Another way of looking at how the old benefit at the expense of the young is the controversial tool of generational accounting. Studies suggest that in the US, Italy, Norway and Sweden, today’syoung workers will have to pay $200,000 to $300,000 more in taxes over their lifetimes, than they receive in benefits, at present benefit levels, while current retirees may receive $100,000 more in benefits than they will have paid in taxes. With unchanged benefits, future generations of workers would face lifetime tax rates of more than 70 percent, compared with 20 percent to 30 percent for retirees today. (Martin Wolf, The Financial Times (4/23/96), p. 16)
In the United States, there is very little political will to deal with this issue. The reasons for this are pretty clear. In the last national election, only 39 percent of adults with children at home cast a ballot, as compared with 61 percent of the elderly, and in addition to voting the elderly are also well-represented by the American Association for Retired Persons. AARP has well-defined goals, politically active members, and lobbyists who work throughout the entire legislative session…AARP has annual revenues of $300 million. (Elizabeth Gleick, Time (6/3/96) p. 34) They are also pretty much single-issue voters.
The elderly’s influence was felt recently by the Republicans in Congress who spoke of slowing the growth of Medicare, President Clinton picked up on it as an issue and his stock rose while those of the Republicans in Congress declined. To paraphrase Representative Bill Gradison (R-Ohio), ranking Republican on the Ways and Means Subcommittee on Health in 1992, “Social Security and Medicare are the third rails of American politics. Touch them and you die.” (O’Connor and Sabato, p. 611) Recently, Congress passed, and President Clinton signed into law, a bill which will increase the Social Security Wage Cutoff to $30,000 by the year 2002 from the current level of $11,520, and according to Social Security estimates, nearly half of the additional benefits paid will go to families with total annual incomes over $57,800. (Spencer Rich, The Washington Post (3/29/96) In the end, labor taxes raise the cost of hiring workers…and in the long run basically gets paid by the worker in form of lower wages and in the low end in the form of lower employment. (John Merline, Investors Business Daily)
Young people will see the day when Social Security won’t have enough income from those working to pay for those in retirement. As things currently stand the $143 billion Medicare trust fund, financing US healthcare for the aged and disabled, will be exhausted in 2001…and the Social Security trust fund will run out of funds in 2029. (Jurek Martin, The Financial Times (6/6/96) p. 4) In response to this reality, the government will either have to cut benefits or raise taxes even more. (Albert B. Crenshaw, The Washington Post (6/2/96) p. H1)
The crunch facing pay-as-you-go social security systems are causing governments, employers, and employees to look for other ways to safeguard workers’ retirements. One of the most popular retirement programs in the United States is the 401(k) Retirement Plan which allows employees to deduct a certain amount of their pay and put it into the plan before payroll taxes are taken out. In the United States there has been a phenomenal growth in the 401(k) Retirement Plan. In 1986 there were 8.6 million people holding 401(k) Retirement Plans with combined assets of $155 billion, and in 1996 the numbers had grown to 20.8 million people with combined assets of $690 billion. (R. Theodore Benna, p. 11) These types of plans are available mostly to employees of larger companies, and government agencies. The US Chamber of Commerce has said that retirement savings is one benefit that has been difficult for a vast majority of America’ssmall-business owners to offer their employees. In fact, we estimate that about 80 percent of America’ssmall businesses don’t offer retirement savings options. (Investor’sBusiness Daily – Making Money in Mutuals, (4/10/96) The Pension Rights Center, an independent think tank, argues that personalized plans like 401(k)’s mostly benefit wealthier, more sophisticated workers who can put money aside and manage it. “We’re moving toward a do-it-yourself retirement system, and there’sno evidence whatsoever that it can do the job.” (Steven V. Roberts, US News and World Report (6/3/96) p. 33)
In response to higher payroll taxes, employers are looking to remunerate their employees in ways other than through wages. Less and less of what employers spend on their workers shows up in take-home pay. The Bureau of Labor Statistics has reported that real compensation, which includes benefits, has risen about 1 percent a year for the last five years, just about matching the growth in productivity. But real wages are up only one-fifth as much – a minuscule two-tenths of one percent a year. (David S. Broder, The Washington Post (5/12/96) p. C9) Currently in the US many successful companies have employee stock-ownership plans covering an estimated 15 million workers. At Coca-Cola, for instance, one-third of the workforce owns company stock…In 1994, around 9,500 companies with about 10 percent of the total workforce had an ESOP (Employee Stock Ownership Plan), and another 5,000 companies had other kinds of workforce-wide ownership programs, such as stock option plans. (NAM White Paper, p. 21) The US Commerce Department reported in April of 1996 that Disposable income per person – roughly what’sleft after paying taxes – rose by 2.4 percent, almost double the increase in 1994…Part of last year’sincome gains were due to large increases in corporate dividend payments, personal interest receipts, rental income and government benefit programs. Wages and employer benefits grew less rapidly than those sources. (John M. Berry, The Washington Post (4/26/96) p. F1)
The evidence shows that for most professions and jobs in the US employees who work for wages only are facing a tough go of things economically, and even face a tougher go of things upon retirement if they rely solely on Social Security to sustain them. Employees that receive wages plus other forms of remuneration, specifically access to programs that provide them stocks and bonds, are, in comparison, doing rather well, and face a comparatively brighter future. It is becoming increasingly difficult to make ends meet by simply working hard, collecting your paycheck and paying your taxes. In addition, those who are in their working prime now and will be retiring in the second and third decades of the 21st Century are likely to find it difficult, if not impossible, to live alone on the assistance provided by the government.
In order to achieve economic security and growth in personal wealth it is becoming increasingly clear that employees must have access to more than just wages. The National Association of Manufacturers’ President, Jerry Jasinowski, argues that corporations could do a better job of ësharing the wealth’ with all their workers by making greater use of profit sharing and stock options from the chairman right down to the person sweeping the shop floor. (Steven Pearlstein and Clay Chandler, The Washington Post (4/22/96) p.A7)