|
|
WASHINGTON - July 6 - The Economic Policy Institute has released a new
report - "Defusing the Baby Boomer Time Bomb: Projections of Income in the 21st
Century" by Dean Baker.
Executive Summary:It is commonly accepted in public debate that the retirement of the
baby boom generation will place an enormous burden on the working population in the first
decades of the next century. Economists and political figures have issued dire warnings
about the tax burdens that will be needed to support Social Security, Medicare, and other
retirement benefits when the baby boom generation reaches retirement age.
This paper examines the reality behind these warnings. It uses projections from the report
of the Social Security trustees and from the Health Care Financing Administration to
derive projections for after-tax wages, after-tax family income, and after-tax,
after-health-care family income (the money available to families after paying their taxes
and their projected health care expenses) at four points in the next century: 2010, 2030,
2050, and 2070. These projections are carried through for workers and families at various
points of the income distribution under a variety of scenarios.
The projections show:
• In a base scenario, which assumes that health care costs rise only with the aging
of the population and per capita growth of the economy, and that there is no increase in
wage inequality, after-tax wages and family income will be more than 30% higher in the
year 2030 for an average family than at present. After-tax, after-health-care income will
be more than 41% higher in 2030 than today. In addition, the average year-round worker
will be enjoying nearly two weeks a year more in vacation than do workers today.
• In 2030, when the peak impact of the baby boomers’ retirement will be felt,
the burden on workers will be a reduction in after-tax wages and family income of slightly
more than 6%. More than one-third of this increase will be attributable to increased life
expectancy over this period, not to the large size of the baby boom cohort.
• If health care costs rise at the rate currently projected by the Health Care
Financing Administration, then after-tax, after-health-care income in the year 2030 for a
family in the middle of the income distribution will be 14% lower than in the baseline
scenario. Thus, the impact of rising health care costs is more than double that of the
retirement of the baby boom generation.
Furthermore, more than two-thirds of this 14% income decline is attributable to an
increase in private sector health care expenditures. This means that efforts to stem the
growth of public sector health care spending will have only a limited effect in protecting
the living standards of future workers, unless private sector costs are also contained.
Rising inequality, like exploding health care costs, poses a far greater threat to the
living standards of most Americans than the retirement of the baby boomers or the aging of
the population. If current trends continue, the reduction in after-tax family income for
families in the middle of the income distribution is 22%, more than three times as large
as the loss due to the retirement of the baby boomers.
The combined effects of rising health care costs and increased wage inequality lead to an
actual decline in after-tax, after-health-care income for most of the population through
the next century. The projected loss in the year 2030 for a family in the middle of the
income distribution, compared to the baseline, is 37%, or more than six times as large as
the impact of changing demographics.
The study also includes projections incorporating the Boskin Commission claim that the CPI
overstates inflation by 1.1 percentage points annually. These projections paint a vastly
brighter picture of the future. All the categories of before- and after-tax wages and
income are more than 40% higher than in the base scenario; the improvement due to this
adjustment vastly exceeds any gain that could be accomplished through policy shifts. If
the Boskin Commission’s conclusion is correct, then there was never any reason to
worry about the well being of future generations.
The study also includes projections showing the impact of increasing spending on education
and reversing the rise in wage inequality experienced over the last quarter century. These
policies more than offset the losses from demographic change for everyone except families
at the top of the income distribution.
The public attention given to the problems the nation will face as the baby boomers retire
has been largely misplaced. By itself, the retirement of the baby boom generation will not
prevent workers in the future from enjoying substantially higher living standards than do
workers today. But tomorrow’s workers still face another, more serious problem:
rising health care costs and growing wage inequality threaten to greatly diminish the
future living standards of most workers. In order to protect the well being of future
generations, it will be necessary to bring health care costs under control and to stop, if
not reverse, the trend toward greater wage inequality.
### |
