Inform Act won’t live up to its name

The Intergenerational Financial Obligations Reform Act, the brainchild of economist Laurence Kotlikoff, would require generational accounting of government spending. Kotlikoff says it would show that future generations have been bequeathed an insupportable tax burden already.
(Saul Loeb, AFP / Getty Images)

As every legislative craftsman knows, the trick in giving your bill a name is, first, come up with a title that yields a catchy acronym. Second, make sure the title doesn’t explain what the bill does.

Hence, the Inform Act.

The name certainly is alluring. It sounds like a measure to make government more transparent to its citizens, which is exactly what its promoters say it is. But it may be more accurate to think of it as the Misinform or even Disinform Act.


You may be hearing a lot about the Inform Act in a few weeks. Its creators have been gathering signatures from prominent economists — 14 Nobel laureates! — and current and former government officials in preparation for taking out a full-page ad in the New York Times pushing its enactment. So you might want to know a little about it before the publicity train starts rolling.

Inform stands for the Intergenerational Financial Obligations Reform Act. Introduced by a Republican and Democrat in both houses of Congress, it’s the brainchild of Laurence Kotlikoff, a Boston University economist who’s respected as an expert on long-term fiscal issues but rather more controversial when it comes to his dabbling in policy prescriptions.

For years Kotlikoff has been pushing the notion of “generational theft” — that for the entire postwar period the United States has engaged in a “massive redistribution from the young to the old.” This has been done mostly through Social Security and Medicare, which he reckons have made seniors richer and everyone else poorer or at least more debt-ridden. Preferential capital gains tax rates and other breaks have done their part, he says.

Kotlikoff says the remedy is “generational accounting,” which compares spending today with a calculation of the tax burden it places on tomorrow’s taxpayers.

If it’s passed, the Inform Act would require three federal agencies — the Congressional Budget Office, the White House Office of Management and Budget and the Government Accountability Office — to gin up an annual generational account for the government as a whole and provide a generational accounting for proposed legislation whenever Congress asks.

Kotlikoff maintains that generational accounting is far superior to conventional deficit accounting when it comes to government spending. He says that it would show accurately that future generations have been bequeathed an insupportable tax burden already.


“This may be the most important fiscal bill of the postwar period,” Kotlikoff says. That should give you an idea of the level of rhetoric that will be swirling around this measure.

Critics observe that simply balancing today’s spending against tomorrow’s tax payments leaves a lot out of the calculation of what government does.

For starters, generational accounting doesn’t make a distinction between spending and investment. An appropriation to send a congressional committee on a junket to the Bahamas carries the same weight as building a schoolhouse or a bridge.

That’s a real flaw. The government’s decision in the 1950s to spend billions to create the interstate highway system shows up in generational accounts as a huge burden on post-1950s taxpayers. That’s you and me. But we’re obviously reaping economic benefits from that decision, as will our children and grandchildren.

The same goes for education, which obviously packs a lot of value for its youthful recipients, who are also the taxpayers of the future.

Kotlikoff responds that the gains from such investments will show up as an expansion of future tax revenues, narrowing the generational fiscal gap. The problem is that lots of government spending can’t be analyzed on a cost-benefit basis. What’s the value to tomorrow’s generations of staving off a military attack today? Or opening a new national park? What’s the social value tomorrow of a cancer cure discovered by a scientist educated at public expense today?


Kotlikoff’s view of Social Security and Medicare, which is that they’re devices for the old to rip off the young, is especially faulty. Middle- and high-income wage-earners are paying their own way in Social Security, as C. Eugene Steuerle of the Urban Institute has shown. According to his figures, a two-income couple who earned an average wage and retired in 2011 had paid an average $598,000 in Social Security taxes (adjusted for inflation) and will collect an average $556,000 in benefits. Sounds like they’re redistributing their income to the young, not the other way around. Low-earning workers do much better, but that’s a redistribution from rich to poor, not young to old.

Medicare’s different. Because its costs are driven by overall healthcare spending costs, most seniors collect more in benefits than they paid in Medicare taxes. But that illustrates another flaw in generational accounting: It doesn’t tell us anything new.

Kotlikoff says his accounting method tells us that “if we let healthcare spending grow by leaps and bounds, Medicare will go broke and we’ll have a fiasco.” But who didn’t know that, based on plain old government budgeting? After all, one rationale for the Affordable Care Act is to bring down exactly such spending.

The virtue of the Inform Act, Kotlikoff maintains, is that it’s politically neutral.

“There’s no agenda here,” he says. “It’s not a Tea Party agenda or a left-wing agenda for less spending or more spending. It’s about truth in government operations — it’s a be-honest-with-our-kids act.”

That’s disingenuous. For one thing, among the Inform Act’s champions is an organization called The Can Kicks Back. The group bills itself as a grass-roots anti-deficit lobby for today’s younger generations but actually has links to hedge fund billionaire Peter G. Peterson, whose hostility to Social Security and Medicare is a byword.

Furthermore, any time you weigh debt-financed spending today, the cost of which is known, against benefits in the distant future, which are always conjectural, you can make the spending look like a pure burden on your kids and grandkids.


The abstract numbers that come out of Inform Act analysis would become a distraction from the hard work of making policy for a murky future because they would make the future seem unmurky.

To a great extent, government exists to craft policies and programs that don’t lend themselves to cost-benefit analysis, whether in the present world or over the coming decades. That’s what gave us the interstate highway system, the Internet and public education. The Inform Act would foster the impression that those things make no economic sense. But we know they do; it’s the Inform Act that makes no sense.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @hiltzikm on Twitter.


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