We have all heard the argument that the deficit and the spending being done by Obama and the Dems will make our children’s children suffer and have to be taxed to pay off the deficit that is slowing creeping upward. Conservatives like to call it “generational theft”.
In an article written for tom paine.common sense:
Nancy Folbre, a professor of economics at the University of Massachusetts Amherst, makes the point in an April 2009 article for The New York Times: “Borrowing creates assets as well as liabilities—and future generations will inherit both. It’s the relationship between assets and liabilities that matters most.”
Conservatives often argue from a “generational accounting” frame that says what we spend today our kids and grandkids will pay for tomorrow, but does not argue that the public works projects, health care reforms, education investments, clean energy research and development, and community development initiatives we do today are inherited as well. “Generational accounting typically ignores the value of the government services children will receive as well as the important non-market assets they will inherit,” Folbre writes. “The president’s proposed budget features investments in health, education and environmental sustainability that promise important future benefits.”
Generational accounting is a method of national accounting for measuring redistribution of lifetime tax burdens across generations from social insurance, including social security and social health insurance.
It goes beyond conventional government budget measures, such the national debt and budget deficits, by accounting for projected lifetime taxes per capita net of transfers, which may not be reflected in a pay-as-you-go system of social-insurance accounting.
The latter includes only current taxes for retirees less current outlays. Uses include projecting future taxes and outlays from different prospective current policies. For example, if a fall in labor-force growth from an earlier fall in the birth rate is projected to increase the proportion of retirees to the labor force, generational accounting might examine different projected changes in taxes or program benefits to finance the change. (thanx to Wiki)
Everybody is , especially on the Right, saying that the grown deficit is a form of theft, generational theft. But is it? There are deficit neutral ways of spending that are NOT a form of theft.
the deficit might be cut in equal amounts by decreasing transfer payments across-the-board or by imposing an income tax surcharge. The surcharge would be paid disproportionately by younger generations earning income, whereas the decrease in transfer payments would be borne primarily (in present value terms) by older people receiving social security, medicare, and medicaid. This illustrates how the budget can redistribute income among generations without changing the deficit or the government’s capital expenditures.
My point is that the whole idea of generational whatever is a political tool….there is NO way to really judge the effects of the deficit because it will change yearly, if not monthly. I pass this on to my readers so when they hear the crap being spread about the future generations and the concern….they caqn look at the debate and think of what it really is….CRAP!
Why do I say this? An easy one to answer!
- Generational accounting is difficult to understand.
- The estimates of taxes and transfer by age depend on limited data and theoretical assumptions on which there is no consensus.
- The future budget projections depend on economic, demographic, and policy assumptions that are uncertain and controversial.
- Generational accounting does not consider general equilibrium feedback effects. In particular, it does not include the effect of current deficits on capital accumulation and therefore on future income.
- The right discount rate to calculate present values is uncertain and controversial.
- Generational accounts have only been constructed for the consolidated Federal, state, and local sectors, so responsibility for the fiscal outcome is diffuse.
- Generational accounting does not assign any benefits to the public from the government purchasing goods and services in order to provide education, highways, national defense, and other services. This is due to the difficulty in making imputations. However, government purchases comprise one-quarter of Federal spending and three-quarters of state and local spending. Because the benefits of this spending are important, the “net tax” is not a true fiscal burden. These benefits can have a major effect on the distribution of economic well-being by generation. Different programs affect different generations differently (e.g, education compared to veterans medical care); and some government expenditures are investments whose benefits occur over many years (e.g., office buildings, aircraft carriers, highway grants, R&D, and education).
Hopefully I need not go any further with the lesson for today.