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Get Four
|  | FEBRUARY 2, 2004
By Amey Stone Robbing Peter Jr. to Pay Paul Sr. Younger workers face dwindling benefits and soaring costs as governments and corporations divert funds to baby boomers Consider what could be a typical family conversation in the not-too-distant future: Adult daughter: "Mom, I hate to ask this, but we could really use some help with our mortgage payment this month." Mother: "Last month it was your credit-card bill, this month your mortgage. If this begging keeps up, I won't be able to pay my property taxes this year. I'm only 75, and I'm halfway through my 401(k) plan." Daughter: "Yeah, but at least you have a 401(k) plan. My new job isn't even offering benefits. And remember, part of my check is going to pay your Social Security." Ouch! Policymakers have long warned that the coming retirement of 79 million baby boomers will inevitably lead to increased intergenerational conflict, as the senior set puts extra pressure on government programs like Social Security and Medicare. But that pressure may prove just the tip of the iceberg. Corporations, too, are feeling the pinch as they face a coming wave of retirees and cut back on benefits to help keep their balance sheets in good shape. Meantime, financial pressures on younger Americans are mounting as the price tag of major expenses -- education, health insurance, and housing -- rises sharply. A likely interest rate rise in the next few years, which will make their debt more costly, isn't going to help matters. These new economic realities, recent public policy moves, and election-year politics are accelerating the coming war between the generations, raising painful questions about exactly where the government and Corporate America are going to get the kind of cash needed to fund obligations to future retirees. Generation X-ers won't take kindly to the benefit cutbacks and tax and fee hikes that await them when the baby boomers start to retire en masse. COSTLY TAX CUTS. "For now, it's a muted concern at best," says Robert Smith, president of Smith Affiliated Capital in New York. But he expects Gen X-ers to get more concerned -- and more aggravated -- over the next few years as their costs increase while their benefits decline. "We're building to a crescendo at the point when boomers are really ready to retire." Increasing attention to the gargantuan federal deficit is lately adding to the public perception that the current generation is getting tax breaks at the expense of future workers. This isn't quite the scenario the Bush Administration is hoping for. It believes tax cuts will stimulate enough income growth to more than make up for the lost tax receipts. So far, though, that isn't happening. Even given recent strong economic growth, the nonpartisan Congressional Budget Office predicted in a Jan. 26 report that the 2004 budget deficit would total $477 billion (up from 2003's $375 billion) and that the nation's total debt would grow by an additional $1.9 trillion over the next 10 years. "These figures are based on very optimistic projections for good solid growth and no recessions," says Mark Zandi, chief economist at research firm Economy.com. "The budget deficit is not going to get better with the expanding economy." SOCIAL INSECURITY. Americans might worry less about the federal deficit if the well-publicized Social Security problem were close to being solved. But that one hasn't even begun to be tackled. Here's the problem in a nutshell: In 1960, there were 16 workers for every Social Security recipient. Now, that ratio is 3.3 to 1, and by 2030 it will be 2 to 1. Since current workers fund payments to current recipients, "Social Security taxes are going to have to be raised," says Edward Deak, an economics professor at Fairfield University.
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