April 18, 2014

Generational equity and the ‘Next America’

In the week since we published The Next America data essay, a few critics have portrayed our report as an effort to foment a “generational war” over Social Security and Medicare. Let me respond.

While the essay (and companion book) is mainly about the sweeping demographic changes now underway in America, it also addresses the financial burdens that those entitlement programs will place on future generations as our population ages.

Is this an effort to start a Battle of the Ages? I certainly hope not. To the contrary, one of the goals of the essay and book is to highlight the trove of demographic and attitudinal research my colleagues and I have conducted which show that young and old in America aren’t spoiling for a generational war – not over entitlements, nor any other realm of their increasingly interdependent lives. For example:

  • When Pew Research asked a nationally-representative sample of adults last year if they see a lot of conflict between young and old, just 29% said they did. Many more respondents said they perceive group conflict between blacks and whites (39%); immigrants and the native born (55%);  rich and poor (58%); and Democrats and Republicans (81%).
  • One of the likely explanations for that relatively low level of generational tension comes from another Pew Research finding: More than 50 million Americans, a record, are living under the same roof in multi-generational family households, their fortunes braided together by the bonds of love and the stress of economic insecurity.
  • Yet another recent Pew Research survey found that today’s young adults get along better with their parents than older adults did when they were young. And when we asked adults of all ages which generation has the better moral values, young or old, about three-quarters of the young said the old. (The old agreed). It’s hard to imagine the Baby Boomers saying the same back when their coming-of-age rallying cry was: “Never trust anyone over 30.”

These good vibrations across the generations are notable because they flourish at a time when young and old in America don’t look, vote or think alike.

Today’s young, the 18-to-34 year olds known as Millennials, are the most racially diverse generation in American history; more than four in 10 are non-white. They’re also the most Democratic-voting generation to come onto the scene in the four decades since the voting age was lowered to 18.

By contrast, today’s seniors, about eight in ten of whom are white, tilt heavily Republican. As a result, the partisan differences by age among voters in the elections of 2008 and 2012 were the largest in the modern era.

Today’s young also have the unhappy distinction of being the first generation in modern history to have a lower standard of living than their parents’ generation had at the same stage of the life cycle. Despite collecting more college diplomas than any generation in history, Millennials lag behind their same-aged counterparts of yesteryear on virtually all key indicators of economic well-being – including employment, income, wealth, debt and poverty. Half a century ago, the old were by far the poorest age group in America. Today it is the young.

In addition to documenting these trends, the essay and book point out the financial stresses that Social Security and Medicare will face as 10,000 Baby Boomers turn 65 every single day between now and 2030. By the time all in that famously large pig-in-a-python generation have crossed the threshold into old age, Social Security will only be able to pay 77% of promised benefits, according to the 2013 report from the system’s two public trustees, Democrat Robert D. Reischauer and Republican Charles P. Blahous III.

As they put it: “This information highlights the importance, from an equity perspective, of enacting a solution promptly enough so that more generations contribute to correcting the program’s financing shortfall.”

There are several reasons for the solvency problems of Social Security and Medicare. One is the simple, unsparing arithmetic of longer life spans and lower birth rates, which inevitably leads to fewer workers supporting more retirees. Another is the runaway cost of health care, which for decades has been rising at a rate well above inflation. And a third is the financing structure of Social Security, which is largely “pay-as-you-go” rather than “pre-funded.”

That’s not what Franklin Delano Roosevelt had in mind when he created Social Security in 1935. He favored a pre-funded financing structure – in which the payroll taxes paid by workers would be saved by the government and returned to them in the form of a pension, much the way private sector pension plans operate. But with the economy still mired in the Great Depression, and with poverty still rampant among the elderly, Congress was eager to get Social Security benefits flowing out more quickly to recipients. Through a series of amendments in the late 1930s and early 1940s, it converted Social Security to a largely pay-as-you-go system, in which payments to current beneficiaries come from taxes on current workers.

That change produced windfalls for the first few generations of recipients, who collectively have received many trillions of dollars more in benefits than they paid in taxes.  Now, however, as the system has matured, as life spans have grown longer and as birth rates have declined,  Social Security’s own actuaries and trustees say that, absent changes to the program, today’s and tomorrow’s young stand to get back much less in less in benefits than they’ll pay in taxes.

And they know it. According to a Pew Research survey taken earlier this year, just 6% of Millennials say they expect to receive full Social Security benefits when they retire. Fully half say they expect to get  nothing at all.

Even so, Social Security and Medicare remain the nation’s most popular domestic programs. Nearly nine in 10 Americans of all generations say they are good for the country.  Understandably so: Without them, about four in ten seniors would be poor. Because of them, only about one in 10 is poor. This is a blessing not just for the seniors, but for everyone who loves, supports and depends on seniors – which is to say, everyone.

They are also the purest expression in public policy of the idea that as Americans, we are a community, all in this together. But the math that sustained these programs in the 20th century will not work in the 21st.  The longer elected officials put off making the hard fixes – be they in the form of benefit trims, tax increases or both – the deeper the hole becomes and the more “the burdens of correcting the shortfall [will land] on the younger workers who already stand to be treated less favorably,” write Blahous and Reischauer.

Does this mean a generational war? Let’s hope not. We live at a time when there are large generational differences on many political issues, but Social Security and Medicare have not become a source of conflict between old and young, even though they have some different views about how the program should be reformed.

As the fiscal stresses on these programs mount, it’s possible this will change. But if Americans of all ages can bring to the public square the same genius for generational interdependence they bring to their family lives, the politics of entitlement reform will be less toxic and the policy choices less daunting. That’s a big if. It’s also the most promising way to frame the conversation.

Topics: Demographics, Entitlements, Generations and Age, Millennials, Wealth

  1. Photo of Paul Taylor

    is Executive Vice President of the Pew Research Center.

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3 Comments

  1. Sean2 months ago

    Have you updated your 2010 statistical analysis behing Millennials, portrait of generation next?

    Reply
  2. charles baker7 months ago

    How do I buy Taylor’s recentbook “Next America”?

    Reply