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Baby Boomers’ Generational Robbery

Posted by Steve Markowitz on October 20, 2013

The Republican attempt to tie an extension of the government’s deficit spending to defunding Obamacare was a doomed strategy from the onset.  While more than 50% of Americans are concerned with aspects of Obamacare, most have no idea of the actual impact it will have on the economy or individuals.  With that they have much in common with the President and Congress.

The Country has been deficit spending for so long that Americans have become immune to claims it will damage the United States in.  Also, too many Americans are dependent on governmental programs and are therefore unwilling to accept cuts to them, which would be required to bring the deficit under control.

Obamacare will fail because it is based on unsound economics.  Republicans therefor wasted precious political capital on an unwinnable battle.  That took this lame effort on an attempt for political gain and lost.

Obamacare is but another Progressive governmental program designed to redistribute assets from some to others.  While camouflaged under the mantle of attempting to control health care costs, that is a red herring.  Obamacare places the government in charge of the medical services industry, which accounts for about 20% of the US economy.  Given the track record of failed and out-of-control government programs, Americans should understand where this one is heading.

Obamacare’s failure started right out of the gate with the sign-up and distribution website not working.  In a world where private industry transacts business on the Internet without a hitch, the government’s failure to set up a working website is a chilling reminder of its incompetence.

While the economic burden Obamacare will likely place on the Country will be problematic, it is not yet occurring or accrued in significant amounts.  Should the program quickly become problematic, as it likely will, it can be undone by legislation only wasting tens of billions of taxpayer funds.  That economic burden is dwarfed by the entitlement obligations already accrued and owed by America, mainly through Social Security and Medicare.

Blog reader Liz sent in an article from the Wall Street Journal titled “Stanley Druckenmiller: How Washington Really Redistributes Income that points to the coming generational battle to occur when those under 40 understand the economics of deficit spending.  While the handouts benefit many including younger Americans, a fact that helps perpetuate the deficit spending, those handouts are small when compared the entitlement programs that benefit the Baby Boomers and will not exist for future generations.

Stan Druckenmiller is a retired hedge fund manager worth just under $3 billion.  In retirement Druckenmiller tours college campuses throughout the United States preaching the reality of the generational robbing that benefits Baby Boomers, mainly through Medicare and Social Security entitlement programs at the expense of younger Americans.  These programs with undefended liabilities of over $60 trillion dwarf the still problematic $17 trillion US debt.

During his presentations at the colleges, Druckenmiller points out:

  • Even though worth nearly $3 billion, when Druckenmiller reaches 65 a five years, he will receive a monthly Social Security check of $3,500.  Seeing how ludicrous this is, Druckenmiller believes Social Security should be means tested so that wealthier people that do not require it did not receive the benefit.  The government, however, especially those on the Left, do not want to take this reasonable step since it would put a stake in the heart of the false narrative that Social Security is earned by workers paying into the system, and not the entitlement benefit it really is.
  • Druckenmiller points out that an American who is 65 years old today will receive on average net lifetime benefits of approximately $327,000.  However, an American-born today will suffer a net time loss of approximately $420,000 as they will have to pay the bills older Americans have run up for them.
  • During his college presentations, some older attendees have asked Druckenmiller why the obligations to them should not be fulfilled by raising federal taxes beyond historical norm of approximately 18.5% of GDP.  To that, Druckenmiller correctly responds:  “Oh, so you’ve paid 18.5% for your 40 years and now you want the next generation of workers to pay 30% to finance your largess?” and if 18.5% was “so immoral, why don’t you give back some of your ill-gotten gains of the last 40 years?
  • Similarly, Druckenmiller responds to suggestions concerning increasing payroll taxes saying: “Oh, I see.  So I get to pay a 12% payroll tax now until I’m 65 and then I don’t pay.   But the next generation – instead of me paying 15% or having my benefits slightly reduced – they’re going to pay 17% in 2033.  That’s why we’re waiting – so we can shift even more to the future than to now?

Druckenmiller goes beyond calling out Baby Boomers for self-centered behavior.  He also offers solutions that would benefit younger Americans at the expense of Boomers.  For example, Druckenmiller suggests raising capital gains’ and dividends’ taxes to ordinary income rates.  The logic behind this is that the current preferential treatment on capital gains and dividends disproportionately benefit older Americans, who have accumulated significantly more wealth, correctly stating:  “much wealthier than the working-age population.  So the guy who’s out there working – the plumber, the stockbroker, whatever he is – he’s paying the 40% rate and the coupon clippers who are not working anymore are paying a 20% rate.”

To offset the double taxation on dividends and capital gains after corporate profits, Druckenmiller would eliminate the federal corporate income tax.  This would naturally result in the elimination of the preferential tax code and crony capitalism so many companies take advantage of to the detriment of the greater society.  This reality would make special interests in both the Republican and Democratic parties cringe.  It would also be fought by those in Congress whose careers are aided by doling out tax treats to special interest groups in return for votes and money.

Republicans often preach for fiscal conservatism.  Unfortunately policies promoted by the Party often do not walk the talk.  When George W. Bush was president and Republicans controlled both houses of Congress, they spent like drunken sailors.  Since losing power their attacks on spending have been politically motivated and have not addressed the major spending issues that include entitlement spending.  The Tea Party has been an attempt by some conservative and more libertarian-type Republicans to change the fundamental focus of the Party towards fiscal responsive behavior.  However, the media has painted the Tea Party movement as being radical.  Some mainstream Republicans have helped promote this narrative.  Yes, bringing the country’s out-of-control spending back to economic reality will require radical change.

Barack Obama became a rock star in American politics by creating strong bonds with two key constituents.  One group promotes the redistribution of wealth in the Country, many of which receive benefits from entitlement programs.  It is unlikely that there is anything Republicans can do to break this bond that is dependent on an unholy relationship between benefits receivers and a Party that buys their votes by promising even more benefits.

The second group Obama has bonded well with are younger Americans who see the President as hip and offering supposedly no-cost solutions to America’s growing economic problems.  This group is being had.  The Progressive policies of not only Barack Obama, but also some of his predecessors, has been very damaging to younger Americans.  Those that have recently graduated college are stuck with huge student debt and poor job prospects.  They are also stuck with America’s ever-increasing deficit and undefended entitlement liabilities.  Should Druckenmiller and others be successful in framing the narrative to this reality, the political wins in the Country would shift rapidly.  At the same time it will create significance stress between the generations as each fights for a larger piece of what is a finite pie.


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