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Future Prosperity Depends on New Contract’ for Kids

President Barack Obama plans to tackle, one by one, the biggest problems threatening America’s future prosperity, but he needs to fashion nothing less than “a new social contract between the generations.—

[IMGCAP(1)]That means, said Brookings Institution scholar Isabel Sawhill, gradually shifting the balance of federal spending from seniors to children to enable them to support both themselves and their elders in the future.

Investments in young people are necessary, she said, because, as a United Nations study found in 2007, American children rank 17th out of 21 major countries in material well-being, 21st in health, 12th in education and 18th in overall well-being.

The percentage of children who are overweight has risen from 6 percent to 18 percent in the past 30 years; reading levels of 17-year-olds are stagnant; a third of all kids fail to graduate from high school; and the proportion of children born outside marriage has tripled since 1970.

Sawhill is one of my favorite moderate-to-liberal budget experts and also co-director of Brookings’ Center on Children and Families.

Besides social deficits, she said, youngsters face an enormous burden of paying the retirement costs of their elders.

If changes aren’t made in current budget allocations, within 30 years just three entitlement programs primarily serving seniors — Medicare, Medicaid and Social Security — will rise from 8 percent of gross domestic product to 20 percent, eating up the entire federal budget.

To pay the cost, Sawhill said at a Brookings gathering last week, people in the lowest current tax bracket, who now pay 10 percent of their income, would have to pay 26 percent.

Those in the current 25 percent bracket would have to pay 66 percent, and those in the top bracket, currently paying 35 percent, would go to 92 percent.

It’s a burden that is, as the saying goes, “unsustainable,— but the longer an adjustment gets put off, the more difficult it will be to accomplish.

“The politics of this are terrible,— she said, with AARP likely to oppose any shift in priorities, even though current retirees wouldn’t be affected. Baby boomers would have to forgo some of the benefits promised them.

Last year, the Urban Institute and the New America Foundation estimated that the federal government spent 2.6 percent of gross national product on programs benefiting young people and 7.9 percent on the three big entitlement programs.

Sawhill used graphs in her presentation suggesting that, by 2042, the spending ratio for seniors over children will rise from 3-to-1 to 5-to-1.

Investing in children now — through health programs and early-childhood and other education programs — will make future adults more productive and enable the country to pay for retirement programs and the rest of its government services, she said.

And the burden needs to be lightened, she said, through reforms of Social Security, health care and the tax system.

The Obama administration plans to address all those issues one by one, yielding to Congressional leaders in rejecting the notion of a bipartisan commission to tackle all of them.

Sawhill recommended, for Social Security, a combination of raising the retirement age, encouraging people to work longer, means-testing benefits, mandating additional savings for retirement and raising the cap on payroll taxes.

She praised House Majority Leader Steny Hoyer (D-Md.) for “courageously— proposing an early attack on entitlement reform, but noted that Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) oppose it.

She generally supported the outlines of Obama health care reforms, including universal coverage, guaranteed access to insurance, subsidies to pay premiums based on income, efficiency and quality improvements and a revision of the provider payment system based on keeping people healthy rather than simply performing procedures.

Still, she said, to the extent that these measures can’t pay for all the health care Americans want, the administration should consider a revenue source such as a value-added tax to make up the shortfall.

The administration is heavily relying on cost-cutting promises made by various elements of the health industry — insurance companies, doctors, pharmaceutical companies and hospitals — to save up to $2 trillion over the next decade.

But Sawhill said she thought the stakeholder’s offer was merely “nice … just a pledge,— and said she was “skeptical that it was anything beyond politics.—

“The likely scenario,— she said, “is that we’ll expand coverage but we won’t contain costs.— Her doubts are shared by Senate Budget Chairman Kent Conrad (D-N.D.), who says he fears “we’ll just cover more people and it will cost more. I pray I’m wrong.—

The administration is not even considering some ideas proposed by Republicans to save money, such as giving health consumers an incentive to be cost-conscious, limiting awards in medical malpractice cases and means-testing Medicare.

Besides government policy, Sawhill said, there’s a need for more responsible parenting in America to restore the “success sequence— whereby young people “graduate, work, marry and then have children.—

“Right now,— she said, “the sequence is all scrambled,— and failure to adhere to it is “the new defining variable in American life.—

Among persons who complete high school, work full time, wait until age 21 and marry before having children, only 2 percent are poor. Among those who fail to adhere to any of the norms, 76 percent are poor.

As she noted, all recent presidents have tried to promote family responsibility by using their “bully pulpit— and said Obama has been doing so, as well.

But the major item for government, she said, is to “gradually shift resources from older Americans to younger ones. It’s not generational warfare. You’re changing when in life you get the biggest benefits.— It’s a debate-reframing idea.

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