Boomers, Let's Face It: The Math Doesn't Work

 

Triage means sacrifices will have to be made and distributed to those most able to afford them to spare those least able to afford them.

There are many consequential things we can't discuss factually because the topic upsets everyone. And since getting upset shuts down any direct discussion of difficult issues, these issues metastasize into problems that end up sinking the ship.

The Titanic has already struck the iceberg and is doomed, but since this upsets the passengers, we dance around the facts rather than take immediate action. Everything about the situation is upsetting, and so emotions dominate the zeitgeist: resentments, blame-game, accusations, the whole self-reinforcing dynamic leads to people shouting at others as they drown. The last word, indeed.

Federal deficit spending and the overweighting of entitlement spending on retirees is too upsetting to discuss factually, so we don't. But the math doesn't work, and so the ship will sink.

Let's start with some necessary stipulations. When I suggest well-off Boomers accept the need to make sacrifices to save the ship from sinking, I suggest this as someone in this cohort.

I am a Boomer, drawing my Social Security benefit, which like my lifetime income, is close to the national median SSA benefit. I'm solidly in the middle of the pack. Being over the age of 65, I also have Medicare benefits. Like many others of my generation, I've lived frugally, saved money, worked hard, etc. Since I'm still working, I pay Social Security and Medicare taxes - 15.3% of all earned income as I am self-employed.

Unlike others in my generation, I attribute only a modest percentage of my net worth to frugality and working hard, as the majority of whatever "wealth" I own is the direct result of the hyper-financialization credit-asset bubble that's been inflated since 2007.

Those who were able to buy assets such as houses and stocks decades ago saw their net worth rise to extraordinary heights in the bubble. Those who didn't or couldn't buy assets before the bubble did not see their net worth rise to extraordinary heights.

Let's go over how we got here. The current federal tax system and retiree benefits evolved in the 1930s to the mid-1960s. In the 1930s, retirement meant poverty for many workers who were unable to save a nestegg large enough to fund their no-earnings years. Social Security was enacted as a way of using the SSA (Social Security Administration) taxes (FICA to employers) paid by current workers (1% of wages in those days) to fund a modest retirement income for retirees.

Social Security was always a pay as you go system. Whatever SSA tax revenues that weren't distributed piled up in a Trust Fund. This Trust Fund was eliminated in the mid-1960s, and excess SSA taxes went into the federal general fund. The current Trust Fund is a useful fiction. When SSA runs a deficit, the Treasury funds the deficit by selling Treasury bonds, just as it does with all other deficit spending.

Political realities demanded that the program be universal to attract widespread support. So millionaires collect Social Security and Medicare benefits, too. As SSA's financial foundations erode, a modest reform was enacted: above a modest income, 50% of SSA benefits are taxed as regular income.

Back when the program was enacted, there were around 10 workers for every retiree. The demographics and economy were different then. The economy was mostly domestic, and the bubble of the 1920s had popped. Financialization and globalization were at low ebb. Everyone assumed there would always be 10 workers for every retiree.

But people started living longer, the disabled were added to Social Security, and Medicare ballooned from a modest program to an open-ended spending juggernaut. In other words, the economy changed, demographics changed, but the system has not been changed to reflect these realities. SSA and Medicare taxes have increased dramatically, but these programs are still funded by payroll taxes paid by employees and employers.

Capital (assets, income from capital gains, speculation and investments) only pays a thin slice of Medicare via the Net Investment Income Tax (NIIT) on capital gains incomes above $200,000 for single taxpayers and above $250,000 for couples filing jointly.

What we're actually discussing isn't just generational; it's 1) the open-ended nature of the SSA, Medicare and Medicaid programs, 2) the impossibility of relying on two workers to pay all the benefits for each retiree as the number of retirees and beneficiaries exceeds 69 million people while the full-time workforce is 135 million, and 3) the extraordinary wealth divide in the U.S. where the majority of the wealth is held by the top few percent and the retiree generation (Boomers) for the reasons stated above.

The solutions are as obvious as plugging a hole in the ship's hull.

1) The tax burden has to be shifted from labor to capital via financial transaction taxes and ending the multi-trillion dollar exclusions on capital gains.

2) Social Security and Medicare benefits must be means tested; those collecting $10,000 a month in other pensions and investment income don't need Social Security benefits, which should be reserved for those with no other substantive source of steady income in their retirement years.

3) The open-ended entitlement programs must be limited in some fashion, and there is no way to do this that will not upset everyone. Hard choices--triage--must be made, as doing nothing is choosing to let the ship sink.

The passengers on the Titanic arguing with each other can't stop the ship from sinking by "winning the argument." Silencing those willing to discuss the issues factually doesn't actually make the factual realities go away.

Those of us who run businesses/are self-employed don't have the luxury of not dealing with financial realities. Triage comes with every enterprise. We need a national discussion of triage that doesn't immediately degrade into denial or histrionics. And no, AI and stable coins aren't going to make all this go away, any more than hoping the Central Bank of Mars will emerge to give us a 36 trillion-quatloo bailout.

Boomers - and Gen X, Millennials, Gen Z - let's face it: THE MATH DOESN'T WORK. Triage means sacrifices will have to be made and distributed to those most able to afford them to spare those least able to afford them. The ship is not just taking on water; it's loaded with third rails and sacred cows that can't be touched, and so it's doomed to sink if we do nothing.

by Charles Hugh Smith at oftwominds.com on May 20, 2025