Here is an interesting article about the debt crisis via the Korea Economic Reader that makes a good point that the US doesn’t need a balanced budget, it needs generational balance:
Debt crises make great drama. The big shots attend meetings, look terribly worried, then stomp out, accusing each other of bad faith. Finally, at the witching hour, they reach agreement and tell us all is fine, for now.
The tough thing is sorting out what’s really going on. In the U.S. case, the answer is: not much. We need tax increases and spending reductions far beyond what’s being negotiated. Cutting the deficit by $1 trillion to $2 trillion over 10 years sounds like a big deal, but not when our unfunded Medicare and Social Security liabilities, by my calculations, are growing by more than $4 trillion a year.
Whatever you think of the House Republicans, they understand that our country is broke. But they have no idea how broke. They are pushing hard for a balanced-budget amendment. What we need is not budget balance, but generational balance.
If we are going to amend the Constitution, let’s prohibit today’s adults from leaving tomorrow’s generations with higher lifetime net tax rates. A Generational Balance Amendment would specify that, absent prolonged states of emergency, each generation would pay the same share of its lifetime labor earnings in taxes, net of benefits received.
Stabilizing lifetime net tax rates isn’t just a matter of fairness. It’s critical to our country’s long-term economic survival. [Bloomberg]
You can read more at the link.
For those that don’t subscribe to the Korea Economic Reader, let me share a point Tom Coyner made with this article:
must confess, reading this makes me totally ashamed to be part of the spoiled Baby-boomer generation. I clearly remember reading a TIME magazine article in 1975 that forecasted how the Baby-boomers would be resented by subsequent generations. I suspect that the author of that piece had no idea how incredibly correct he was in his future view.
I couldn’t find that article in the TIME archive but I did find this article from 1976 that clearly shows how long our government knew that Social Security was unsustainable once the Baby Boom Generation reached their retirement age starting in 2005 and here we are now with a debt crisis. Here is an excerpt from the 1976 TIME article that is worth reading in full:
The payments are determined strictly by the size of the premiums paid. The original Social Security Act of 1935 set up the system in much the same way:
workers would pay taxes that would be a kind of premium and “earn” the right to receive benefits when they retired.
But in 1939, before the first benefits were paid,* Congress amended the act to base payments partly on need—a concept foreign to true insurance. Low-income workers get retirement benefits that replace a larger proportion of their former earnings than the benefits of high-income workers do. A retired worker with dependents collects more than one without, even if both have paid exactly the same amount of taxes into the system, and there is a minimum level of benefits available to someone who has paid very, very little.
As a result, Social Security has become not insurance, but what economists call an “intergenerational transfer program.” Today’s workers pay taxes to support yesterday’s workers who are retired or disabled. In turn, today’s workers must rely on the willingness of their children’s and grandchildren’s generations to continue to make this sort of transfer. Thus the trust fund is not, never has been, and never can be large enough to meet all potential claims on the system: that would require several trillion dollars. [TIME Magazine]