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How Government Debt Disinherited the Next Generation…and How To Fix It

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How Government Debt Disinherited the Next Generation…and How To Fix It

May 12, 2015

This article originally appeared in The Fiscal Times.

The following is adapted from Disinherited: How Washington Is Betraying America’s Young.

Burdened with an obligation to pay government debt they did not incur, young Americans – those born between the early 1980s and the beginning of the 21stcentury, or millennials – begin life at least partially robbed of their birthright.

This is the first generation of young Americans that our government systemically disfavors and the first generation whose prospects are lower than those of their parents.

Their parents and grandparents, beneficiaries of the New Deal and Great Society programs that are bankrupting America, never intended this. They are deeply concerned that their children and grandchildren cannot find jobs and are facing a future of decreased opportunity. They never anticipated their comforts would come at the expense of their progeny.

What can be done to create a system that’s more fair and sustainable?

Mary Parrilli, now in her twenties and living outside of Chicago, told us, “I am outraged. We have been scammed, end of story. I do not expect to get back any of the money I am paying into Social Security – to me, it’s just another tax. I think people should help the elderly, especially their own family, but it is immoral for the government to force this on us. This is a perfect example of punishing the young and the successful and rewarding the irresponsible.”

Increasingly devastating fiscal conditions are being handed to our nation’s youth. Every Social Security and Medicare Trustees Report and every Budget Outlook from the nonpartisan Congressional Budget Office shows fiscal deficits far into the future. These deficits drive the national debt even higher and someday the bill will come due. Only substantial tax increases or spending cuts will solve the problem – and judging by the current political climate, these aren’t coming any time soon.

Because of automatic entitlement spending, Congress is unable to balance the budget without taking direct action to rein in the growth of these programs. To make matters worse, spending in 2009 was $3.5 trillion and revenue was $2.1 trillion, leaving a deficit of $1.4 trillion. Seven years from now, the deficit is expected to surpass $1 trillion again and continue rising after that. This will leave debt held by the public at more than 79 percent of GDP in 2024, compared with about 73 percent now.

The Affordable Care Act has also raised health insurance premiums for young Americans and lowered them for middle-aged and older people. Young, healthy Americans are, in effect, required to pay for the health care of older Americans. Yet Washington has added to it by raising the cost of insurance for millennials and lowering it for their parents.

Young people also encounter an education system that bankrupts them and leaves them far behind their peers in other countries. When young people leave school, they face a hostile job market littered with government regulations. These problems are systematic – and only a radical shift in politics and the policies they produce can turn the tide.

Why do politicians refuse to respond to the mistreatment of so many young Americans? Why is it so difficult to alter the egregious policies that keep young people unemployed, uneducated, and liable for trillions of dollars in unfunded promises?

In Washington, D.C., and in state capitals around the country, entrenched interests protect the old, who have had the time and resources to build up a powerful political apparatus. Washington dare not take on the American Association of Retired Persons, one of the largest interest groups in the country, and change the unsustainable trajectory of entitlement programs.

Rather than modify Social Security to defend its solvency, AARP chose to protect generous benefits for today’s retirees and disregard the future. (AARP spent $25 million on lobbying in the 2012 presidential election cycle and more than $16 million in the 2014 midterm election cycle. Based on money spent, AARP consistently ranks in the top 1 percent of organizations tracked by the Center for Responsive Politics.)

Medicare, which will become insolvent sooner than Social Security, is defended by its own interest groups, such as the National Committee to Preserve Social Security and Medicare. The committee is rated has a “heavy hitter” in terms of political spending and one of the largest donors to federal elections since 1990.

At the state level, public sector unions keep in place defined benefit pension plans that promise generous payouts to today’s retirees at everyone else’s expense. While union bosses are free to negotiate favorable contract terms with the politicians they bankroll, critical parties are left out – taxpayers and those who will be responsible for paying unfunded liabilities in the future.

Many other interest groups lobby for policies that harm people, such as minimum wage hikes and other labor-market regulators that prevent the unskilled from entering the job market. Occupational licensing laws stay in play thanks to the efforts of those who already hold those licenses and want to defend their favored positions. Teachers’ unions protect the jobs of poor educators and stand in the way of meaningful education reforms that would greatly benefit students and younger, more effective teachers.

Proportionately, the young do not vote. “Our generation has grown up with full acceptance of crushing national debt,” one frustrated 25-year-old told us. “We might not care as much as we should because we have never known life without it.” Two thirds of millennials perceive government to be inefficient and wasteful.

How can we change Washington’s direction to paint a brighter future for America’s next generation? Certain programs must be reformed; certain laws must be changed or repealed. The steps we must take are not politically easy – but each is necessary. Here are some of the most vital:

--Congress must examine its spending every year and cut out waste, such as redundant, ineffective job-training programs, government-guaranteed loans to politically connected companies, and costly subsidies to favored industries.

--Cutting back on government regulations that do little more than increase the size of bureaucracies and protect politically connected interests should be a bipartisan priority.

--Enacting long-term reforms to entitlement programs to make them sustainable is necessary. Congress should vote on every dollar spent, every year. While it would make the budgeting process larger and more complicated, it would restore accountability and force Washington to make tough choices.  

--Gradually raising the retirement age for collecting Social Security benefits makes sense as people live longer. It’s unwise to provide full retirement at age 67 for those born after 1990. Raising the retirement age will also take away federal disincentives that discourage people from working longer. More work benefits the economy – leading to economic growth. Additionally, Social Security benefit increases should be pegged to the price level in the economy rather than wage level. What a person needs to live, not what other people make, should determine payouts.

--Reforming the Affordable Care Act, starting with modified community ratings that prevent insurance companies from charging older people more than three times as much as younger ones, and the employer mandate penalty. The effort to extend coverage to the uninsured is admirable, but requiring employers to provide the insurance or pay a fine is not an integral component of ACA. American health care policy should harness the power of competition by repealing burdensome laws such as the ban on buying insurance across state lines and the preferential tax treatment given to employer-sponsored health plans.

America’s problems have solutions. We need a joint effort from the young and old to force politicians to discuss the issues and begin implementing solutions. Older Americans do not want to pass a future of higher taxes on to their grandchildren and great-grandchildren. They want solutions as much as anyone else.

Diana Furchtgott-Roth is director of Economics21 at the Manhattan Institute and Jared Meyer is a fellow at the Manhattan Institute. They are the coauthors of “Disinherited: How Washington Is Betraying America’s Young.” Follow Diana on Twitter @FurchtgottRoth and Jared @JaredMeyer10.

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