WHO WILL PAY? : Two Views on How--or Whether--America Can Afford a Rapidly Aging Population

About 25,000 senior citizens will arrive in Anaheim this week for the biennial convention of the 22-million - member American Assn. of Retired Persons, which has started to lobby aggressively for expanded pension and employment opportunities for the nation’s elderly. This tougher stance has made the AARP a target for the year-old Americans for Generational Equity, a much smaller group that believes future generations will be impoverished by elderly benefit programs once the baby-boom generation starts to retire. Today’s birthrate of 1.85 births per thousand, which demographers characterize as a “baby bust,” is about half that of 1957, the baby boom’s peak year.

Paul Hewitt

Paul Hewitt, 33, is president and founder of Americans for Generational Equity. A UC Berkeley graduate, he went to Washington in 1977 as a presidential management intern and served as staff director of the Senate subcommittee on intergovernmental relations. Q: What is the goal of Americans for Generational Equity? A: Our greatest concern is that present tax policies, under-investment in public education and the massive budget deficit will combine with the baby-boom generation’s low birthrate to create a situation in which the smaller and much poorer generations that come later will not be able to finance their parents’ retirement benefits. Most demographers see the baby-boom generation’s retirement as perhaps the greatest foreseeable challenge to America’s future standard of living. Q: What solid evidence indicates that the future of young Americans, people in their 20s and 30s, is threatened? A: The U.S. now has the lowest savings rate in the industrialized world, and over time this trend will make Americans much poorer compared to workers in other countries. Demographers are predicting that one in three children born today will experience poverty before reaching the age of 18. The average 30-year-old male is making 26% less today than his counterpart did in 1973. The truth is that younger Americans are much worse off than their counterparts used to be. Q: How is the shift to a more elderly population apt to affect the economy? A: It will have a great impact. According to the Bureau of the Census, by the year 2025 every fifth American will be over 60, and by 2050 the proportion of elderly in our country could be nearly a third. There will be fewer workers to support each retiree. In addition, by 2010, when the number of dependent elderly begins to increase quickly, the smaller “baby bust” generations will have within them a large underclass to compete with the baby-boom elderly for social resources. Q: Does this mean Social Security is in jeopardy? A: The system is in jeopardy. Social Security is based on the premise that each generation will be larger and more affluent than the one before it. In response to its downward mobility, today’s younger generation has decided to have fewer children. One out of every three women born during the 1950s is not going to have a family. Everybody expects that other people’s children will pay for their retirement. Q: But government actuaries insist that Social Security is safe, at least for the next 75 years. A: That’s correct. This was supposed to be accomplished by building up big surpluses over the next 25 years, which would then be drawn down when the baby-boom generation retires. Last year we had a $3.7-billion surplus of contributions over benefit outlays. Next year, the surplus will be much higher. The surpluses will continue through the year 2018. But in 2019, the system will start running a series of deficits as far as the eye can see. By 2038, the annual operating deficit of the Social Security system will be over $1 trillion, and that’s just one year’s deficit. Q: Won’t the accumulated surpluses, held in trust for all those years, cover the future deficits? A: The problem is that there’s not going to be anything in those trust-fund accounts. The federal government can’t stick money under a mattress, because to take money out of circulation is deflationary. Federal law prohibits the government from investing these funds in the private sector. The current surplus can be used only to offset deficits in the Medicare account or it can be invested in Treasury bills. When the baby-boom generation finally does retire, the Social Security trust fund will be drawing on all these IOUs from the Treasury to pay the baby-boomers their retirement benefits. The Treasury will look to future taxpayers to fund these shortfalls. In other words, the full cost of the baby-boom generation’s retirement will fall on future taxpayers. Under very optimistic scenarios, we’re talking about 23% of payroll. But under less optimistic scenarios, like that of the former chief actuary of the Social Security Administration, Haeworth Robertson, (it) could be 42% of the payroll of future workers. This, of course, is a political impossibility and a generational inequity of huge proportion. Q: In 1972, Social Security benefits were increased 20% and pegged to the cost of living. What effect did this have? A: In the 1970s, the income of the entire population actually dropped 7%. There was no growth in productivity during that decade. The upshot was that, as inflation increased, the elderly actually improved their living condition relative to the rest of society. Overall, the elderly had a 6% increase in their real, after-tax incomes from 1973 to 1983, compared with a 19% decline for younger families. Q: The average annual income of a Social Security recipient over 65 is only $9,694. This doesn’t indicate a privileged class of senior citizens. A: Today’s elderly are probably better off than any other generation of elderly has ever been in the history of this country. As to whether they are the most privileged group, you have to look at the different income groups within the elderly generation. There are at the same time more poor and more wealthy Americans among the senior citizens of this country than you would find in other age groups. Q: Doesn’t the fact that more than 2.6 million women over 65 live in poverty indicate that we can’t afford to decrease benefits to the elderly? A: In its literature to potential advertisers, the AARP says its members have half the discretionary income in the United States, and this is borne out by the fact that they buy about 80% of all Cadillacs, and 80% of all foreign travel plans are geared to affluent senior citizens. When it suits (the association’s) purpose, a different set of statistics can be presented (by including) the group that is over 75, particularly women whose husbands are deceased, whose benefits have been cut by one-third and their husband’s pension benefits cut off entirely. But lumping these people with the newly retired who have a lot of assets, travel and drive nice cars tends to obscure the differences between the groups among the elderly. Q: So you believe that, in relation to younger Americans, the elderly retired are fairly secure? A: Senior citizens don’t have the expenses that young working families do. Today, most families in which husband and wife work have to have wardrobes and other career-related costs. Households whose members are over 65 pay 45% less taxes than under-65 households. The greatest expense for younger working families is housing, which has gone up about threefold since the early 1970s. Seventy percent of America’s senior citizens own their own homes outright. The elderly’s main expense, health care, has gone up exorbitantly, but in many cases it is picked up entirely by programs such as Medicare. Q: Has the debate in Washington over federal deficit reduction resulted in generational conflict? A: The largest and most powerful social lobby in our country is organized not on the basis of rich versus poor, but to benefit a single generation--the elderly--at the expense of all others. To challenge the power of the senior movement creates the impression of generational conflict. Q: Do you see an amicable settlement of the differences younger Americans have with their grandparents? A: Our organization is set up to hold AARP accountable to its 22 million members. Senior citizens don’t think of themselves first as a special-interest group and secondly as a member of a family. We think activists (within the AARP) have gone beyond the wishes of their general membership. I think an amicable settlement is possible because seniors have a different agenda than their lobbyists.