* 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 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
"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
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
"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
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
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:
"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
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
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
"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)