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The Millennial Files



Kirt Sechooler Jan, 1996

NEWS ITEM: May 23, 1992, with the national debt already at some 4 trillion dollars, and with the annual interest payments alone 10 times what the federal government spent on education for the young, Lee Iacocca told a graduating class at John Hopkins University, "My generation did something to yours that was never done to us or to any other generation. We didn’t pay our debts."

On the surface, the 1994 rout of the Democratic Party in the House and Senate elections looked as if it was simply a matter of the GOP defeating a tired Democratic Congressional establishment. And while this was certainly part of what happened, there was much more to the story. Over the course of the last two and a half decades, American politics has been essentially defined by a divided form of government, in which Republicans have held the White House and Democrats have controlled Congress. The breakdown of this pattern, caused by the GOP’s congressional victory last November, marks the beginning of a brand new cycle in American political history. What is truly remarkable, however, is that even as we enter into this new cycle, there is still no general understanding of the new era that will dominate the rest of our lives.

Generational Politics
In order to understand the new political era that we have now entered, it is essential to see the underlying demographic realities upon which this new cycle rests. The Republicans who ran and defeated incumbent Democrats in the House of Representatives were primarily members of the generation born after the Second World War had ended - the Boomers. The defeated Democrats were mostly members of the Silent Generation - the generation made up of individuals born during the twenty-year period beginning in the mid-1920s and ending toward the end of World War Two. The Silent Generation Democrats themselves had come to Congressional power twenty years earlier in the wake of the Watergate scandals, when they replaced members of the still older G.I. Generation in Congress.

Divided Government: GIs and Silents
The divided government of the past two decades has not been do to a whim on the part of the American people, nor a caprice of history. Rather, the secret reality of the past twenty years is that divided government has been the political manifestation of a tacit alliance between members of the two older cohort group - the G.I.s and the Silents, in which members of the G.I. Generation have controlled the Presidency and Silent Generation cohorts have dominated Congress, especially the House of Representatives. The fact that two political parties have been involved in this alliance has obscured the generational nature of the era. Nevertheless, the truth is that the last twenty years have been overwhelmingly dominated by the political and economic agendas set by these two older cohort groups.

Indexing Social Security
The impact on American politics of this generational agenda can be seen in a wide variety of areas, none more important or far reaching, however, then in the areas of Social Security and taxation. To begin to see this, one has only to remember one of the first things that the Democratic Silents did upon coming to power in the 1970’s was to index Social Security to the cost of living. This action was hardly abhorrent to members of the G.I. Generation who were then either retired or contemplating retirement. In fact, until it failed them in 1994, Social Security was the single most important issue that Democratic members of the Silent Generation had going for them in maintaining their twenty year domination of Congress.

We Are Spending Our Children's Inheritance
What Has Posterity Ever Done For Me?

- Bumper stickers from the 1980s

The Reagan Years
The generational effect on taxes goes back two decades, when after an unsuccessful experiment with undivided government during the Carter Administration, Ronald Reagan was elected President. Reagan was both a G.I. and a Republican, and the Reagan Administration itself represented a watershed in generational politics. By Reagan’s election in 1980 it was clear that the cost of living adjustment to Social Security mandated by Congress would bankrupt the Social Security system if nothing was done about it. Acting upon the recommendations of a commission headed by Allan Greenspan, now head of the Federal Reserve System, Congress enacted a series of monumentally steep increases in the Social Security payroll tax. In addition, Ronald Reagan carried out his campaign pledge to cut the top brackets of the regular income tax.

Generational Winners
The tax laws enacted in the 1970’s and early 1980’s had an enormous impact on the entire U.S. economy. Think for a moment, the G.I. Generation was born in the years between 1905 and 1925 with the median year being 1915. If you were born in 1915 you would have reached 65 years of age in 1980. By then your Social Security benefits would have been tied to the cost of living by a Democratically controlled Congress; your regular income tax rate on your pension, rental income and interest and dividend income would have been dramatically cut at the urging of a Republican President, and as a retiree you would have incurred no increase in your Social Security tax because your pension benefits, rental income and dividend and interest income were not subject to that tax in the first place. For a member of the G.I. Generation, divided government was the best of all possible forms of government.

For the Silents, junior partners in the alliance with the G.I.s, things were only slightly less good. Members of the Silent Generation were entering their peak earning years around 1980 so that the dramatic reductions in regular income tax rates came at a perfect time for their generation. And since Social Security taxes stopped once you reached a certain income limit, the increases in Social Security tax rates were more then offset by cuts in the regular tax rates.

Generational Losers
The Boomers and later the X Generation members did not do nearly as well as a result of the seventies and early eighties legislation. Except for a handful of older Boomers, the increases in Social Security taxes foisted upon them more than cancelled out any benefits from a decrease in marginal income tax rates. Those increases in Social Security taxes were among the steepest increases in any tax in history. For example, in 1955 the maximum employee Social Security tax was fifty six dollars a year, by 1995 that maximum has risen to almost $3,800 plus an additional amount for Medicare.

In order to fully comprehend just how steep this increase was, one has only to realize that had the median income of the mid-1950s of $5,000 increased at the same rate that Social Security taxes increased, the average family would today be earning approximately $339,000 per year. The effect on Generation X members of those unprecedented increases in Social Security taxes can be seen by the fact that a vast majority of the members of that generation now actually pay more in Social Security taxes then in regular income tax.

Generationally Regressive Tax Policies
In essence the changes in Social Security and tax law effected in the 1970’s and 80’s can be best comprehended by understanding two essential and interrelated concepts of taxation -- progressive taxation and regressive taxation. A progressive tax structure is one in which, as you earn more, each additional increase in income is subject to a progressively higher rate of tax. A regressive tax structure is one in which the less you make the higher the percentage of your income that goes to taxes.

Now, when viewed from a generational standpoint, those changes in regular and Social Security taxes enacted in the period in question moved America from the progressive tax structure that had been in place for over four generations to a highly regressive one. The progressive tax structure that was replaced in the 1970s and 1980s existed throughout the early adulthood of both the G.I. and the Silent Generations, and it was one of the chief reasons why those two generations enjoyed the prosperity they did. And no matter what anyone tells you, the generationally regressive tax policies of the Federal government represents one of the key reasons why younger Americans not only feel less well off then their parents, but are, in fact, actually doing less well than previous generations have done.

The Republican Dilemma
This brings us back to the current dilemma confronting the Republican Party. Today’s budget crisis is only the opening move of a advancing, great political battle. Beyond the exploding costs of Social Security and Medicare benefits themselves (the two prime forces driving the Federal budget crisis) is the issue of the highly regressive generational tax policies of the Federal government. The 1994 Congressional elections were just the beginning of the rise to power of the Boomer and X Generations. For the Republican Party to emerge as the majority party in this country, it will have to lead the nation in a reordering of the entire generational agenda set in the 1970’s and early 80’s. No political party can retain its control of power unless it comes to terms with the new demographic configuration now emerging. If the Republicans cannot do this, their grip on power will prove as tenuous as the Democrat’s. mmm

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