In the Nation's Interest

Are We About to Let All of the Baby Boomers Off the Hook? (Please, No.)

I am an economist whose experience and expertise is most focused on federal fiscal policies and the goal of “fiscal sustainability.”  (I have been often labeled a “deficit hawk.”)  But the latest word on the streets of Washington is that “deficit reduction” and “fiscal responsibility” are “out.” “Critical investments” and “shared prosperity” are “in.”  Deficits are down to an economically sustainable range, we are told, while our economic recovery from the Great Recession hasn’t been as great (at least so far) as we hoped it would be.  So, our policymakers are no doubt relieved to take a break from having to talk about the hard stuff (spending cuts and tax increases) and getting to focus on the nice-sounding stuff (spending increases and tax cuts).  From my economist point of view, I have said in another CED blog post, “not so fast” on the “nothing to worry about” attitude.  Our short-term deficit outlook only looks good if one is confident about the rosiest of economic forecast scenarios and if one doesn’t look past the next few years.

Well, I am also a mom of four kids, and coincidentally, in the next few years the youngest of my kids will be going to college.  The oldest of my four kids has already graduated from college and is working.  By the end of the 10-year budget window, all four of my kids will likely (ok, hopefully) be in the full-time labor force, self-sufficient and highly productive members of society.  And so from my mom point of view, I think that dismissing fiscal responsibility as a socially irresponsible idea is irresponsible in itself.  By not doing anything today to substantially address the longer-term gap between spending and revenues, we are choosing to let our kids bear the bulk of the burden of closing that gap—a gap that my and older generations are largely responsible for and have continued to benefit from.

Our political leaders talk often about maximizing economic opportunity for all.  From the Budget Message of the President (emphasis added):

With a growing economy, shrinking deficits, bustling industry, and booming energy production, we have risen from recession freer to write our own future than any other Nation on Earth. It’s now up to us to choose what kind of country we want to be over the next 15 years, and for decades to come. Will we accept an economy where prosperity belongs to a few and opportunity remains out of reach for too many? Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?

President Obama goes on to introduce the concept of his “middle class economics” agenda.  But let’s be real: the investments needed to promote a prosperous economy for “decades to come” obviously depend on what we do for the younger of the middle class—heck, all the younger people in our society, even those who we hope will do well enough to earn high incomes, such as our own children.

These days if I talk about fiscal responsibility and remind people that our work has barely gotten started (we have not yet accomplished any major and “smart” reforms of the tax and entitlement systems), I often get accused of pushing “austerity”—and that’s definitely not meant in a flattering or otherwise positive way.  In fact, a common modifier of “austerity” is “stupid” or “mindless.” From the OMB Fact Sheet on the President’s Budget (emphasis added):

In last month’s State of the Union, the President laid out his vision for middle class economics: restoring the link between hard work and opportunity, and ensuring that every American has the chance to share in the benefits of economic growth.  To achieve this, the Budget invests in helping working families make their paychecks go further, preparing hardworking Americans to earn higher wages, and creating the infrastructure that allows businesses to thrive and create good, high-paying jobs…

This year’s Budget supports the President’s ambitious vision for supporting growth and opportunity, and does so while meeting a key test of fiscal stability: reducing deficits to below 3 percent of GDP, stabilizing debt as a share of the economy, and putting it on a declining path. It achieves these goals by replacing mindless austerity with smart reforms, paying for all new investments, and obtaining $1.8 trillion in deficit reduction primarily from health, tax, and immigration reforms.

Reversing Mindless Austerity – Returning to the mindless austerity of sequestration in 2016 would bring discretionary funding to its lowest level, adjusted for inflation, since 2006. The Budget proposes to end sequestration, fully reversing it for domestic priorities in 2016, matched by equal dollar increases for defense funding.  These investments are more than paid for with smart spending cuts, program integrity measures, and commonsense loophole closers…

Yes, brute force, across-the-board spending cuts are “mindless” and not “smart.”  Yes, we need to fund our domestic priorities, particularly those that expand our society’s future economic capacity—as in, our children’s future economic well-being.  But it’s not as simple as identifying one’s own most preferred “smart reforms” and “smart spending cuts.”  If policymakers can’t agree, on a bipartisan basis, to put specific deficit-reducing policies on the “smart list,” then we will end up with no solutions and a much more severe form of “austerity” anyway—the kind that by doing nothing sacrifices our kids’ future economy for the sake of our own generation’s present level of political and economic comfort.

