Moses may have talked the pharaoh into letting the Israelites go, but he’d never have gotten anywhere with the AARP. The American Association for Retired People has big plans for Generation X, and they have no intention of letting us wander off into the desert.
The reality is that while 20 and 30-somethings may have no desire to move to Florida, Florida will eventually come to us. In 15 years, this country will look as old as present day Florida does — with twice the number of retirees we have today and only 15 percent more young workers to pay for their Social Security and Medicare.
The stakes are high, and the AARP knows it. In 1960, there were 5.1 workers per beneficiary. Over the next three decades as the boomers retire, that number will dwindle to 2.0 workers per beneficiary.
According to an analysis by Jagadeesh Gokhale of the Federal Reserve Bank and Boston University Professor Laurence Kotlikoff, given the generational gap, shoring up Social Security’s long-term finances will eventually require a rather large tax hike.
At present, the combined Social Security and Medicare tax rate is 15.3 percent. When you add the 6.0 and 4.1 percentage point permanent tax hikes respectively needed to secure Social Security and Medicare’s finances, you get a payroll tax rate of 25.4 percent. Keep in mind that these taxes are paid before local, state and property taxes.
The bottom line is that AARP — the largest and most powerful special interest group in this country — will need this money to keep Medicare and Social Security checks coming, and in all likelihood, they’ll get it. In about 10 years, any Moses wannabe who opposes the back-breaking taxes our generation will have to pay to support the elderly will be summarily executed at the polls by a highly mobilized, AARP-led coalition of 78 million baby boomer geezers so much larger than the Generation X voting block that we might as well not bother going to the polls.
For the time being, most politicians are content to scare elderly voters to the polls with dire predictions about whether their social security checks will come, never mind that everyone currently over 55 is in no danger of losing their benefits. Then the same politicians go back to office and do nothing until it’s time to scare people again in the next election. There’s a reason for that. The massive baby boomer voting block hasn’t retired yet and boomers are still paying Medicare and Social Security taxes. Given the sheer number of boomer voters, suggesting a preemptive hike in these taxes while they’re still working would be political suicide. And it’s not like Generation X, which has barely started voting, has any idea what’s going to hit them.
Though we don’t vote in large numbers, young Americans do seem to understand that for us, there will likely be no Social Security. A July 2002 Zogby poll showed that 82.8 percent of likely voters between the ages of 18 and 29 said they supported voluntary personal accounts. Despite the current condition of the economy and the stock market, by a two-to-one margin young people said they thought the current insolvent Social Security system is riskier than a system of personal accounts.
But what members of my generation don’t seem to realize is that before the system goes broke and Medicare costs spiral out of control, they’ll pay a much larger percentage of their income into the system than any generation before them. Unless something radical is done to change the course we’re on, we’ll receive little or nothing for what will amount to generational economic slavery. Worse yet, the spiraling tax rate necessary to pay promised benefits to boomers is likely to curb this generation’s ability to save privately for their own retirement. And that’s what politicians don’t want to talk about.
What they are talking about is prescription benefits for seniors, in some cases full prescription benefits paid for at the state and federal level. If anything outside the potential war with Iraq dominated this election it was senior issues, or free stuff for seniors at taxpayer expense. Since so many seniors vote, politicians have a hard time winning without these giveaways. As this election proved, even the most fiscally conservative Republicans like Congressman Robin Hayes understand that to win they must come to the table proposing or signing on to major expansions of current social and medical programs for the elderly.
These issues may bore younger people but we have to begin to understand that every benefit for the elderly the AARP extracts from state and federal politicians now will continue to be paid for by generations too small to bear the full tax burden.
The moral of the story? We must start saving for retirement now, before they lower the boom. For our generation, there will be no Moses and a little money in the desert will have to go a long way.
This article appears in Nov 6-12, 2002.
