Shouldering Baby Boomers' Burdens

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ONE of the presidential candidates has a line about how Washington isn't following a "tax-and-spend policy" anymore; it is a "spend-and-tax-future-generations policy."

This worries many in the baby-boom generation. They wonder if a proper Social Security pension and adequate Medicare coverage will be available when they - 76 million in number, or one-half the adults in the United States - retire in the next millenium.

Such concern has helped fuel the rapid growth of the American Association of Boomers (Tel. 1-800-BOOMERS). The AAB has 21,000 members - a long way from the 34 million in the American Association of Retired Persons. But the AAB was started only two years ago. With a membership fee of only $10, "we barely survive," says Karen Meredith, founder and executive director.

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The federal government looks at this generational issue for the first time in its massive budget document this year.

"We have a policy that is very much out of generational balance," says Laurence Kotlikoff, a Boston University economist who helped develop the concepts of generational accounting and has a book coming out on the topic in April. "We need to come to grips with that. Decade after decade we have been impoverishing future generations."

In one sense, working people always provide the goods and services used by those who are retired. But economic policy does affect several issues: How much of that consumption is paid for by the government, how much by private savings and investment, the retirement age for a full Social Security pension and Medicare health benefits, and the portion of resources devoted to productive investment that boosts the wealth of the nation.

President Bush's Council of Economic Advisers notes in its 1992 report: "By reducing government assets or increasing government liabilities, the current generation can increase its consumption at the expense of future generations ... For example, a pay-as-you-go Social Security system would have no impact on the deficit in any year, but it would redistribute wealth from generations with few people in the labor force to generations with a large number of Social Security recipients."

That pay-as-you-go system bothers Ms. Meredith. Many people, she notes, believe the "myth" that the Social Security trust fund is a savings account of money for their retirement, maintained separately from general government funds. They believe that Social Security benefits are a repayment of their years of "contributions" into this trust fund.

"The truth is, federal government trust funds are nothing more than paper entries to show how much money would be in certain program accounts if the government operated like a private financial institution," she notes.

The present "surplus" in Social Security tax collections above the amount of benefits paid out is used to finance the federal budget deficit. Basically, the system assumes that the working generation will pay the taxes necessary to provide government benefits for retirees. It is an intergenerational bargain, with members of each generation assuming their children will cover at least the government's portion of their needs in retirement. That financial burden will be greater when the large number of boome rs, born between 1946 and 1964, retire.

Meredith worries about a possible collapse of the system around 2015 or so: "There is no way our children can afford this." As a result, she says, there could be rationing of health care, means tests for benefits, delays in the retirement age from the 67 that is now scheduled, partial privatization of Social Security - and her favorite solution, rapid economic growth. That would make the children and grandchildren of baby boomers wealthy enough to afford paying for the benefits of those retired.

Unless the escalation of medical costs is stopped, though, the situation could get even worse. The budget document figures future generations will pay 79 percent more in taxes, minus Social Security and other benefits they receive, than the generation of people who have just been born. If health-care spending was stabilized as a percentage of national output after the year 2000, that tax increase would fall to 41 percent.

"Health care [cost] is a big part of the problem," Mr. Kotlikoff says.

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