As we’ve seen from the numerous efforts of deficit-reduction commissions and task forces, the policy changes needed to make major improvements in our fiscal outlook are not hard to theorize about, but they are the most politically challenging to actually propose and implement.  We are on an unsustainable path primarily because of the way our major retirement-age benefit programs have been structured and funded: with revenues from the current working-age population paying for benefits of current retirees.  That kind of financing system would be fairly stable over time if the different generations were growing over time at a steady, continuous rate.  But the “baby boomer” generation (those born between 1946 and 1964) is a big discontinuity—a huge bulge—in population growth.  That turned out to be a “boom” to our entitlement programs while all those baby boomers were in their prime working years, as we had a lot of workers paying for the benefits of a relatively small number of retirees.  The Social Security system was running surpluses and building up its “trust fund” and helping to keep the overall budget deficit low.  (Some of you might recall that at the end of the Clinton Administration, total deficits were actually negative—i.e., they were surpluses(!), and as “far as the eye could see.”)  But then a funny thing happened:  the boomer workers got older and eventually started becoming the boomer retirees in 2008 (as the oldest of the boomers turned 62, early retirement age), and suddenly the math was working against the fiscal outlook.

Back at the end of the Clinton Administration when I was working as a senior economist for the President’s Council of Economic Advisers (and my current Committee for Economic Development colleague Joe Minarik was Chief Economist at the Office of Management and Budget), we wrote about the merits of fiscal discipline and how the increase in public saving (deficit reduction, then surpluses) over the Clinton Administration contributed positively to national saving and economic growth (see chapter 2 of the 2001 Economic Report of the President).  We also argued that this buildup in public saving was warranted and prudent, given the impending retirement of the baby boomers and how that was about to dramatically change the fiscal math and path.  We argued for sooner-rather-than-later reform of the retirement benefit programs (Social Security and Medicare/Medicaid) and the tax system, because the longer we put off safely steering these programs onto a better trajectory, the harder we’d end up having to veer off the inevitably unsustainable path, and the larger the burden we’d shift onto future generations.  At the time, I was already writing not just as an economist but as a mom of young kids, and as a younger baby boomer, born in 1962.

That was over 15 years ago, when I was still in my 30s—still a relatively young worker, not just a younger baby boomer.  Today I’m soon to turn 53 (and have grown-up kids), and while that’s still not close to retirement age, it’s getting very close to the age above which policymakers typically set as “exempt” from any benefit cuts that may become part of a deficit reduction plan: 55.  Which means in just two years I can say “phew” because policymakers won’t ask me to sacrifice any of my benefits, and in just four years the very youngest of the baby boomer population (born in 1964), and hence the entirety of the huge baby boomer cohort, will have been held harmless from further policy changes needed to cover the public costs associated with their very generation.  We’ve already gone from having all of the baby boomers “non-exempt” from further benefit cuts in 2000, to 57 million—more than three-fourths of the boomers—“exempt” today; see the table below.  (I’d like to give a “hat tip” to Susan Tanaka of the Peter G. Peterson Foundation for calling my attention to this milestone moment.)

How Many Baby Boomers (born 1946-64) Will Be
Exempt from Further Entitlement Benefit Cuts?

(Source: author’s calculations based on historical and projected Census population estimates by 5-year age categories.)

Exempting the entire baby boom generation from any additional entitlement program reforms would be a huge, squandered opportunity to draw from a major portion of our current economic capacity.  According to the Census Bureau, as of 2012 baby boomers made up almost a quarter of the total population, and nearly 40 percent of the working-age population ages 18 to 64.2   It’s also counter to what most baby boomers who are parents work for: to be able to send their kids to college and set them on a path to a bright economic future.  Yes, we might be successful in putting them through school, and yes, they might be successful (or lucky) and land that great career afterwards—but their tax bills will be larger and their government benefits less generous.  Ultimately, the simple math explains it:  fewer of my kids’ generation to support more of my generation.  Even if it turns out to be “doable” and “sustainable” from an economic standpoint—i.e., even if our kids’ economy and their own economic well-being manages to keep up with their rising debt burden—I don’t see how it’s fair.

So while I agree with those who say “mindless austerity” is a bad way to reduce the deficit, I also believe that setting up the straw man of “mindless austerity” as an excuse to avoid any smart ways to improve the fiscal outlook actually will impose the worst kind of austerity:  the kind that will fall squarely on our kids in an economically wasteful and morally unjust way.  And I hope we baby boomer parents speak up more on this issue and tell our politicians that we won’t put up with their continued generosity towards us.

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1. Census numbers in the figure include both native- and foreign-born populations, which is why the cohort keeps increasing slightly after 1964.

2. Authors calculations based on Census numbers:  76 million baby boomers, 197 million 18-64 year olds, and 314 million total population in 2012.

Diane Lim is Vice President for Economic Research at the Committee for Economic Development. Image: Figure 2 from Census Bureau, “The Baby Boom Cohort in the United States: 2012 to 2060,” by Sandra A. Colby and Jennifer M. Ortman, May 2014.)1