Opinion Editorial

Monday, April 27, 1998  

Generational Inequity

An important factor fueling the demand for Social Security reform is a sense of generation inequity. Young workers, those in their 20s and early 30s, increasingly have come to believe that older workers and those who are retired got a much better deal than they will. These workers, often characterized as Generation X, believe that job opportunities for them are not as good, that they are being hit with higher taxes than earlier generations, and that they will receive little, if anything, in the way of Social Security benefits when they retire. These concerns are not unjustified and are documented in recent economic research.

In the February issue of the Monthly Labor Review, the Bureau of Labor Statistics presents considerable data showing that Generation X workers are indeed worse off than the Baby Boom generation that preceded them. For example,

  • A worker aged 18 to 24 had an average yearly income of $17,629 in 1972-73 (in today's dollars).

  • However, the real income for workers in that same age group fell to $16,396 in the 1984-85 period and to $15,527 today.

  • In short, today's Generation X workers are paid about 12 percent less than Baby Boomers were at the same age.

Generation X workers are also right about paying higher taxes and receiving fewer benefits from government. This fact is proven by the generational accounts shown in the chart (see figure). It shows future lifetime taxes minus transfer payments by age group. These figures are in "present value" terms, which means they are adjusted for the fact that a dollar in the future is worth less than a dollar today.

According to the data, which appear in a recent paper from the National Bureau of Economic Research by economists Laurence Kotlikoff and Willi Leibfritz, a 25-year old worker can expect to pay $175,000 more in taxes over his lifetime than he can expect to receive in Social Security benefits. By contrast, a 55-year old worker will only pay $4,000 more and those older will get back substantially more than they will ever pay.

If it is any solace, workers in other countries are even worse off. A 25-year old worker in France, Germany or Japan can expect to pay roughly $300,000 more in taxes than he will receive in benefits. And if one adjusts for the fact that per capita incomes in those countries are lower than here, the relative tax burden there is higher still.

Such generational imbalances are unsustainable. Sooner or later, action must be taken to give younger workers a better deal, even if it means cutting benefits for the politically powerful elderly.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), April 27, 1998.