Dear 22 Year Old: Concerning your Future

Dear 22 year old:

Now that you are about to graduate from college some Baby boomer ought to level with you about your fiscal future. Maybe you’ve heard about it already in the news (though few of you ever listen to “the news”). Here it is straight up: your economic future isn’t as rosy as we hoped, but you will survive.

In the next 40 years, unless we do something drastic, our country will spend way more than the whole GDP. This is impossible to sustain, so something has to change. Maybe you will understand the dilemma of our nation though, since you are probably graduating with about $40,000 worth of school debt and your first job will bring you less than that a year—you will personally reach the 100%-of-GDP situation long before the nation gets there. Both the country and you personally have to face the music. But don’t despair, you are up to it—and so are the Boomers, if you lead us. Action hasn’t been desperately required yet, so both parties are dilly-dallying. Once action is demanded I’m confident we Americans will bite the bullet and do the hard thing. Both of our generations will feel that crunch. But it won’t destroy us—we’ll survive.

So, what can you expect in the future? It is hard stuff, but not impossible. Though no politician will tell you this, I’ll be truthful—you can expect both reduced government services and higher taxes. Just one of these actions won’t solve our economic problems, though cutting-before-raising is preferable to many of us. Here’s is my opinions on the economic future you face in the coming decades while Boomers climb into the passenger seats and you take over the steering wheel of this country:

EXPECT REDUCED GOVERNMENT SERVICES

1. You probably won’t collect Social Security until you are 70.

The numbers just won’t crunch. Forget retiring at 67. Count on age 70, or even later. Luckily, you will have more than 20 years to live when you reach 70, so you will be retired longer than any generation before you—even if you wait until 70. Though physical workers in your generation who crawl under houses or dig with shovels will retire at 70 many professional workers (like ministers) will copy Wilbur Williams and work right until they are 80.

2. You won’t to get Social Security unless you stop working

Boomers were generous to the “greatest generation” before them and built all kinds of giveaways into the system. We let them collect their Social Security even if they kept on working. You won’t be able to do that…and you probably ought to take away that benefit away from boomers now. When you get in charge, I suspect you won’t let people collect a penny from Social Security until they actually quit hogging their job—you’ll want them to leave that job opening it up to others, for instance you. The sooner you make this change the better—it is a boondoggle we could afford for the Boomer’s parents—but you can’t afford it for us Boomers.

3. Your Social Security will become “needs-based.”

Right now millionaires can collect Social Security. In 2058 when you are 70, if you retire with a handsome savings account that produces $100,000 a year interest, I bet you won’t be able to collect Social Security on top of that like people do now. Social Security won’t be a retirement plan—it will be a safety net by then. The sooner you make this change the faster the country will balance the books.

4. Government welfare will be greatly reduced.

The generation before us and the Boomers wanted government to do nice things for people—so we made “helicopter government” which you understand because your parents still pay your cell phone bill. The country decided to pay for the education of all the “Greatest Generation” when they came home from the war through the expensive “G I Bill”—not loans, mind you, but outright payments. Then we decided to help all kids go to college by offering grants and then later (by your time) interest-free loans until the graduation payback time occurs. My generation offered help for single mothers to buy food for their children—we thought that was kind. We decided to help people who lose their jobs by offering unemployment checks until they got back on their feet. Your government probably won’t be so generous. (We weren’t really that generous actually, because we borrowed most of the money we gave away and you’ll be paying that off—your inherited generosity?) To be practical, you probably shouldn’t expect government subsidized educational loans for your own kids like your parents had for you. You might have to be your own kids’ bank when they need $40,000 for college like you did (they’ll need more). This means you have to get out of debt yourself as fast as you can, then save like crazy so you have some money by the time your own kids go to college. (Or, home-college them.)

5. Health care rationing is coming.

Right now we think old people are entitled to health care no matter what it costs. In the future it will be technologically possible to keep your mom alive for years so long as we are willing to fork out a million dollars a year. In your world Medicare and Medicaid won’t be able to afford million dollar heart transplants for 85 year olds. This will be hard to swallow for us pro-life Christians, but its coming. You might face it with your own parents. The only folk who will be able to add another six months to their life for a million dollars will be people who have a million dollars of their own money to pay for it.

