Growing gaps in wealth, age raise long-term economic threat

Gordon L. Weil

How do you picture the typical American of the future?

A prosperous tech specialist, assured of a challenging and well-paid job in a thriving environment?

Or retired or nearing retirement, living on a tight budget in uncertain health?

Because of two widening gaps – between the wealthy and everybody else and the old and everybody else – the second alternative may turn out to be the more accurate vision of the future.

Maine may be one of the leading examples of at least one of those gaps, the one between a growing senior population and a declining population of young people.

It is the oldest state, based on median age. By next year, it will have more people over 65 than under 18. It is the first state to reach this point. The U.S. as a whole will get there by 2035. What's true for this country is also the case for developed economies around the world.

The reasons are obvious. With increased wealth, people have fewer children per family. Improved medical science helps extend life.

Historically, people had large families, with the younger generation able to support their parents when they aged and stopped working. With short life spans, the period during which such help was needed was relatively brief.

Support from children gradually gave way to employer pensions, Social Security and Medicare. These programs are financed by contributions from profits and taxes from a growing economy. Economic growth itself was driven by more people demanding more goods and services.

As the number of children per family approaches zero population growth – when people only replace themselves and not add to the total number of people – how does the population increase?

People in places where the economy was underdeveloped, forcing them to accept subsistence living, moved to places offering more freedom and opportunity and giving them hope for a better life. Massive immigrant populations moved within countries and among countries.

Large-scale immigration was eventually slowed by restrictive national legislation, aimed at cutting the flow. In the U.S., reduced immigration was offset by the post-World War II baby boom, whose effect is now disappearing.

The growth in the American economy and the country's leading role in the world economy led to greater prosperity. Federal taxation was used to promote economic development as well as to fund government programs designed to meet the needs of older people.

Even as high tax rates were lowered, opposition grew to government spending to ensure that seniors and low-income people could be helped to survive above subsistence levels. In the past three decades, taxes have been cut for the wealthiest end of the population, while workers continue to contribute to income support programs.

The gap between the most wealthy and everybody else has been justified on the basis of the claim that the rich will use their tax-shielded wealth to create new jobs. That theory works to a limited degree, but much of the tax savings goes simply to support the accumulation of increased wealth.

The income gap is a cause of increased political partisanship. While unemployment is now low, incomes have not grown to any significant degree. Because of the uneven rewards, thanks to the tax system, the rich get richer and the rest of the country gets frustrated. Tempers flare and both sides become more rigid.

With a stagnating work force, payroll taxes will not be enough to finance Social Security and Medicare. Wealthier taxpayers are reluctant to see their taxes increased to cover the inevitable shortfalls. Instead, many of them want even more tax cuts and less government.

They argue incorrectly that federal taxes are among the highest in the world. They provide no solutions to meeting the needs of lower-income workers and seniors with less government support. A mass economy like the U.S. cannot rely mainly on charity.

There are solutions. First, tax cutting must stop, especially for the wealthiest. Taxes, not more debt, should pay for what voters need and want .

Congress should adopt an immigration policy, allowing for more new Americans who can contribute to economic growth. The government can ensure that immigrants are capable of working and are not simply seeking public assistance.

Local centers should be developed for older Americans to obtain necessary support and dignity of life based on reasonable costs, pleasant surroundings and economies of scale.

Maine has already shown it can develop into such a center. But the national media reports that it lacks enough young workers to provide care services to the aging population. One obvious answer: immigrants.