Hey Boomers, Give Thanks To the Millennials We're Like Totally Ripping Off!
The cost of today's and tomorrow's lavish public pensions and entitlements will be borne by younger Americans.
How bad are baby boomers—who rightly rebelled against their parents' repressive ways—ripping off millennials, i.e., The Next Big Thing in American Culture?
Over at The Daily Caller, Mark Tapscott does the math (and it's not that fancy "New Math" that some of us were taught a million years ago, either):
More than half of the nation's 25 most generous state and local public pension systems received Ds when graded by the non-profit government watchdog Truth In Accounting (TIA) on their ability to pay promised benefits to a rising flood of Baby Boomer retirees.
That's very bad news for millennials because unfunded pension benefits often mean higher taxes for productive workers. Millennials who are now moving up career ladders and earning higher incomes make up the biggest portion of the taxable workforce now and will represent 75 percent of it by 2030 when the tail end of the Boomer generation is entering retirement.
I write not simply as the parent of one millennial and another whatever-the-next-gen-is-being-called and as a late-era baby boomer born in 1963. The public-sector pension problems discussed by Tapscott and TIA are of course dwarfed by similar dynamics undergirding the nation's primary old-age entitlements, Medicare and Social Security. There are plenty of reasons to be pissed off about these programs, but here are four (using numbers from 2014):
Some of these numbers have changed a bit in the past couple of years, but as with the public-sector pensions, they still add up to a world of hurt for younger, poorer Americans who are getting robbed systematically to maintain older, wealthier people's standards of living. It's well past time to shift from Bismarckian entitlement systems in general and away from age-based welfare systems. Our society should provide a social safety net for Americans who cannot take of themselves regardless of age (we do some of this) and we should help people who are knocked down get back on their feet. This is all copacetic with a limited-government, libertarian worldview. We should not be robbing Peter, Jr. to pay Paul, Sr. and we don't need to be (go here for ways to end generational warfare waged via federal entitlements).
And we also don't need to break the budgets of states and municipalities via public-sector pensions, either. Earlier this year, the research arm of Reason Foundation (the nonprofit that publishes this website), helped inspire legislative action in Arizona that protects both pensioners and, more important, future taxpayers in the Grand Canyon State. It's a model that can be widely copied and implemented, too.
From a summary of what it does:
- Cost of living increases (COLA) will be based on the consumer price index for Phoenix and capped at 2 percent and will be pre-funded (which is currently not happening).
- New hires will be able to choose between defined contribution plan (like a 401(k)-style savings plan) or a hybrid defined benefit plan rather than the traditional pension system.
- New hires will have the salary cap for pension calculations reduced from $265,000 to 110,000 per year, seriously limiting incentives for finding ways to "spike" pensions with bonuses or unused vacation time to jack up what retiring employees will be receiving.
- The eligibility age for new hires will be increased from 52.5 to 55.
- New employees will have to pay 50 percent of plan costs if the plan doesn't meet return assumptions.
- Employers (that is to say, the government) will be forbidden from having "pension holidays," where they stop paying into pension funds when they are overperforming (which then turns into a crisis when pensions later underperform).
- The Reason Foundation calculates savings of $1.5 billion over 30 years and a reduction of retirement costs for new employees by 20 to 43 percent.
- Financial risks borne by the taxpayers should be cut in half, and the accrual of new debt for pension liabilities should be reduced by a third.
In 2015, Reason TV laid out "3 Reasons To Cut Public Pensions NOW!":