June 9, 2014

Rising inequality from passing the tax burden onto future generations

An overlooked cause of the rising inequality levels over the past 35 to 40 years is the unwillingness of earners to pay enough in taxes to cover the current disbursement of government goodies, which leads to them being paid for with borrowed money. They kick the can on down the road for future earners to deal with — only by then, the can will have grown into an oil drum, full of napalm. Heads up, dudes!

This is nothing more than the earlier generation extracting wealth from the later generation. The early one escapes having to pay much in taxes, while the later one must pay down the debt accrued by the early one in addition to funding current goodies. Did the later one have a say when the early one made the decision to pass the buck? Of course not — they weren't even born yet. It's the most shameless kind of "externality."

If the parasitic generation plays its cards right, they can become the beneficiaries of so many goodies once they're no longer current earners. So when the Boomers either retire or stop working a normal load, they'll start collecting Social Security and Medicare. But it won't be the Boomers themselves who are paying for that mountain of prescription drugs. It'll be yet another extraction of wealth from the Gen X and Millennial earners — this time transferring funds in real time, on top of the delayed effect of passing the buck.

For this article on sponging Boomers, The Economist included the chart below as a succinct reminder of how dramatically the generations differ in how much they'll be getting out of the tax-and-spend system, compared to what they'll have put in. It cannot be reduced to a chart based on age, since you can bet that, by retirement time, Gen X won't be enjoying the level of goodies that the Boomers have since they were young. Millennials can expect even less.


Will this kicking-the-can behavior ever end? Will anybody ever be willing to jump on the grenade to save the future generations of our society?

I've found some data from the General Social Survey which suggest that Gen X and the Millennials are qualitatively different from the Boomers, Silents, and Greatest Gen members, who are for their part remarkably like each other in kicking the can. For the first time in perhaps 100 years, we have a group that hasn't made howling about taxes their main political concern (even more amazing when you consider what today's taxes go to, compared to the '50s or '60s).

As the Scrooge McDucks die off, the majority of the country will be made up of folks who see taxes as like the collection plate that they pass around in church, or paying your dues with the labor union or other civic organization. Nobody likes to part with their hard-earned cash, but maybe someone else needs some of it more than you do. And maybe there are goods and services too expensive for one person or household to buy, which require pooling resources across a much wider base.

I realize this sounds like the first day of civics class, but in our status-striving climate, all we normally think about is "what's in it for me?" rather than how our individual choices affect the rest of society.

Soon I'll begin a series of posts with graphs showing the generational divide across a range of political and economic topics. The first will be attitudes toward one's own tax rate (complaining vs. accepting), and the second will be attitudes toward labor unions ("boo" vs. "meh"). Followed by whatever else I find.

For now, the key thing to bear in mind is how generationally structured the rising-inequality trend has been — and hence, how it will be when the shit hits the fan before inequality can begin to fall. I wouldn't be surprised if the upcoming civil war (or whatever it turns out to be) has an explicit faultline drawn between generations, given how aware both sides are about the role of, say, Medicare in sending the debt burden off into another galaxy.

10 comments:

  1. So you finally agree with the Millenials about something!

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  2. So we're going to be governed by a generation of people who don't go to church and don't join civic organizations, but look at taxes as similar to putting money in the offering at church or paying their dues? Because government is the one thing we all do together, as someone once said? So all those pay-as-you-go social programs really were a Trojan horse for communism (in the bowling-alone re-working, with death panels instead of gulags, maybe) all along. Funny, that.

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  3. most Millenials are too young to be paying much in taxes. if they start earning money they will resent paying 50% of their earnings in taxes.

    Since so few Millenials are working , and most who have jobs have low incomes, they are not effected by our high tax rates. Millenials have also been indoctrinated in the schools , having been educated by leftists boomers in universities where dissent from the status quo is no longer an option.

    Another factor, Boomers were 90% white.
    The Millenials are just 60% white, and a huge number of Millenials are first generation Americans compared to the Baby Boomers and Gen X.

    If Millenials ever decide to get married and have children they will start caring about taxes more and more.

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  4. I've restricted the data to whites only, and it doesn't alter the big picture if you limit it to those working a certain number of hours or earning a certain level of income.

    Remember that the Boomers were once young enough to not be working that much or earning that much. But they have been howling about high tax rates since they were in their 20s.

    Gen X and Millennials have started out and are staying at a much lower level of complaining about taxes.

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  5. Racial demographics are more like 80% white for Boomers and 65% for Millennials.

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  6. "So you finally agree with the Millenials about something!"

    Politics makes strange bedfellows. The Boomers have always viewed the Silents and Greatest Gen as squares (don't trust anyone over 30), yet they're utterly identical when it comes to wanting the government to live beyond its means (goodies now, taxes later).

    I was surprised how conscious the Millennials are in their hatred of Boomers. It seems to be mostly based on this political-economic split, not the social-cultural split (where the Millennials are lame and Boomers are, or at least were, cool).

    In the comment thread for one of the articles I looked at (maybe that one from The Economist), one of them says they're going to get revenge through Operation Snooki -- living at home and spending their parents' money, if the older generations won't move aside in the workforce, and have shouldered the young with so much public debt (and private debt when you factor in student loans).

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  7. Just had a quick look at the GSS tax question, on whether federal income tax rates are too high or too low. (tax variable = row, year = column and the control = age).

    There is a pattern where if we look at the age 20-30 bracket in each era, the people who were 20-30 in the 70s complain more about the tax rate being too high, compared to the modern era.

    However, the pattern has the same shape and about the same magnitude looking at 70-80 year olds.

    If you look at cohort and whether tax is too high or low (tax variable = row, cohort = column), you do see a clear pattern where the Silent and Boomer cohorts tend more to view taxes as too high.

    But this seems like it might be a function of the years in which the question was asked. And different tax conditions, media etc.

    The trend on the opinion of the tax rate by age for 1970 – 1980 and 1990 – 2000 have more or less the same basic shape. (tax = row, age = column , filter [years]).

    I think agnostic's analysis should be more in depth, so that might uncover a trend.

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  8. A.B. Prosper6/9/14, 4:20 PM

    I don't think you can make a useful assessment of anything on a national scale while ignoring non Whites and their impact on culture even when income adjusted as you wisely did.

    As for taxes as collection plate, I think not. Leftist indoctrination aside, the bulk of the population is from low trust, low social capital (outside of familial) arrangements. Even the White people are naturally taking in those views though church Whites (Mormons, Quiverfull types) certainly will take their own churches into consideration

    I suspect it will be a very tax phobic society going forward and ignoring the possibilities of civil wars and such there is a decent chance of simple default of the debt either by inflating the currency or just refusing to pay, especially as other powers put the squeeze on the US as primary exchange currency.

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  9. I thought tax rates were much higher in the 50s/60s. I also recall Bryan Caplan arguing against the Self Interested Voter Hypothesis by pointing out that the elderly are less in favor than the young of Social Security/Medicare.

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