Whose face do you picture when you think of history’s greatest thieves? If you are an old movie buff, perhaps Butch and Sundance or Bonnie and Clyde come to mind. Maybe Bernie Madoff and his $65 billion Ponzi scheme?
Well, even that staggering amount is paltry compared to history’s truly greatest theft. And the face of the greatest thief might surprise you. If you are over 50 take a look in the mirror. History’s greatest thief is you!
The United States is $18 trillion in debt, an amount that continues to rise at an alarming rate with no end in sight by anyone’s calculation. But that is dwarfed by the $128 trillion in “unfunded liabilities.” Unfunded liabilities are the amount by which future obligations exceed the present value of funds available to pay for them.
To put that in perspective our nation’s unfunded liabilities come out to $1.1 million per taxpayer.
The projected current-year deficit of $474 billion is understated by accounting gimmicks used by Congress. But the real time bomb is interest rates. Rising interest rates mean we need to pay more on the national debt, resulting in either a ballooning of the annual deficit or the crowding out of other spending.
Higher debt and spending do not greatly affect retirees or those approaching retirement age. That is because entitlement plans like Social Security and Medicare are likely to remain solvent long enough for older Americans to collect benefits paid for by younger generations. And under the Affordable Care Act, insurance companies cannot charge older people more than three times what they charge younger people. Insurance companies are therefore forced to artificially raise rates on the young.
The future income of young people is largely dependent on a growing economy. The Congressional Budget Office issued a report last year that listed the numerous ways in which the growing national debt makes growing the future economy increasingly difficult. The CBO calculated that for debt in 2040 to equal the historical 50-year average of 38 percent of gross domestic product, Congress would need to cut spending by 13 percent or raise revenue by 14 percent beginning in 2016. Needless to say, neither of those is going to happen.
Now consider that the unemployment rate for those under 25 is more than twice that of those over 25. The labor force participation rate for younger workers is the lowest since the government began keeping records in 1948. These and other statistics show a bleak future for younger Americans, directly caused by the huge debt run up by their elders. It is a twisted version of a Ponzi scheme that would make Madoff proud.
Younger generations have two choices. First, they can pay substantially higher taxes than their elders have while receiving substantially the same benefits. Alternatively, they can pay the same taxes as their elders while receiving far fewer future benefits. These choices are driven by laws that were passed many decades ago and have operated on autopilot since then. Washington has shown no political will to change the last century’s programs and adapt to the current century’s realities.
The ironies of this generational theft are many. If you told baby boomers that they were stealing the future from their children and grandchildren, they presumably would be appalled. Yet politicians continually play on their fears and self-interest to prevent the necessary restructuring of government programs to address their fundamental flaws. The fact that older Americans vote in far larger proportions than younger Americans is not lost on the cynical political class.
The flip side irony is that one might expect millennials similarly to vote in their own economic self-interest. That would be some combination of higher taxes and less spending. They have a particular interest in getting entitlement programs on a more sound financial footing and eliminating the many tax incentives that favor their elders.
Yet many younger voters are flocking to Bernie Sanders, whose policies would actually exacerbate their plight. Why is that? Think about how many younger voters understand or even think about their financial future. They are much more focused on social issues they deeply care about and about immediate financial concerns such as student loan debt. In all this they are little different from their parents and grandparents were at the same age.
Is there any way to save the millennials and subsequent generations from this continuing theft? The final irony is that the heroes must be the thieves themselves. It is up to the baby boomers to vote for politicians who will make the fundamental budgetary changes to alter the current path. But this is asking such voters to reject the political pandering that tells them government can keep expanding benefits without paying their full costs.
I wouldn’t hold my breath. The older generations are addicted to receiving benefits without paying for them. The younger generations are being robbed blind and don’t even know it.
Paul Gutterman is director of the Master of Business Taxation Program in the Carlson School of Management at the University of Minnesota.