Social Security Bolsters 'Generational Justice'

"Social Security is a terrible investment plan for retiring baby boomers," holds Arthur Hall, an economist at the Tax Foundation in Washington. The system, he adds, faces "looming bankruptcy" - looming meaning in 2031.

That sort of assertion has some baby boomers feeling sorry for themselves. It has their sons and daughters wondering how they will manage paying Social Security taxes when those numerous boomers, born between 1946 and 1964, retire.

Then politicians talk about how federal debt will burden the children and grandchildren of taxpayers. And economists raise the issue of "generational justice" - the idea that one generation shouldn't dump on the next.

"These arguments get a little silly," says Richard Leone, president of the Twentieth Century Fund. Dean Baker, an economist at the Economic Policy Institute in Washington, agrees. Here is some of their reasoning:

* Baby boomers will inherit trillions of dollars of financial and real property from their parents, more than any other generation in history. They will inherit the Treasury bonds that make up the federal debt, as well as the obligation to pay interest on those bonds. It is not quite a wash, because currently 18.5 percent of the debt is held by foreigners.

"Is that just?," asks Mr. Leone. "That is just the way it is."

* Each new generation in the postwar years has been better off as a group than its predecessor. Assuming productivity rises a modest 1 percent a year, this will remain true in the future, even if the children of baby boomers pay more in payroll taxes to support their parents in retirement.

* The Social Security Trustees, using conservative numbers, project a rise in the average wage, in 1996 dollars, to almost $35,000 in 2030, up from $25,600 in 1996. If no other adjustments were made in the program, payroll taxes would need to rise a tenth of a percentage point a year from 2011 to 2046 to cover any gap, Mr. Baker calculates. That totals 3.6 percentage points.

* Each generation of Americans, in addition to individual wealth, uses the roads, factories, schools, new knowledge, and, perhaps most important, education provided by their parents.

Should the boomers, in their senior years, charge their children rent for these physical facilities and bill them for their education? Leone asks in jest. "It is very slippery stuff," he says.

Baker has estimated that the education benefits passed on to future generations will be of greater value than the interest burden on the existing federal debt. That may be no surprise to parents paying today's college bills.

* America managed to provide for the boomers when they were children (who produced little for 15 or 20 years). "With fewer resources, with higher marginal tax rates, the boomers were fed, clothed, educated," notes Leone in The American Prospect, a liberal magazine. In current dollars, the cost of raising each of these children has been estimated at $300,000, about the same as the "insurance value" of Social Security coverage.

"Odd, isn't it, that no one, including the boomers' parents, recalls the 1960s as an era of economic deprivation?" he notes.

When the boomers retire, the dependency ratio will be better than it was when they were children. That ratio balances the number of children and retirees against those working. Leone calculates that 37 percent of Americans were working when the boomer population peaked in 1964, compared with 46 percent today and 44 percent in 2030 when boomers are retired.

Leone refers to the larger number of retirees in the next century as "a reasonably modest challenge. A ... realistic assessment of the balance between the challenges [today's young workers] are likely to meet and the resources available to meet them should inspire optimism rather than apprehension."

As for a common charge that seniors are being pampered economically, Leone says that those over age 65 number about 11 percent of the population today and receive about 10 percent of income. Keeping older people above the poverty level is "a pretty good idea for a democracy," he says. And, he adds, most adults would rather not have to support their parents financially or take them into their own homes while raising their own families.

Social Security, by skewing benefits in favor of those with a record of low income, provides most poor retirees sufficient income to remain independent and not begging on the streets. So far, Americans have decided the social benefits are worth the cost.