FEATURE-Age wars in the era of U.S. austerity

Fri Apr 8, 2011 1:00am EDT

Related Topics

* Current budget fight a prelude to bigger battle

* Who pays, today's generations or tomorrow's?

* Lessons from the latest recession

By Emily Kaiser

WASHINGTON, April 8 (Reuters) - Rob Dugger sees the U.S. budget battle as a civil conflict as monumental as the Revolutionary and Civil wars.

Instead of colonists against the British, or the North against the South, this fight will pit old versus young, rich versus poor.

"Budgets express commitments citizens have made to each other over many decades -- who gets what, and who pays for it, covering everything from safe milk to national defense," said Dugger, the founder of Hanover Investment Group.

"There's injustice in deficits, which enable some families to live well now, but which impose burdens on other families and on children and future Americans," said the former policy director for the American Bankers Association.

This year's congressional tussle over how to trim the 2011 budget is just the opening act in what could be years of fiscal fighting as the United States struggles to stop spending beyond its means.

The numbers are well known. The 76 million baby boomers born after World War Two are hitting retirement age and claiming healthcare and pension entitlements that will swamp an already overburdened federal budget.

The latest recession pushed the government deeper into debt and provided a bitter taste of what is to come when lawmakers must choose between keeping promises to the old or the young.

The International Monetary Fund has described the U.S. fiscal structure as "severely inequitable across generations," saddling those yet to be born with an unfair share of today's financial burden.

"Future generations are expected to subsidize the entirety of current generations' huge fiscal shortfall," IMF researchers concluded in a working paper.

COMPETING WITH ADULTS

The recent financial crisis exposed some of those generational strains. Lost housing and stock market wealth forced many older workers to rethink their financial security. Some delayed retirement or accepted entry-level jobs usually taken by young people.

The 15 percent unemployment rate for 20- to 24-year-olds in March was more than double the rate for those over age 55, according to Labor Department data.

Kerry Owings knows those numbers well. He runs the Westside Youth Opportunity Community Center in inner-city Baltimore, which helps young people find work.

"When you look at some of jobs that our kids would normally enter the labor market in -- McDonald's, Home Depot, Wal-Mart -- they're competing with adults," he said.

When the paying jobs dry up, Owings turns to internships. His agency pays the first three months of wages and hopes employers will offer full-time jobs after that. Sometimes they do; sometimes they don't.

Among the luckier ones is Brian Goode. He has been interning at Baltimore's Department of Transportation, repairing small motors. The 21-year-old wants to be a chiropractor but doesn't yet have the education.

Samira Gardner, a 20-year-old intern who handles invoices and billing at the DOT, dreams of becoming a nurse and maybe living in Paris one day.

What weighs on Owings are the hundreds of young people he had to turn away when his agency's funding was cut last year.

The money comes from the city, not the federal government, but it is an example of the sorts of choices the United States must make. How do you divide a finite number of dollars without jeopardizing the health and well-being of older retirees or denying the dreams of the young?

NEVER WORKING AGAIN

Older workers fared better in the latest recession, but those who lost their jobs faced lengthy unemployment. Fewer than one in four workers aged 50 or older who lost their jobs during the worst of the downturn found work within 12 months. That was much worse than the re-employment rate for younger workers, according to the Urban Institute.

"Those who lose their jobs in their late 50s and beyond face the real prospect of never working again," said Richard Johnson, who directs the Urban Institute's program on retirement policy.

That adds to the long-term strain on budgets. Social Security paid out more than it collected in taxes last year, in part because more workers were forced into retirement earlier than they had planned.

In addition, older unemployed people who lose healthcare coverage may put off preventive care or delay costly surgery until they are old enough for Medicare, straining its resources.

Susan Sipprelle has spent the past year chronicling how unemployment affects those in their 50s and beyond.

Sipprelle, 52, started a video project after seeing how the recession affected fellow baby boomers who thought their retirement was secure. (You can see her interviews here: www.overfiftyandoutofwork.com/)

"We were really amazed to see how many people thought they were set for life," she said. "I can't tell you how many times that phrase comes up in an interview, 'I thought I was set for life.'"

MENU OF PAIN

A survey by the Employee Benefit Research Institute found 27 percent of Americans were not at all confident they would have enough money for a comfortable retirement, the highest share in the survey's 21-year history.

That's not an ideal backdrop for a U.S. budget battle centered on retiree benefits.

Two proposals from Congress, one from President Barack Obama's deficit commission and the other from Republicans, call for raising eligibility ages for full benefits.

Both envision phasing in changes over many years so workers have time to prepare, but regardless of how the changes are structured, there will be winners and losers.

The IMF working paper on U.S. fiscal strains offered a "menu of pain" on how to close the fiscal gap.

The government could immediately restore fiscal balance by raising all taxes and cutting all benefits by 35 percent in both cases, immediately and for the indefinite future, it said. That is a drastic move that no elected leader is likely to countenance.

Were the United States to repeal the tax cuts implemented under President George W. Bush and curb healthcare spending as envisioned under Obama's healthcare reform, it would still have to raise taxes and cut spending by 26 percent.

If nothing happens, future Americans will face net tax rates that are about 21.5 percentage points higher than those for newborns now, the paper concluded.

JUST RAISE RETIREMENT AGE?

Even the seemingly easy budget fixes will be hard.

On paper, raising the retirement age looks like a no-brainer. Americans are living longer, so staying in the workforce a couple more years would ease the fiscal strain.

That may not be much of a burden for white-collar workers, but what about those with physically demanding jobs? Should they be exempted, and where do you draw the line? Coal miners? Factory workers? Bricklayers?

"According to my Social Security statement, they want me to work until 72 and a half," said Joe Price, 51, a third-generation West Virginia steel worker interviewed by Sipprelle.

"I'm not working a day past 62. I don't know if I'm going to live two years from now, (after) what I've been though. I want to enjoy life a little bit." (Editing by Dan Grebler)

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