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How the Fiscal Cliff Battle Is Really Just a Battle of Demographics How the Fiscal Cliff Battle Is Really Just a Battle of Demographics

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Economy

How the Fiscal Cliff Battle Is Really Just a Battle of Demographics

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President Barack Obama, accompanied by House Speaker John Boehner of Ohio, speaking to reporters on Nov. 16, 2012.(AP Photo/Carolyn Kaster)

Washington’s battle over the fiscal cliff is best understood as a confrontation not only between Democrats and Republicans, but also as an early skirmish in what could be a decades-long struggle for resources and influence between the Brown and the Gray.

That’s a phrase I’ve coined, drawing on the work of demographer William Frey, to describe the two giant generations that will dominate American life in the coming decades. The Brown is centered on the racially diverse Millennial Generation (generally defined as young people born between 1982 and 2002) and the even more kaleidoscopic cohort (sometimes called The Homeland Generation) born after them. The Gray is centered on the preponderantly white baby boom generation moving into retirement, plus the older Silent Generation that is already there.

 

Over two-fifths of the Millennial Generation are non-white, and the Census Bureau recently projected that a majority of Americans younger than 18 will be non-white around 2018. Meanwhile, because the US largely banned immigration between 1924 and 1965, about four-fifths of today’s seniors are white and experts like Frey expect that number to drop only slowly in the decades ahead. In an America that is simultaneously diversifying and aging—browning and graying—these are the two generations at the cutting edge of the change.

Politically they are on a collision course. Polls show the Brown generally believe they need public investment, particularly in education and health care, to move themselves and their children into the middle class; meanwhile the Gray has grown increasingly skeptical of the taxes needed to support such programs and dubious of public spending on anything except the Social Security and Medicare programs that directly benefit them. In 2012, President Obama won three-fifths of voters aged 18 to 29 (and an even greater share of non-white young people) while about three-fifths of both white seniors and whites near retirement backed Mitt Romney. In the exit polls conducted on Election Day, three-fifths of voters over 65 said government is doing too much; three-fifths of voters under 30 said it isn’t doing enough.

Although it is rarely discussed, the debate over balancing the federal government’s books directly pits the interests of these two groups against each other. At the core of many of the choices Washington faces in resolving both the immediate fiscal cliff and its longer-term budget challenge are questions of generational fairness.

 

The best way to understand the generational implications of budget choices is to consider them over a lifetime. To borrow from the common conservative terminology, all Americans evolve from takers to makers and then back again over the course of their life. “Early on, we are all takers,” notes Robertson Williams, a senior fellow at the Tax Policy Center. “We go through school and we are being supported by the public education system, and then grants and loans for college. Middle-age we tend to subsidize everybody else [through taxes]. At retirement we tend to draw it back out. Either end of your life you are a taker, middle of your life you are a maker.”

Measured against that scale, the baby boom has lived a charmed life. It benefited from expanding public investment when it was young (from the interstate highway system to expansions of the great state public university systems); participated in voting itself declining taxes during its working years (the top marginal income tax rate fell from 91% when the first boomers entered the workforce to 35% today); and enjoyed increasingly generous entitlement programs for retirement (offset partly by the decline of guaranteed private pensions).

The Millennial Generation has been dealt a much tougher hand. It has matured in an era largely of stagnant or declining public investment, and it faces the prospect of both higher taxes during its working years (to support entitlements for a senior population expected to double by around 2040) and a retrenchment of those same benefits by the time it retires. The resolution of the fiscal cliff, and the longer term budget challenge, will either compound or blunt that inescapable inequity.

Three dynamics will shape that verdict. The first is how much debt America’s adults will leave to their children. Public debt can benefit the next generation if it is directed into investments that make them more productive. But much of our public debt now is being accumulated to finance current consumption (in different ways, both retirement benefits for today’s seniors and the war in Afghanistan fit that description); that squeezes the opportunities available for future generations by requiring them to divert more of their tax dollars to paying interest costs on the debts they inherit. The Congressional Budget Office projects that without any intervention, federal interest payments will double as a share of the economy over the next decade or so. So a threshold requirement of any fiscal deal that aspires to generational fairness is to reduce the amount of debt we require future generations to shoulder. “Doing nothing is bad for kids; the current baseline we’re living under is going to be squeezing children out of the budget,” notes Julia Isaacs, a scholar at the Urban Institute, who studies generational patterns in public spending.

 

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