Surplus gives boomers chance to change image

August 03, 1999|By Ronald Brownstein

SELF-denial has never been the strong suit of the baby boom generation, which for years ranked its priorities as sex, drugs and rock 'n' roll, and only recently added IPOs and SUVs.

But history, with its eternal fondness for irony, now is offering the boomers an opportunity to leave a very different political legacy. As the country debates what to do with the federal budget surplus, the question largely may turn on whether the baby boomers, as the nation's largest voting bloc, want to spend it on themselves -- or are willing to make the kind of sacrifice for the future that lastingly marked their parents, the GI generation that came of age during World War II.

Over the next 15 years, the federal surplus is expected to total a staggering $5.9 trillion -- $3 trillion in the Social Security accounts and $2.9 trillion in the rest of the federal budget. So far, the debate over this windfall has focused on how the competing alternatives allocate benefits between the rich, the poor and the middle class. That's an important debate. But even more consequential may be how the plans allocate benefits between generations.

Carving out a huge tax cut from the surplus, as congressional Republicans are proposing, would primarily benefit baby boomers and their older siblings. Applying the surplus more toward paying down the national debt, as President Clinton and Federal Reserve Board Chairman Alan Greenspan are urging, would produce the greatest benefits in 15 or 20 years, when today's young workers would reap the maximum advantage.

"We are poised to make a choice . . . that has a stark, black-and-white generational impact," says Hans Riemer, the 26-year-old director of the 2030 Center, a think tank focused on economic issues facing young adults.

Those generational choices are inextricably woven into the competing alternatives. Consider tax cuts. The 10-percent cut in marginal tax rates approved last month by the House concentrates its benefits on workers in their prime earning years; 78 percent of the benefits in the House plan would flow to families earning $100,000 or more, according to Treasury Department calculations. Those earning $35,000 or less would reap just 8 percent of the benefits. The proportions are similar in the Senate bill.

No help for Gen X'ers

That's good news for baby boomers, less so for the generations behind them. Families headed by boomers now make up 57 percent of all working-age families. But they account for 68 percent of all families earning $100,000 or more and just 46 percent of those earning $35,000 or less, according to Census Bureau figures.

Notwithstanding the occasional Internet millionaire, the proportions reverse for younger families. Families headed by men or women under 35 constitute 28 percent of all working-age families -- but just 11.5 percent of those earning at least $100,000 annually. By contrast, young families make up nearly 40 percent of all families earning less than $35,000 -- the group that benefits least from the tax cuts.

Mr. Riemer sees another whammy for young families in the tax proposals. Both the House and Senate tax cut plans are structured so that their costs explode around 2010; the House plan is expected to cost the government more than three times as much in its second decade as its first.

The GOP's tax cut will open a trapdoor under the Treasury just as the baby boomers begin to retire, adding 3 million to 4 million new names a year to the Social Security and Medicare rolls. Mr. Riemer's prediction: That enormous strain on the budget will force Washington to repeal the tax cuts just as today's young workers reach the point when they could genuinely benefit from them.

On the other hand, using the surplus to reduce the federal debt gives its greatest benefits to the next century. Over the next 15 years, paying off the $3.65 trillion in federal debt held by the public would provide some immediate benefits for all Americans by helping to keep down interest rates. But the real payoff comes later as the shrinking debt reduces the federal government's enormous interest costs.

This year, Washington will spend $229 billion in interest on the debt (an expenditure exceeded only by defense and Social Security). As that number shrivels toward zero, it would give the next generation more flexibility to make its own decisions about how to spend tax dollars. It also would reduce pressure on 21st century workers to raise their own taxes to pay for the baby boomers' retirement. For that reason, "debt reduction . . . is a tax cut for future generations," says Robert Bixby, the research director for the Concord Coalition, a budget watchdog group.

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