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Notwithstanding all the attention being paid to our nation’s current budget surplus, the U.S. fiscal position is grave. Unless policies are changed and changed soon, future American generations can expect to pay 50 cents of every dollar they earn to local, state, and federal governments in net taxes (taxes paid net of transfer payments received). This 50 percent lifetime net tax rate is roughly 70 percent larger than the rate current workers are slated to pay over their lifetimes.

This estimated imbalance in U.S. generational policy emerges from the latest U.S. generational accounting prepared by Gokhale, Page, and Sturrock (1998). Their study incorporates recent changes in fiscal policy, recent demographic projections, recent forecasts of government spending, and recent projections of expenditures on social insurance programs, including Social Security, Medicare, and Medicaid.

Although the current imbalance in U.S. generational policy is huge, it’s much smaller than that estimated three years ago by Auerbach, Gokhale, and Kotlikoff (1995) and Congressional Budget Office (1995). In those studies, the lifetime net tax rate confronting future generations was roughly 80 percent. The dramatic reduction in the imbalance in generational policy reflects both changes in policies and revisions in projections of the amounts U.S. governments will receive and spend under existing policy. financing