee. "People now in their 70s and 80s are getting a lot more out of Social Security than they put in. They made out like bandits."

But, as Ooms goes on to say, that's a politically taboo subject.

You see, oldsters vote. Youngsters don't. (Only 42 percent of 18- to 24-year-olds voted in 2000; 70 percent of voters 25 and older cast ballots.) Older folks also have the moolah to toss at political candidates, and youngsters don't.

So one partial solution to the problem is politically attractive: Keep raising the eligibility age for entitlements.

"That's a certainty," says John Irons, senior economist at OMB Watch, a non-partisan watchdog group. "By the time Gen-Xers retire, Social Security will be a lot different than it is today."

Politicians can justify changing the rules in the middle of the game by saying that Gen-Xers and their kids will be healthier than boomers and hence will live longer. So it's only fair that they should be required to work longer, too.

And if the fuzzy-cheeked among us don't vote, then politicians won't have to be accountable for basically cheating them.

"If Generation X isn't rising up in objection, then they're getting policies they deserve," Gale says.

In the meantime, economists are legion in their advice to rookies: Save. Throw your hard-earned money (or Daddy's) into IRAs, 401(k)s, CDs, mutual funds - anything that will allow you to take care of yourself in old age. Because Uncle Sam sure can't be counted on.

Heck, Uncle Sam doesn't seem to care.

"I can't remember a time when there was less concern in Washington about deficits," says Penner, who's worked in D.C. for 30-plus years. "Politicians used to behave like adults, but things have gotten so partisan and nasty. It's inconceivable that we'll see bipartisan work on deficit reduction right now."

Penner notes that in recent history, no fiscally responsible deed went unpunished. He points to George H.W. Bush, whose deficit-reduction packages helped land him early retirement in 1992, and Bill Clinton, whose mature balancing of the nation's books contributed to his losing both houses of Congress to the GOP in the 1994 mid-term elections.

You and me, we're the same way, says former Treasury Secretary Rubin. As long as the buffet table is larded with shrimp, keep the bubbly coming and don't talk to me about next week.

"As long as current economic conditions are OK, it's very hard for people to understand what the long-term risk is," Rubin says. "People tend to react favorably to the tax cut and not focus on the enormous long-term aspects. It could be years between unsound fiscal policy and its effects."

You hear that? Years.

In the meantime, enjoy your muffin baskets. Because you'll be paying for them, too.

Suckers.