The Economic Deck is Stacked Against You. Here’s why.
Young Americans are right to be discouraged by an economy that is rigged against them.
From the antiquated Social Security system to the high cost of higher education to the recently improved tax code, a variety of federal policies are jeopardizing millennials’ economic prospects. But there are ways to address these challenges that will benefit the millennial generation and the country at large.
Social Security is rigged against young people
When Social Security was established in 1935, the average U.S. life expectancy was 62 and about one-fourth of all employed Americans worked in agriculture. There were no individual retirement accounts, no 401(k) plans, and pension plans were rare for the working class. For the most part, only the truly well-off had any retirement savings to speak of.
In short, the world was a vastly different place when the idea of what Franklin Roosevelt called “protection … against poverty-ridden old age,” funded by payroll taxes, was conceived at the height of the Great Depression.
Early on it worked OK because there were about 160 workers for every retiree. Today there are fewer than three workers per retiree, and those workers (and their employers) pay a 12.4 percent tax to fund the system – for many millennials, a much larger bite than federal income taxes take.
The typical millennial will pay close to $400,000 into Social Security during her working life. Is that $400,000 worth it? A 2014 poll found only 6 percent of millennials believe they will see as much of a return as current retirees. And their skepticism is well-founded.
The federal debt exceeds $20 trillion. Somebody will have to pay that money back eventually, and that means higher taxes and fewer benefits for people who will be on the hook when the bills come due.
Along with Medicare, another program that transfers wealth from working-class millennials to the better-off elderly, Social Security is a main driver of that debt. It now costs more than $1 trillion a year, accounting for nearly one-fourth of every dollar the federal government spends. And not one penny of that money is subject to regular consideration by Congress. It’s all mandatory spending, not a part of the regular appropriations process.
While current retirees and those on the cusp should be protected, Social Security needs to be modernized to reflect both the changing demographics of the country and to recognize the ways in which technology and the tax code have altered the retirement landscape.
That includes scaling back benefits for the wealthiest retirees so that benefits go to the neediest instead of to the affluent, who already benefit the most from IRAs, 401(k)s and the modern investment economy. That would save enough money so that we can even increase benefits for seniors who would otherwise be in poverty and still fix the program’s finances.
Taking these steps to protect the economy of the present is the best way to save Social Security for the future.
The high cost of higher ed
Multiple factors have contributed to the skyrocketing costs of a college education. Two of the most egregious are a rigged accreditation system and federal funding that allows colleges to increase costs without accountability. And those two causes are intertwined.
To become accredited, educational institutions must receive the blessing of a regional or national accreditation agency. These agencies are approved by the U.S. Department of Education and are made up of members of degree-issuing higher education institutions. This system discourages competition and limits the choices available to students who rely on federal aid.
As more students are forced to rely on such aid, the problem of affordability worsens.
When colleges and universities know that federal and state governments will continue subsidizing tuition costs, they have no incentive to reduce those costs. Quite the contrary. The National Bureau of Economic Research found that low-interest student loans actually contributed to the rise in college tuition from 1987 to 2010.
Federal student aid fuels tuition inflation by allowing schools to increase costs while encouraging states to restrain higher-education appropriations.
Since 1980, federal Pell Grants increased from $2.5 billion to more than $30 billion in 2015. Meanwhile, the cost of college also jumped—by more than 500 percent from 1985 to 2013. That’s compared with an overall inflation rate of 121 percent and medical inflation of 286 percent over the same period.
What this system needs is competition. State governments should be empowered to create accrediting entities that compete with the national and regional bodies that are beholden to member universities and allow the U.S. Department of Education to call all the shots. Online courses, apprenticeships, trade certification programs and a cornucopia of other choices should be eligible for accreditation if they meet standards set by the state.
Paying for corporate welfare
The tax reform measure enacted at the end of 2017 made giant strides in the right direction as far as reducing the tax burden on hardworking Americans. But while the new law includes some elements of simplification, the tax code remains rife with corporate welfare.
Over time, the tax code has become a case study in cronyism, pitting the well-connected against just about everyone else – including young people. According to a number of studies and economic indicators, young people are having a harder time securing good-paying jobs and purchasing a home.
In the mid-1980s, the tax code had 26,000 pages. That number is nearly three times higher today, largely because of the exponential growth in deductions, credits, and subsidies for special interests.
According to one estimate, Congress had made close to 6,000 changes to the code since 2001 alone, even before the 2017 reform became law. To cite just one particularly egregious example, stadium subsidies are a handout to billionaire owners that force taxpayers to cover the costs of new stadiums. Most of the benefits accrue to the owners. Whatever incremental gains are to be had in the tourism or entertainment sectors don’t come close to covering what the public pays to make it happen.
Young adults already struggling to get a rung up on the economic ladder should not have to foot the bill for billionaire owners of sports teams, or any other billionaire business owners, who enjoy taxpayer subsidies that promise prosperity but often deliver little in return.
Congress and the president should build on the success of the 2017 tax reform by looking for more corporate welfare to root out of the tax code, the budget and federal regulations.
That’s the surest way to economic prosperity for the young workers, innovators and entrepreneurs who don’t have the connections to win special favors. A system that gives all young Americans a fair shot is all we need and all we’re asking for.