The future of American politics has quietly arrived in Washington, but the custodians of the conventional wisdom–the press and hordes of commentators–haven’t noticed. Their attention remains riveted on the presidential campaign and familiar themes of old politics: liberals vs. conservatives; rich against poor; “special interest” campaign contributors against everyone. Virtually overlooked is the new politics: a legislative agenda increasingly crowded with issues that pit retirees against workers and that, if enacted, would transfer hundreds of billions of dollars across generational lines.
Everyone knows that the federal government already operates as a massive transfer mechanism between workers and retirees. Workers’ taxes pay retirement benefits, mainly through Social Security and Medicare. These benefits now account for a third of the federal budget and average $17,700 for each person over 65, says the Congressional Budget Office. This year’s news is the explosion of proposals that would vastly enlarge that transfer:
President Clinton urges a Medicare prescription drug benefit with a cost estimated somewhere between $250 billion and $338 billion from 2001 to 2010;
Congressional Republicans want to reduce income taxes paid by Social Security recipients on their benefits, cutting tax revenues by more than $100 billion over a decade;
The House of Representatives has voted to eliminate gradually the estate tax (“the death tax”) creating, in some ways, the ultimate retiree benefit. The projected revenue loss is $105 billion for the decade;
Clinton and Republicans have both proposed long-term care tax credits for people in nursing homes or needing help at home. The initial costs are fairly modest ($27 billion over a decade for Clinton’s) but would surely grow.
Politics, like America, is graying. There’s no static “Social Security problem” or “Medicare problem.” As people age, they discover new needs and make new political demands. Similarly, politicians construct new programs to appeal to an expanding constituency of retirees and near-retirees. Increasingly, this includes Baby Boomers who can glimpse their own retirement–and even their own mortality.
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Our political culture stubbornly evades the central issues posed by this unavoidable transition. If you raise benefits for retirees or cut their taxes, you increase the burden on workers–or compel cutbacks in the rest of government. How much should government (meaning, in practice, workers) subsidize wealthier retirees? Should Americans, living longer and healthier than ever, work longer?
In the presidential race, George W. Bush gives faint (and inconsistent) signals that he might raise these questions. As yet, Al Gore gives none. Generally, we have a consensus for avoidance. Everyone expects to grow old. Everyone has older relatives. Still, we minimize generational issues.
There’s a growing disconnect between what’s happening and what we say is happening. The estate tax is a perfect example. How (it’s asked) could there be so much support for something that would benefit only the wealthy few? In 1997, the government collected $21 billion from 47,596 estates, about 2 percent of the people who died. Yet, repeal passed the House 279-136. The pat theory is that Republicans are pawns of the rich. That’s old politics. It doesn’t explain the 65 Democratic votes or Democratic leaders’ willingness to cut (though not eliminate) the tax.
A better answer is that millions of upper-middle class Americans see the tax as unjustified. In 2000, only estates above $675,000 are taxed. By 2006, the threshold already rises to $1 million. Still, many families with mortgage-free homes and fattened stock portfolios can envision piercing the floor. Between 1998 and 2052, between 7 percent and 15 percent of people who die may have estates exceeding $1 million without taking account of inflation, estimates the Social Welfare Institute at Boston College. Many more may think they’ll make it.
So perceptions change. By the old politics, the estate tax was an obstacle to a hereditary aristocracy. By the new politics, it’s a burden on middle-class success–a penalty on families trying to save for their children.
The best policy now would be a moratorium on all these proposals. Some have merit, some don’t. Someone needs to calculate and communicate the generational burdens. We need a new language to discuss generational fairness. The climate needs to be less lopsided in favor of retirees and more sensitive to the needs of workers, their families and the rest of government.
This would be a heroic transformation. The prospects under a new president are slim. But they’re vastly better than under Clinton, who has consistently exploited the issue politically by playing on people’s fears of old age. As for generational fairness, his policy has been unswerving: don’t ask, don’t tell.