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Robbing Us Blind

Gen X gets mugged by the elderly

Ada grinned for the television camera as she explained to the reporter why she couldn't afford to pay for her prescription drugs every month. I was more interested in what the reporter didn't ask the elderly woman -- how she managed to pay for the large-screen TV, VCR and blinking cable box clearly visible over her shoulder.Not that it matters. From here on out, what Ada wants, Ada gets. Though most of the members of Generations X and Y hardly noticed it, a watershed event has just occurred in our lives. In a bid to win re-election in 2004, the president and the US Congress just dealt a crushing blow to our already strained financial future. They just committed us to subsidize prescription drugs for an entire generation of people that far outnumbers us in population, an aging group of Americans who didn't spend their careers paying into a prescription drug benefit program which we'll now be paying to provide them. And because they outnumber us, there's not much we can do about it at the ballot box.

There was a reason that the Bush Administration only projected the cost of the $400 billion Medicare prescription drug benefit program out 10 years. Year 10 is the year the baby boomer generation begins to retire. At that point, the program's costs, along with those of Social Security, Medicare and Medicaid, will begin to spiral out of control as the system -- which will go broke before the members of Generations X and Y retire -- begins a long downward spiral to insolvency.

According to federal population estimates, in 15 years, there will be twice the number of retirees we have today and only 15 percent more workers to pay for their Social Security and Medicare -- and now their Medicare drug benefit, the largest new government entitlement created in 40 years.

The president and much of the US House and Senate ran for office last time on promises of saving Social Security from ruin (which alone would require a 38 percent payroll tax hike if we started today, according to a study by Boston University professor Laurence Kotlikoff and Jagadeesh Gokhale of the Federal Reserve Bank of Cleveland). Instead, in their zeal to court elderly voters they need to win the upcoming election, they've not only ignored the Social Security problem, but have added another ticking time bomb to the backbreaking debt our generation will carry. And keep in mind that this will be in addition to the $1.5 trillion in additional national debt the government is forecasting over the next 10 years.

Before we reach retirement, your average middle class Gen X or Y family will pay out more than a quarter of its income just for Social Security and Medicare according to the study by Kotlikoff and Gokhale, which was conducted before the prescription drug plan was passed. Add in state and local taxes and you have the future middle class family paying more than half its income in taxes.

When contemplating the true cost of the Medicare drug benefit, keep in mind that the actual cost of Social Security in 1990 was seven times higher than original federal estimates for that year. And as the ink dries on the versions of the drug benefit plan passed by the House and the Senate, members of Congress are already referring to the plan, which only covers the cost of a quarter of all prescription drugs for America's seniors, as a "down payment" and a "first installment."

Perhaps the most frustrating thing about all this is that even if young people were to start voting in large numbers, we'd be so outnumbered by senior voters that our opinion won't make much difference to politicians of the future. Ada and the AARP will win every time. But what they'll win won't be exactly what they imagined.

Paying for these programs won't just deal a blow to the members of our generation, but to the economy itself. At the sort of tax rates it will take to prop up the baby boom generation in retirement, the very sort of economic stagnation that we now scoff at in France and Eastern Europe will take root in the US, choking business investment and expansion and job creation. It will drastically affect our ability to invest, save, pay for a college education for our children or contemplate our own retirement, which, at the rate we're going, we'll have to navigate without Social Security. Goods and services will cost more to provide and thus to buy. In this sort of economy, seniors' golden years won't exactly be golden.

Given that the federal government has seen this situation coming since 1983, when "how to save Social Security" was first debated, the odds that anyone is going to seriously address this problem with 10 to 15 years left to go are pretty slim.

That leaves young workers with only one option: if you plan to retire, if you'd like to own your home someday, you have 10 to 15 years to save as much money as you can before they lower the boom.

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