6. Your nation won’t be the world’s military.

Your nation won’t be able to afford so many periodic middle east wars like those in Kuwait, Iraq and Afghanistan. Even these “little wars” will just cost too many Billions of dollars for your nation. Instead you’ll be paying back the money we borrowed for the Boomer wars instead. You might even end the V.A. and shelve the notion that once someone serves in the military they are entitled to free health care the rest of their lives.

BUT YOU SHOULD ALSO EXPECT TO PAY HIGHER TAXES

I’m a fiscal conservative so I think we should cut first then raise taxes. But either way we won’t be able to pay down the national debt by cuts alone. Even all the above cuts in government won’t make your nation solvent. Sorry, we just owe too much. You will have to make all these cuts in government services just to get the budget nearer to balancing—to actually balance the budget and pay down the debt you will have to pay higher taxes too… like these:

1. Closing the welfare-by-deduction loopholes.

One of the ways the government gives welfare to people is exempting some of their income from taxes. It isn’t a direct payment but it is a government gift just the same. I suspect one of the ways your generation will “raise taxes” is close some of these deductions and exemptions. To start with you’ll probably shut down the government subsidy for ministers by eliminating the tax-free status of a ministers housing allowance. Ministers don’t pay any income tax on their housing or housing allowance. When I explain that to your generation you always think it is wrong so I suspect you will close up that loophole in the tax system. It will cost us ministers several thousand dollars a year but you say you’re going to make this change “to equalize things with laity.” You also think a minister living in a parsonage for free ought to pay income taxes on the value of that parsonage—so, even though it affects you personally, I suspect you close this loophole…alone with all kinds of other deductions… like tax-free insurance from an employer, deductions for interest on mortgages, and about a hundred thousand other deductions and exemptions for individuals and business. Many of you favor something like a “flat tax” that only exempts the bottom $20,000 of income… (we’ll see if you keep that opinionwhen you earn more than $20,000 ;-)

2. Higher Social Security taxes.

Right now we Boomers (with our employers) pay 12.4% of wages as Social Security taxes—it is “taken out of our paychecks.” To finish fixing Social Security you can expect these taxes to go up to 14.2% of your wages—half paid by you and the other half by your employer. If you are self-employed (like most ministers) expect your bill to rise to 17%

3. Higher Medicare taxes.

While there is more attention paid to the “Social Security crisis” actually Medicare is closer to meltdown than Social Security. We Boomers now pay (on top of our Social Security taxes) an additional 2.9% of wages as Medicare taxes. You can expect to pay as much as 5% of your wages in the future—even after you’ve made all the cuts above.

4. You will probably have to pay income taxes on your inheritance

When the Boomers die they’ll leave Trillions of dollars to your generation. Boomers allowed themselves to receive their own inheritances as tax-free income (up to a million dollars or so). Though Boomers never “earned” this money we allowed ourselves to inherit our first million without paying any taxes on it. (Our rationale was that our parents already paid taxes on it when they earned it and thus we were entitled to it tax-free.) You probably won’t have that advantage. When we boomers die off and leave you whatever money we have left, you’ll probably expect everyone to pay income taxes on their inheritance just like they earned it from work.

5. You’ll have to pay income tax on all your Social Security when you retire.

Right now couples who earn less that $44,000 get a free ride on paying taxes for most of their Social Security income—you will probably close that gate. In fact, you will probably enact this early so Boomers have to pay taxes on their Social Security income too—after all we will be a large cohort in retirement so taxing us will be wise.

6. You can expect a national sales tax.

Even all the cuts and taxes above won’t get your country completely out of the hole—if you really are serious about balancing the budget and paying down the national debt you’ll probably have to also enact a VAT—a Value Added Tax. Your “National Sales Tax” would be added to products at each stage of production so that you won’t be able to buy a shirt for your toddler at Wal-Mart for five bucks any more—it will cost $7 including the VAT. You may say, “So what—that’s only two dollars.” But, since your real wages will not rise like ours did, you won’t be able to buy as many shirts for your toddler—or anything else. You aren’t headed for abject poverty, but you will be able to buy fewer shirts for your toddler and fewer new cars if you enact a VAT. Luckily, your generation already likes to buy things at Goodwill so you might consider keeping that habit in the future—especially if you enact a VAT.

