Gronbach: Aging Boomers Could Cause Tax Crisis
Between 50 and 60, our production begins to diminish
Tax revenues will drop like a stone when Generation X is expected to do the heavy lifting
Is shifting demography moving the United States closer and closer to a federal, state, and municipal tax crisis?
The Bureau of Labor Statistics makes it clear that the heavy lifting in both personal earnings and consumption in the US peaks in a bell-shaped curve right about age 50. That is when our consumer spending and earnings are at their height.
It would follow then that the Internal Revenue Service would depend heavily on folks 40-60 years-old. You might even narrow it down more to 45-55 years-old.
The same would follow for states that are dependant on sales and consumption taxes and local governments that get big revenue from big houses.
It is also interesting that the peak birth years for the huge Baby Boomer generation were 1957 through 1964, when US live birth numbers exceeded four million per year. This superimposes the very top of the Boomer birth bubble directly over the most productive tax-paying years in the age continuum at this writing.
You could consider it serendipitous that the current financial crisis occurred at exactly the time when we had a huge block of high-rolling Baby Boomer taxpayers to pay into the system and bail us out.
As the Baby Boomers age out of their premium tax paying years, Generation X ages in. Generation X was born 1965 to 1984 and is currently aged 26 to 45 years old. Generation X is 11 percent smaller than the Baby Boomers with about nine million fewer people. It simply does not have the critical mass to produce or consume at the level of the Baby Boomers and will not be able to pay taxes at the level of the Baby Boomers. Can you see where this is going?
There are stages in our lives when different things are expected of us and understanding what is expected of us is very important. When we are born, we are totally reliant on others. We eat a lot and produce nothing. If we were left alone we would die. We gradually become more and more self-reliant as we age.
In theory, at least, when we are in our twenties we begin to make our own way. We can provide for ourselves. What we eat is on par with what we produce. As we age through our thirties, we begin to produce more than we eat so we provide for others who are producing less than they eat. As we age through our forties, the dependence of others, both young and old, on our ability to produce a lot more than we eat becomes very great and peaks at age 50, when we are at the height of our producing.
Between 50 and 60, our production begins to diminish, as does the reliance of others on our ability to provide. Between 60 and 80, we tend to be self-reliant, meeting our own needs. After 80, the total dependence starts all over again. We can no longer effectively produce, but we still eat and require care.
This principal of reliance and provision can be found in families, cultures and countries throughout the world. It is a very old principal that dates back to early man. It is a natural balance. This principal is so powerful, it drives economies and provides health to nations.
So what does Generation X have to do with this principal? Generation X is small—owing in large part to the reduced fertility in the US between 1965 and 1984. It has about nine million fewer people in its ranks than the Baby Boomer Generation it follows and about 11 million fewer people then Generation Y right behind it. Generation X, now 26-45 years-old, is taking over the role of the "nation’s provider" and it can’t possibly succeed, because it doesn’t have the critical mass. As a nation, we will begin to feel this phenomenon intensify over the next ten years as we try to tax this generation to meet our needs.
Federal, state and local taxes will all suffer big-time. Democrats and Republicans will point fingers at each other for over spending, but the real issue is this: tax revenues will drop like a stone when Generation X is expected to do the heavy lifting.
So, are we headed for a tax crisis here in the United States? It looks that way. But wait, before you fall on a sword, there are a few bright demographic facts that could save the day.
One is the fact that most of the millions of Latino immigrants that poured into our country to fill the entry-level labor demand unmet by Generation X are about the same age as Generation X. If they advance socio-economically at an accelerated pace it could be problem solved.
In addition, according to Pew Research in a October 2009 study, the African American culture in the US has experienced unprecedented economic growth in recent years. Latinos and African Americans make up close to 30 percent of the total US population. Their collective contribution to state, federal and local taxes could be significant.
Lastly, Generation Y, born from 1985 to 2004, is beginning to flood the workforce and, because they are facing 50 percent unemployment, many are starting their own businesses out of necessity. Baby Boomers did the same thing in the 1970s. Small businesses are the building blocks for a healthy economy.
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Kenneth W. Gronbach is a demographer, a futurist and the author of The Age Curve: How to Profit From the Coming Demographic Storm. He is also the principal of the KCG Direct, a generational marketing firm in Haddam, CT.