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64 IRET Policy Bulletin 1 (1994)

handle is hein.taxfoundation/iretpbul0023 and id is 1 raw text is: November 7, 1994 F No. 64 PAY-AS-YOU-GO ENTITLEMENTS, THE BABY-BOOM, AND THE FEDERAL BUDGET - FACING UP TO REALITY The United States is in a deepening fiscal crisis that the much hyped budget agreements of 1990 and 1993 have done little to avert. In order to secure the vital vote of Sen. Robert Kerrey (D-Neb.) for the 1993 budget, the administration and congressional leadership had to agree to the creation of a bipartisan commission to study the problem of entitlements growth. That commission has been collecting the facts (which are discussed below), but so far has failed to recognize the clear implications of the coming retirement of the baby-boom generation. Demographically, it will simply be impossible to pay for that population's health care and retirement with a pay-as-you-go system. Instead, the commission seems to be trying to preserve pay-as-you-go through tax increases and benefit cuts in a futile effort to chase demographically driven cost increases. In fact, the baby-boom generation cannot be retired under Social Security without ruinous economic consequences unless the Social Security System is converted to a true saving system. . the baby-boom generation cannot be retired under Social Security without ruinous economic consequences unless the Social Security System is converted to a trute saving system. The most serious consequence of pay-as-you-go financing has been its effect in driving down private saving and increasing consumption. Net private saving has been falling for more than a decade, and last year was only 2.7% of gross domestic product (GDP). This is down from 8% only 30 years ago. The decline in private saving has closely paralleled the sharp increases in payroll taxes necessary to continue pay-as-you-go financing of Social Security. Institute for IRET is a non-profit, tax exempt 501(c)3 economic policy research and educational Research organization devoted to informing the public about policies that will promote on the economic growth and efficient operation of the market economy. Economics of 1730 K Street, N.W., Suite 910 * Washington, D.C. 20006 Taxation (202) 463-1400 * Fax (202) 463-6199 e Internet www.iret.org