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Sorry about all this… but some boomer had to tell you the truth. Unless there is some phenomenal change in the world, like figuring out how run our cars on water, heat our homes with air, or we invent a Fusion-in-a-Coke-can machine, your future appears to be one of less government services and higher taxes at the same time. That is, if you really want to “fix the fiscal problem.” Of course, you could be like your parents and cut taxes to yourself, and raise government benefits and borrow the difference—but that won’t work long because eventually nobody will eventually lend to your nation and everything will collapse in one great economic Alt+Ctrl+Del.

But I think you’re up to it. I have taught your generation for a few decades and I believe you can handle this challenge. You have already rejected the notion of being rich. You don’t think you are entitled to a mansion—in fact giant houses turn your stomach. You aren’t impressed with multi-million dollar mega-churches. You live simply, serve locally, and recycle. While you have been pampered and helicopter parented like no generation before you, at the same time you seem content to live in a modest apartment, drive a used car, and work part time “until something better turns up.” I’ve gotten to know scores of you over the years and most of you expect things in your future to be far worse than what I described above. Many of you think “I’ll never collect a penny from Social Security” and “I’ll never get out of debt until maybe I’m 60 or so.” So, the picture I just painted above might actually be encouraging to your generation, given your own economic bleakness!

All this won’t to happen right away because the cheerful Boomers (after all, we invented the have-a-good-day smiley face) will pretend this crisis will go away if we all just spend more money “to get the economy moving again.” But that won’t work in the long run. Our generations together have to figure out how to do two things that are repugnant to both of us—reduce government services and increase taxes. Just like you 20somethings will have to live on less to pay off your $40,000 college debt, we as a nation have to do the same thing to do penance for our past fiscal profligacy. But you are up to it! And so are we if you lead us. Don’t expect boomers to lead on this issue. Boomer rhetoric says all the same things but in actuality boomers want the opposite—greater government service (to us, at least) and lower taxes. You’ll have to lead the country to do the opposite—reduce service, increase taxes and get out of debt. We boomers will eventually be willing to take some of these cuts ourselves as we admire your own example of modest living and reduced income. We can do this together. And since many of these cuts will affect Boomers in our old age—you may have to count on your mom or dad moving in with you, or leaving your job to take care of your dad when he has Alzheimer’s because your government might not be able to pay their thousand-dollar-a-week nursing home bill though Medicaid.

But we can do this, even though its hard. All this is actually not that much harder than what you’ll be doing personally in the next five years. You might be a youth pastor earning $30,000 a year while paying off a $40,000 school debt. This can be your practice session for what the nation has to do—live on less and pay more. Boomers will follow you if you step up and lead. We can do this together.

I’m not writing about Republicans, Democrats or the Tea Party this week. No matter who we elect we will have to do these things. Everyone will be a fiscal conservative in the future. Parties aren’t the issue, money is. In Grant County, Indiana where I live, all the Tea Party candidates are running as Democrats!). This column is not so much about political parties as about fiscally conservative policies.

What I’m asking this week is this: What are the other “cuts” in government we need to make in the future—especially cuts in the benefits we personally receive (anyone can cut others’ benefits). And what other loopholes need shut that increases revenues for government so we can work our way out of debt—or at least reduce the debt and balance the budget?

So, what do you think?

The discussion of this column is on Facebook: http://www.facebook.com/notes.php?id=161502633

Keith Drury   October 12, 2010

www.TuesdayColumn.com

CREDITS: I am indebted to several people for the fiscal data on which this column is based. First to Michael Kinsley’s article The Least We Can Do in The Atlantic, October 2010 and second to The Global Budget Race, by Douglas Besharov & Douglas Call in The Wilson Quarterly, Autumn, 2010 (and to Steve Lennox for the gift subscription to the WQ;-)